Health Care Costs Are Cutting into Retirement Preparations

This is happening in subtle and not-so-subtle ways.

You may have seen this statistic before or one resembling it: the average 65-year-old retiring couple can now expect to pay more than $250,000 in health care expenses during the rest of their lives.

In fact, the cost is now projected at $285,000. The effort to prepare for these potential expenses is changing the big picture of retirement planning.

Individual retirement savings strategies have been altered. How many people retire with a dedicated account or lump sum meant to address future health costs? Very few. Most retirees end up winging it, paying their out-of-pocket costs out of income, Social Security benefits, and savings.

While couples can save together, individuals also have considerable health care costs as well. Fidelity Investments estimates the costs as $150,000 for women and $135,000 for men. The costs can potentially take up a considerable amount of a retiree’s income – 9 to 14%. Out-of-pocket costs, including dental and vision, could run into $3,000 to $8,000 in an average year.

While households have begun adjusting their retirement expectations considering projected health care expenses, businesses have also quietly made some changes. If you can take advantage of employer matching contributions, take advantage of that benefit.

There is no easy answer for retirees preparing to address future health care costs. Staying active and fit may lead to health care savings over the long run, but some baby boomers and Gen Xers already have physical ailments. Barring some sort of unusual economic movement or public policy shift, the question of how to pay for hundreds of thousands of dollars of medical and drug expenses after 65 will baffle many of us.

We encourage you to reach out to Kendall Capital. We help our clients plan ahead so they are prepared for retirement and the healthcare costs that come with that phase of life.