Brace Yourself for High Health Care Costs in Retirement

When planning for retirement, there is often little focus on the detailed costs. Rather, many people simply guesstimate how much money they will need to continue paying for their daily lives and base their contribution rates off that. Unfortunately, one cost is often left out of the planning process, and it can easily be one of the biggest ones you will face.

Retirement Health Care

Health care costs in retirement can be staggeringly high, with a recent study placing them at around $220,000 for the average couple.

This may be shocking to some, but that estimate already assumes you are eligible for Medicare and doesn’t include any costs covered by that program. That estimate also doesn’t include expenses like over the counter medications, some dental care, and the biggest cost of all, long term care.

Long term care is typically the expense that causes the most financial stress among retirees, especially those who haven’t adequately prepared for it. No one wants to consider themselves in poor health, but doing so can help you be ahead of the game when it comes to saving for retirement. The majority of people understand that health care costs are a big obstacle to overcome, and 84% of adults surveyed in a recent Fidelity study said they are worried about being able to pay for their health care costs in retirement.

Unrealistic Optimism

The study also found that most  people tend to be optimistic, sometimes naively so, when it comes to their future health. Of course not every one will end up spending $220,000 for health care costs in their retirement years; some will spend more and some will spend less. Accurately addressing your own risk, though, can help you determine how much you might need.

Unfortunately, most people think they will be better off in old age than the rest of retirees. 71% of survey respondents say their health will be “better than average” in retirement. There is often a sense of invincibility when it comes to future health. People either don’t want to consider the fact that they may ever need care for health problems or truly believe their good health will last forever. Either way, that can be a dangerous perspective in terms of retirement planning.

Nearly half of adults aged 55-64 who were interviewed for the survey said they expect their total health care costs to be around $50,000 for retirement. Again, $220,000 doesn’t apply to every one, but $50,000 is an extremely low number, especially if that’s all those workers plan to save. Inflation also plays a huge role in the cost of health care, and not preparing for the impact that inflation has can come with some big risks of being underprepared and faced with a huge surprise later down the road if they ever need long term care, which even now averages more than $50,000 for a single year of care for one person.

Planning for the Price of Care

Establishing a plan to save for these costs is vital to being prepared when the time comes. Setting aside that much money in cash assets for health care alone is difficult for many people, which is where Long Term Care Insurance may be able to help. Long Term Care Insurance provides coverage for health care costs associated with long term care and these days, most good policies cover care whether it is received in a nursing home, assisted living facility, or from a home health aide.

Rather than set aside $220,000 in cash assets to prepare for health care costs, investing in a Long Term Care Insurance policy and transferring the risk can help you avoid having to accumulate that much wealth for that one cost. If you opt for the Inflation Protection benefit, which we recommend every one do, the value of your benefits will grow in pace with inflation, so you won’t have to worry about how costs have risen years later when you need care.

It’s crucial to look into policies when you are younger, in your 40s or 50s, rather than waiting until your 60s or 70s. You will have a much better chance of medically qualifying then and your rates will also be substantially less. Just be sure you work with an independent agent who helps you compare different carriers and finds the plan that works best for your needs.

If you are interested in learning more about Long Term Care Insurance, we offer no-cost personalized quote comparisons of the top rated carriers in the industry to help you get a better idea of how much benefits cost. Simply fill out this form and we will be in touch with you shortly.

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