Retirement isn’t the sort of thing most of us can just jump into. Rather, it requires long-term planning and a healthy level of savings to boot. And while a large chunk of Americans are taking steps to build their nest eggs, there’s one important piece of the puzzle most workers are missing: planning for healthcare costs during their golden years.
Only 12% of working adults have taken steps to address or plan for medical expenses in retirement, according to data from the Empower Institute and Brightwork Partners. Furthermore, more than half of Americans admit they know little to nothing about what Medicare costs. If your goal is to retire with a degree of financial security, you’ll need to start educating yourself on the reality of senior healthcare. And the sooner you do, the better a position you’ll be in to save for it.
How much will you spend on healthcare as a senior?
The amount you spend on healthcare in retirement will depend on a number of factors, the most obvious of which is your actual health. But you should still get a ballpark of what that number might look like so you can boost your savings to cover it if need be.
The latest projections tell us that the average 65-year-old male today will spend roughly $189,687 on medical care throughout retirement, while the average 65-year-old woman will spend $214,565. The discrepancy stems from the fact that women tend to live longer, and therefore typically require more care in their lifetime.
If you’re wondering why that number is so high, it probably has to do with the fact that Medicare will only cover a portion of your total healthcare costs. There are a number of services, like dental, vision, and hearing, that the program won’t pay for.
Furthermore, Medicare itself isn’t actually free. Rather, you’ll pay a premium for Part B, which covers preventive care and diagnostics, and Part D, which covers prescriptions. Furthermore, the services that Medicare does cover typically come with a copayment, not to mention a deductible. And unless you opt for a Medicare Advantage plan, there’s technically no limit as to what you might spend on healthcare in a single year.
There’s also long-term care to worry about, especially since it’s not included in the aforementioned figures. It’s estimated that 70% of seniors will need long-term care in their lifetime, and the associated costs could be catastrophic. Case in point: The average nursing home stay in the country costs $85,775 per year for a shared room, and $97,455 per year for a private one. Even assisted living facilities are no bargain, costing $45,000, on average, per year.
However, there is some good news among all of these very scary numbers. If you make an effort to plan and save for the costs you might eventually come to face, you can avoid having them destroy the retirement you worked so hard for.
Saving for your future needs
Now that you know what healthcare might cost you down the line, you can take steps to ramp up your savings efforts to help cover them. Currently, workers under 50 can contribute up to $18,500 a year to a 401(k), or $5,500 a year to an IRA. If you’re 50 or older, these limits increase to $24,500 and $6,500, respectively. This means if you’re 57 and want to retire 10 years later, maxing out a 401(k) will boost your nest egg by $338,000, assuming your investment generate an average annual 7% return during that decade-long savings window.
Another key move to make involves applying for long-term care insurance, which can help defray the costs you might very well come to face. Generally speaking, your 50s are the ideal time to apply, because the younger you are, the more likely you are to not only get approved, but also snag a health-based discount on your premiums. But if you’re already in your 60s, it pays to apply as well.
Like it or not, healthcare is the one cost that tends to go up in retirement, and given that medical costs are rising at a much higher rate than Social Security is increasing, you can’t rely on those benefits to help make up that difference. What you can do, though, is save enough money to buy yourself the option to absorb those costs and get the right insurance for the protection you need. It’s a far better bet than continuing to walk around clueless about healthcare in retirement and hoping that things somehow just manage to work out for the best.
