Financial Journey Articles
Approaching Retirement - Your Future Healthcare Needs Are the Great Unknown
While the costs of living in retirement can generally be determined by gauging the expenses associated with your preferred lifestyle, the one great unknown that defies accurate assessment is the cost of your future healthcare.
What is important is to plan ahead to make sure you have the financial resources and the insurance protection to cover your healthcare needs, whatever they may turn out to be. Otherwise, an unexpected diagnosis or the development of a chronic medical condition could decimate your nest egg.
Medicare Limitations
If you are realistic about your health, factor in your family history and consider various studies of retirees' healthcare needs, you may be able to make a more intelligent guess as to how much you'll need.
A study by Hewitt Associates in 2004 suggested retirees may spend up to 20% of their retirement funds on healthcare. The percentage may be less if you are covered by an employer-sponsored health insurance plan past age 65 - but only about one quarter of retirees have that coverage, according to the Employee Benefit Research Institute.
If you rely on Medicare, you can expect it to cover only about half of your medical expenses. It will not pay for routine physical examines, routine eye care, regular dental care, copayments or deductibles, although the program now offers prescription drug coverage, for a monthly premium, through private insurers. Medicare has regularly been tinkered with by Congress since it began in 1965, so the value of the program will depend on what it offers when you need to rely on it.
Healthcare Inflation
Despite Medicare, Americans aged 65 and over spent on average $3,757 for healthcare expenses in 2003, the Urban Institute estimated. An individual who retires at 65 and lives to 80 may need $137,000 for healthcare expenses, according to the Employee Benefit Research Institute - much more if you live beyond 80. Healthcare cost inflation has been running at about 7% annually, much higher than general inflation of about 3% a year. However, no two health situations are the same, and costs can vary widely according to where you live.
If you rely on Medicare, you may want Medigap insurance. Ten standard plans - the higher the premium, the greater the coverage - fill in the "gaps" in Medicare's hospitalization and medical expense coverage. Some policies also cover prescription drugs, deductibles and at-home care or coinsurance for care in a nursing facility. The premiums will be your responsibility.
If you would like to discuss how your unique healthcare coverage needs mesh with your financial planning for retirement, please give me a call.
Material prepared by Raymond James for use by its financial advisors.
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