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Planning Priorities: Care Costs in Retirement

Planning Priorities: Care Costs in Retirement

June 29, 2023

Planning Priorities – Care Costs in Retirement

Planning for healthcare costs in retirement demands a thorough understanding of healthcare spending trends by age and gender and how those trends apply to your circumstances. For example, women tend to spend more than men on healthcare, and older individuals outspend their younger counterparts.

Incorporating both premiums and out-of-pocket costs, an average healthy Medicare beneficiary will easily spend more than $6,000 annually on premiums, uncovered prescription drugs, and other out-of-pocket expenses like dental, vision, and even popular alternative treatments like massage, chiropractic, and acupuncture.

Balancing your Healthcare Budget

Inflation and illness are the primary drivers of your healthcare budget considerations. As healthcare costs escalate, insurance premiums rise equally fast while costs for non-covered services also inflate. Illness often demands more expensive prescription drugs, and with aging, you may need massively expensive non-covered services like extensive dental work, hearing aids, or even long-term care.

How can you prepare for escalating healthcare costs when your income might be fixed upon retirement? One strategy is to save sufficient funds to cover your future healthcare expenses prior to retiring. Fidelity conducts an annual study to determine how much an average couple might need at retirement onset to finance all their future healthcare costs, excluding long-term care and they estimate that an average couple will need around $300,000.

The Employee Benefit Research Institute did a similar study, concluding that men might need $130,000, women $146,000, and couples $270,000. Remember, these are averages. If your lifespan exceeds the average life expectancy or your healthcare needs differ, you might require more funds. Critically, these estimates do not include long-term care.

Long-Term Care

Long-term care doesn't necessarily mean nursing home care. Long-term care can range from having someone visit your home a few hours a week for meal preparation to requiring skilled nursing care. It's critical to understand that neither Medicare nor Medigap covers this. The most comprehensive Medigap policy only covers 100 days of skilled nursing care.

As you age, you may progressively need more help. At first, you might require assistance with shopping, meal preparation, housework, money management, and travel. This can be provided by family members or a paid housekeeper. As your needs grow, you may require help with essential activities of daily living such as eating, bathing, dressing, using the bathroom, transferring from your chair to your bed, and maintaining continence.

Finally, you might need 24-hour supervision, disease management, and rehabilitation. The cost of long-term care depends on the type of care you need. On average, in-home health aides cost about $150 a day, adult daycare costs about $74 per day, residents in an assisted living facility cost $4,300 per month, and private rooms in nursing homes range from $200 to $1,200 per day.

Planning for long-term care is vital for several reasons, one of them being to alleviate your children or other family members from the burden of taking care of you. Another reason is to avoid spending down assets to qualify for Medicaid, which requires you to spend assets to less than $2,000. With proper planning, you can direct your own care, obtaining the type and quality of care you want.

Series Conclusion

As we conclude, we hope this series has given you a clear roadmap to navigate the Medicare maze and a heightened awareness of what to expect in terms of healthcare costs in retirement. Remember, informed planning is the key to a worry-free, secure retirement.

Thank you for joining us on this journey. We hope the information provided has been valuable, and we encourage you to share this knowledge with others who may benefit. As you continue to plan your retirement, remember that your health is a priority, and it’s never too early to start planning for it.

Keep an eye out for future series, where we will continue to shed light on important aspects of retirement planning. Until then, here's to a secure and healthy future!