Why Plan for Retirement Health Care Costs?

Because millions are entering the Medicare system every year, retirees are going to have to pay more money for fewer benefits and purchase supplemental coverage to fill in the gaps.  Financial and health-related stability in retirement, a luxury enjoyed by most Americans since the passing of Medicare in 1965, will be replaced by the need for all citizens to place health care costs at the forefront of their retirement planning.

Why Health Care is a Primary Retirement Concern

 Most people have little understanding about the long-term financial impact of health care costs.  A recent study of over 4,000 individuals conducted by The Empower Institute and Brightwork Partners found that only 12% of working Americans have taken any steps toward addressing medical expenses in retirement, and more than half admitted to knowing virtually nothing about costs related to Medicare.1

Here are four hard realities that make rising health care costs the single greatest issue facing retirees:

  • Medicare is not free. There are premiums, coverage gaps, co-pays, long-term care, and a host of other variables that chip away at household budgets.
  • The double-edged sword of longevity means that Americans are living longer, but as a consequence, they are also more likely to outlive their retirement savings.
  • Health care inflation is increasing at more than twice the rate of Social Security COLAs.
  • Medicare means testing will have a significant long-term impact on Medicare costs.

 Basic Projections

Here’s are some brief examples of how future health care costs will impact retirees:

According to the most recent HealthView data, a 65-year-old Ohio couple retiring today and living to age 87 can expect to pay almost $490,000 in health-related costs throughout retirement.  This is for a healthy couple with earning the minimum before income penalties are levied, residing in a state that represents the national average for Medicare costs.

Back up one decade.  If that couple is 55 now, when they retire in 10 years, they can expect to pay over $847,000 for the same coverage.

These are not outrageous projections, but actuarially backed calculations based on premium increases, inflation, benefit reductions, and a host of other variables.

Still question whether you should help clients plan for health care costs in retirement?


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