How Medical Costs Will Effect Retirement

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Many people don’t think much about medical costs until something major happens, and because of that, have not thought about how those costs will effect their retirement.  Even if you have dealt with major medical issues before retirement age, it’s not uncommon for people to underestimate out of pocket costs because of misunderstanding medicare and other insurance options in retirement.

Better Health Doesn’t Mean Lower Medical Costs

Another big mistake is assuming that because you’ve always been healthy, that your costs will remain low as you get older.  The reality is that your overall good health will hopefully lead to a much longer lifespan, and given that you’ll be living longer, you will most likely have higher medical costs.  A healthy individual who lives until ninety, will likely have higher total costs to budget for than someone who is unhealthy and lives until seventy-five.

Another reason healthy individuals tend to run higher medical costs in retirement is because they go to the doctor more often.  That makes a lot of sense, since taking preventative measures against illness and disease is one of the best ways to ensure longevity.  At the same time, unhealthy individuals are less likely to have good health maintenance practices, but more likely to have one time catastrophic events.  Regardless, a good maintenance routine over time helps address problems early, can extend your life by many years, and create the need for a higher health care budget for you over time.

Projected Medical Costs In Retirement

Coming up with a good estimate of your long term costs is no doubt very difficult because it’s hard to predict what issues may arise as you age.  The AARP has a Health Care Costs Estimator that helps to determine what your costs may be based on certain variables.  You can then see an estimate of how much will be covered by medicare and what you may be on the hook to pay for either on your own, or through some type of supplemental insurance.  This tool is nice because it allows you to see how certain health changes may effect your overall cost, and how you might decrease your needs by improving one or more of these conditions.

For instance, a person planning to retire at age 65, and who has high blood pressure can expect to have total expenses of $252,117 according to the AARP calculator with $159,601 being covered by Medicare.  That leaves a shortage of $92,516, and that number can be further complicated by the level of services and products you decide to purchase.  As with any industry, health care provides a number of options that can increase or decrease these costs based on the quality of services you opt to purchase.

Long Term Care Can Have A Big Impact

This number does not take into account a chronic condition cropping up for you later in life, such as diabetes, or a long term care scenario due to something like dementia, which can be the most costly of all medical events.  According to Fidelity Investments long term care scenarios “could impact seven in ten Americans who reach age 65 in the next five years.”  See Fidelity’s article about Long Term Care for more detail about the challenges more people are facing in retirement when it comes to these conditions.

Fidelity also estimated that a couple at age 65 retiring this year would need an additional $130,000 to purchase long term care insurance.  It’s a difficult decision since these policies are expensive, and those without a large income may opt out of long term care insurance, only to find themselves in financials difficulty if one of these situations arises.

Supplemental Insurance Helps to Offset Medical Costs in Retirement

Medicare obviously covers some of the day-to-day medical expenses that you will experience in retirement, but because they do not cover everything, you may want to consider purchasing supplement insurance (Medigap).  Medigap insurance is sold by private companies and used to help cover things that Medicare does not cover.

Be aware that while these plans do help to cover some expenses, they still do not cover everything.  For instance most will not cover long term care, so you’ll still need to explore other coverage if you are concerned about that.

For more information on Medigap insurance and policies you can visit Medicare.gov





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