Health care costs in retirement, boomers are worried; can you afford to retire – plan ahead; avoid the shock

Who knew this was retirement planning?

According the Atlanta Journal Constitution blog:

Americans age 55 to 65 say the rising cost of health care will have the biggest impact on their retirement plans, a new study shows.

According to the 2012 Retirement & Politics Survey from Allianz Life Insurance Company of North America, 67 percent of people in that age bracket _ who are known as “transition boomers”_ said health care expenses were their major concern.

These boomers are right to worry when you consider Medicare premiums, supplemental premiums and out-of-pocket costs in the event of medical expenses.

While these boomers may be thinking about health care costs, many people nearing retirement are not and they miss this expense in their retirement planning. Equally important is considering this expense for a surviving spouse when income may drop further.

My annual premiums for two people are $6,909.60 and that’s with an employer subsidy for supplemental coverage. In addition, annual out-of-pocket expenses in each of the last two years were $1750. So between the two expenses my monthly budget for health care is $721.63. Dental and vision expenses are more. In the years before I retired my monthly expense was $87.00. Your experience may be worse, but unlikely to be much better.

People who retire before age 65 or who have a younger spouse may incur even higher monthly costs.

Consider this from the Employee Benefits Research Institute:

Medicare generally covers only about 60 percent of the cost of health care services (not including long-term care) for Medicare beneficiaries ages 65 and older, while out-of-pocket spending accounts for 13 percent.

The EBRI analysis finds 1–2 percent reductions in needed savings among individuals with median (mid-point, half above and half below) drug use and 4-5 percent reductions in needed savings among individuals at the 90th percentile in drug use since its last analysis in 2011.

Specifically, EBRI projects that a 65-year-old man would need $70,000 in savings and a woman would need $93,000 in 2012 if each had a goal of having a 50 percent chance of having enough money saved to cover health care expenses (excluding long-term care) in retirement.

By comparison, a 65-year-old couple, both with median drug expenses, would need $163,000 in 2012 to have a 50 percent chance of having enough money to cover health care expenses (excluding long-term care) in retirement, $227,000 to have a 75 percent chance of covering those expenses, and $283,000 to have a 90 percent chance of doing so. These estimates are 1–2 percent lower than the savings targets estimated in 2011.

There is a lesson here; don’t assume, get the facts about your potential health care expenses in retirement and plan accordingly.

One comment

  1. Unfortunately, many people are unable to plan for their health costs due to the rising costs of living or just plain struggling to get by. The only way they are able to cope, in most instances, is to ignor the subject and either “pay-as-you-go” or look to other sources like welfare or good old “Uncle Sam”.


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