Rising Healthcare Costs for Retirees

Rising healthcare costsA 65-year-old couple retiring this year can expect to pay an estimated $275,000 of out-of-pocket expenses related to their health care throughout retirement.

Let’s looks at retirees’ health care costs.  This year there will be a 6% increase over last year’s estimate—and an enormous 70% increase since 2002.  According to a report published by Fidelity, the $15,000 increase over the 2016 estimate is caused by general market trends and expectations for health care costs across monthly expenses associated with Medicare premiums, Medicare copayments and deductibles and prescription drug out-of-pocket expenses. The report assumes Medicare health coverage and therefore does not include the added expenses of a nursing home or long-term care that Medicare won’t pay.

The report also explains why reverse mortgages shouldn’t be used to bridge the income gap when you want to collect your Social Security benefits. With ongoing uncertainty in health care, you need to understand what you can take to prepare for health care needs in retirement. With these expenses expected to increase in the future, it’s important to add them as a significant part of your retirement plan.

Fidelity’s calculations are based on a hypothetical 65-year-old couple retiring in 2017 with life expectancies from the Society of Actuaries’ RP-2014 Healthy Annuitant rates with Mortality Improvements Scale MP-2016. The estimate was net of taxes. It considered folks who didn’t have employer-provided retiree health care coverage but qualified for Original Medicare. This included cost-sharing provisions associated with Medicare Parts A and B, Medicare Part D premiums, along with out-of-pocket costs, and some services excluded by Original Medicare. It didn’t include other health-related expenses like over-the-counter medications, dental services, and long-term care.

More companies are offering health savings accounts as part of their benefits packages. HSAs are paired with high-deductible health plans which often have lower monthly premiums than traditional health plans. They also include tax benefits of tax-free contributions and balances and savings that can be withdrawn for medical costs without federal tax.

As retiree health care costs continue to go up, it’s increasingly important for employees to focus on saving enough to ensure that these expenses don’t put a kink in their retirement.

Reference: Think Advisor (August 29, 2017) “Retiring This Year? Here’s What You’ll Pay for Health Care”


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