Do I have enough money to cover my own health care needs in retirement?  Here’s the simple math to figure it out

Do I have enough money to cover my own health care needs in retirement? Here’s the simple math to figure it out

Do I have enough money to cover my own health care needs in retirement?  Here's the simple math to figure it out

Do I have enough money to cover my own health care needs in retirement? Here’s the simple math to figure it out

Baby boomers should expect to shell out $315,000 during a 20-year retirement for co-payments, deductibles, premiums, prescriptions and other health care costs, according to the Fidelity Retiree Health Care Cost Estimate.

That frightening number gets even more frightening when compared to the average retirement savings boomers who left out. Based on figures from the Transamerica Center for Retirement Studies, the average 65-year-old has $202,000 accrued, which equates to a deficit of $113,000 at age 80 — and many retirees will live much longer.

Among people who are 65 years old today, according to the Centers for Disease Control and Prevention, about 22% of men will live to age 90 and 9.5% will live to 100, while about 34% of women will live to age 65. the 90 and 14.9% will celebrate their 100th birthday.

Using the 4% rule of retirement withdrawals, boomers would need a nest egg of $393,750 to cover just their estimated $15,700 in annual health care costs.

Add in inflation – which can raise the cost of the current $100 in medical bills to $164 in 20 years – and boomers will want to consider how they can save more to deal with not just healthcare costs, but all other retirement expenses.

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Focus on annual costs

Instead of looking at the daunting large number, consider your annual health insurance costs, prescriptions, and other expenses that occur regularly.

For example, the standard 2022 premium for Medicare Part B — which covers medical services, outpatient hospital services, some home health services, and medical equipment — is $170.10, with an annual deductible of $233.

The Part A deductible for the first 60 days of hospital care is $1,556. And there is no premium for Part D drug coverage until your income is over $91,000 ($182,000 for a couple), when your monthly payment is $12.40.

All in all, that totals less than $4,000 a year, which seems a lot more manageable.

Separate catastrophic and long-term care costs

As most people will find that their healthcare costs increase as they age, some may want to consider an annuity to cover major expenses later in retirement, including annuities with long-term care benefits.

Other options include a reverse mortgage on your home or a life insurance policy to pay medical bills, cover the care of a surviving spouse, or as an asset to borrow.

Disability or long-term care insurance is expensive, but it can be a better option than paying more than $100,000 a year for a care facility. According to the American Association for Long-Term Care Insurance, in 2022, a 55-year-old couple would pay $5,025 a year for $165,000 in immediate benefits and $400,500 at age 85, with benefits increasing by 3% per year.

Consider a Health Savings Account (HSA)

HSAs offer a tax deduction on contributions and withdrawals for qualifying healthcare expenses are tax-free.

If you are working and your employer offers a qualifying health plan with a high deductible, you can save $3,650 for a single person or $7,300 for a family, plus another $1,000 per person if you are over 50.

To qualify, your plan must require a minimum deductible of $1,400 for a single person ($2,800 for a family) and maximum out-of-pocket amounts of $7,050 for singles ($2,800 for families).

If you have income, you can also continue to contribute to a traditional individual retirement account or Roth IRA.

Stay healthy and busy

Paying attention to exercise, nutrition, and getting regular check-ups for preventative care can keep typical age-related health problems manageable, rather than allowing them to become costly health crises later on.

Working harder is also a great strategy to reduce your healthcare costs. Staying in employment means maintaining your employer’s health benefits, which allows your retirement savings to continue growing rather than paying medical premiums.

One approach is to offer to transition from full-time to part-time work with your employer in the early years of your retirement. Also, working longer means you can delay applying for Social Security, which can increase your monthly benefit amount for when you apply for your benefits later.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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