I just read another article about planning for healthcare cost in retirement. The article claimed that a retiree could spend up to $250,000 on medical expenses in retirement. If you’re married, this could be a cost of $500,000 in your retirement years and take a significant chuck of your savings. Let’s take a deeper look at the issue and see a few key points that you should be thinking about in retirement planning.
Health Insurance in Retirement Planning
I am no fan of government programs. They are normally stuffed with wasteful spending and lots of red tape. Medicare is a different story. With your Medicare and a supplement plan you will have health insurance, that for many, will be better than your plan you had at work. For 2023, the cost each month for your Medicare Part B premium is actually going down from $170.10 in 2022 to $164.90. On top of your Part B premium you will have a choice between a Medicare Supplement plan or a Medicare Advantage plan.
Medicare Supplement Plans
A Medicare Supplement plan (Also called a Medigap plan) can cost between $50 and $400 per month. The cost will rise as you get older. The plans will vary in cost based on the features that you desire. Plan G can provide the best coverage for a premium that averages $145 per month. For 2023 you would still pay your Part B deductible of $226, but after that your cost are covered.
Medicare Advantage Plans
Now let’s look at a Medicare Advantage plan. These are actually Medicare Part C plans, a partnership between the government and an insurance company. With a Medicare Advantage plan your cost on top of the Part B premium could be $0. What about additional cost like copayments? These can vary widely depending on the plan that you chose. Doctor visit copays could range from $5 to $25 per visit. A hospital stay could be $250 to $1,500. Currently, many plans have an out of pocket maximum of $6,700 per year. It would be almost impossible to hit the maximum $6,700 per year, but for the sake of this article, let’s assume we did hit the maximum every year. That total would be $134,000 if you start at age 65 and live to be 85. Add that to the premium cost we are still short of the expert’s lifetime total.
Retirement Planning Healthcare Math
So let’s run the numbers. Adding up inflation adjusted Part B premiums could be $65,470 over 20 years of retirement. Add the monthly premiums for a Medicare supplement plan to the cost of the Part B premium and the deductible and your annual cost is $3,946. Because each year you are getting older and the companies can also raise the cost, let’s put in a 5% annual cost increase. You started Medicare at age 65 and lived 20 years in retirement to age 85. How much did you spend on your healthcare? That total would be $130,500 or a little more than half of the expert projections.
The Elephant in the Retirement Room
So were are the experts getting their much higher healthcare cost in retirement? It is the potential long term health issues that could put you in a nursing home. Skilled nursing home cost can be $10,000 to $14,000 per month in today’s market. Two or three years in a skilled nursing home could easily hit the larger lifetime healthcare cost. If you are working with the typical financial adviser this is a concern that you do need to consider. At Safety 1st Retirement we are taking a holistic approach to preparing our clients for these possibilities.
Legacy Planning in Retirement
In a holistic approach to retirement planning legacy planning is an important part of the overall plan. Many of our clients are using a Trust to shield assets over time from long term health issues. This is a topic that I will address in a deeper fashion in a future post. If your advisor is not looking at the whole picture then you may be allocating resources in a way that is not necessary and will compromise your overall retirement plan. My team of professionals can help you to look at all of the retirement pieces and offer you a comprehensive plan. Let us know if we can help.
