Budgeting For Health Care in Retirement:
If you’re like most Americans, after housing and transportation expenditures, one of your biggest retirement expenses is likely to be health care. But unlike the generation before you, you probably won’t have access to retiree health benefits provided by employers or unions. As a result, you should prepare for the possibility that healthcare expenses will account for a bigger amount of your retirement budget.
This growing problem with retirement healthcare costs has a lot of causes. People are generally living longer, health care costs continue to rise faster than overall inflation, and the typical retirement age in the United States is 62, which is three years before you can sign up for Medicare. According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple aged 65 in 2022 may need approximately $315,000 saved (after tax) to cover health care expenses in retirement.
For one thing, health care expenses are doled out throughout time, think of it as your cable bill; if you pay $250 a month for cable and premium channels, that will total $75,000 throughout a 25-year retirement, that’s a pretty daunting number, but since you pay it in monthly installments, it’s manageable.
Two strategies retirees should consider addressing budgeting for health care:
This first is to shop and compare Medicare health plans each year during open enrollment. To help with this assessment, keep a running tab of your out-of-pocket expenses each year. Then compare your total spent on Medicare premiums and out-of-pocket costs each year with different coverage options.
A second strategy to help budget for retiree health care is to fund a savings account with enough money to pay out-of-pocket expenses for the year, based on prior year spending. Then, replenish this account each year from other funding sources. If you are fortunate, some years you may only need to “top off” that savings vehicle.
The bottom line, you must make sure you are budgeting for these expenses in retirement. While most individuals focus on paying off the mortgage before retirement, very few know that the cost of health care in retirement may be equal to or greater than your mortgage payment.
Not sure how to get started? Contact us or schedule a free consultation to get in touch with one of our Financial Advisors to talk about your retirement future!
This material is provided for informational purposes only. Opinions expressed herein are solely those of Thrive. None of the information contained in this document is intended to offer personalized investment advice and does not constitute an offer to sell or solicit any offer to buy a security or any insurance product and is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. The information contained herein has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Thrive.
