Retirement and Health Care Costs: What You Need to Know
by John Rampton | Originally posted on NASDAQ
Every retiree or anyone who is in the process of retiring is concerned about the cost of health care. As reported in T. Rowe Price’s Retirement Savings and Spending Study (2021), retirees’ top three spending concerns are the following — in order of importance:
Paying for long-term care
The cost of health insurance
Out-of-pocket health care costs
According to some of the leading experts, retirement healthcare costs will be astronomical. As of 2022, the Employee Benefit Research Institute (EBRI) estimates that 90% of employees will be able to cover all their health insurance premiums. Using that figure, a 65-year-old couple would need $296,000.
The Boston College Center for Retirement Research (CRR) estimates that a typical 65-year-old couple will spend $197,000 over their lifetimes, with a 5% likelihood of spending more than $311,000.
Further, a retired couple age 65 in 2022 may need approximately $315,000 in savings, after taxes, to cover their health care expenses in retirement, according to a Fidelity Retiree Health Care Cost Estimate.
Note, however, that long-term care costs can be catastrophic in some cases, so these numbers do not include them.
As a general rule, planning ahead for health care expenses in retirement is important. At the same, there are a variety of factors to consider when determining how much you’ll need. In addition to your income and age, your health, where you live, and whether you have Medicare or supplemental insurance, your costs vary.
No matter where you are in your career, whether you are close to retirement, or already planning your transition out of the workforce, it’s essential to plan for rising healthcare costs.
How to budget for health care during retirement.
Retirement budgets are determined by two factors:
What will your monthly income be.
Your total expenditures.
Sadly, 37% of retirees say they have nothing saved for retirement. In addition, according to the latest government data, those 65 and older spend an average of $4,345 per month on rent, groceries and healthcare. A retirement-age American could spend nearly a thousand dollars less in 2016 at $3,564 as a comparison.
When it comes to planning for the future, older Americans may have to tighten their spending even more as inflation cools from 2022’s near a 40-year high.
Additionally, those who retire at full retirement age in 2023 are only expected to receive a maximum monthly benefit of $3,627.