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Have You Considered the Cost of Healthcare in Retirement?

Have You Considered the Cost of Healthcare in Retirement?

November 16, 2021

Have you set a target retirement date yet? Or, are you still evaluating your options? Either way, it is likely that you will continue to reevaluate your budget even after you retire! That’s because the costs of various goods and services will change, and sometimes those changes will be unpredictable.

But we do know that healthcare tends to be one of the more significant items within a retiree’s budget. Some will spend even more on healthcare than they do on housing! And we also know that in recent years, the cost of healthcare has skyrocketed. But how much have prices risen? And will they continue along the same trajectory?

Currently, according to research from Fidelity, an average couple who retired in 2019 could expect to spend about $285,000 out of pocket on healthcare over the course of their retirement years. Single women will spend about $150,000, and single men will spend about $135,000.

Of course, these figures are just averages; some people will spend less than that, while others spend significantly more. If you’re in good health, eat a healthy diet and exercise regularly, you might expect that your expenditure on healthcare could fall lower than the average. On the other hand, just one bad injury can quickly change the picture!

But more importantly, why are out-of-pocket expenses so high, when we have the Medicare system to provide for healthcare costs? You might be surprised to learn that Medicare works similarly to most other healthcare plans. It doesn’t actually pay for 100 percent of your medical bills and prescription medications.

There are some steps you can take to prepare for these expenses, however. Start saving money in a health savings account now, and you can use pre-tax dollars toward your healthcare bills. If you don’t use all of the money in the account each year, you can roll it over - all the way into retirement!

You should also shop around for different Medicare plans before you retire. A Medicare Advantage plan rolls Medicare Parts A and B into one convenient plan that operates within a network. Advantage plans often include Part D (prescription) coverage as well.

And finally, consult with us regularly both before and after retirement. As things change, we can help you to adjust your budget and retirement plan withdrawal strategy.