Rising Health Care Costs and the Impact on Soon-to-Be Retirees

by Julie Virta, CFP®, CFA, CTFA | Originally posted on Kiplinger

Over the past few months, Americans’ concern over inflation has steadily increased. A Gallup poll coordinated in March noted that 17% of Americans believe the high cost of living and inflation is a significant problem, up from just 8% in January. For individuals who may be nearing retirement, there are planning considerations to be mindful of as prices continue to rise – most notable, given the significant cost to retirees, is health care.

While inflation may result in higher prescription and medical supply prices in the short term, health care costs typically outpace inflation over the long term, regardless of market conditions. This means soon-to-be retirees need to be forward-thinking and include health care costs in their broader financial plan.

Estimate costs

According to a model Vanguard developed with Mercer Health, even with Medicare, average health care costs can reach over $5,000 per year. In my work with clients, I typically focus on health care planning when an individual or couple is five to 10 years outside of expected retirement. This advanced planning can enable someone to develop a thoughtful approach to preparing for — and ultimately paying for, future health care costs.

A few years before retirement, start thinking about retirement timeline logistics. For example, if an individual is planning to retire at 62 but won’t be eligible for Medicare until 65, they’ll need to determine how they’ll cover health expenses for three years. For some, they might consider joining their partner’s health insurance plan (if the partner is not retiring at the same time), going with COBRA or finding a short-term insurance plan to cover the gap. Otherwise, it might mean tapping liquid assets or an HSA to pay for health care expenses before Medicare coverage kicks in.