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Don’t Overlook the Cost of Healthcare in Retirement

Genesis Wealth Advisors

What’s your vision of the ideal retirement? Whether you dream of exploring the world or staying close to home, family, and friends, access to high quality health care is the common, often unmentioned assumption in most retirement planning scenarios.

But many would-be retirees overlook the fact that quality health care coverage comes at a high cost that is only going higher in the future. According to the 2011 Fidelity Investments Retiree Health Care Costs Estimate, a 65-year old couple retiring last year would need $230,000 to pay for medical expenses throughout retirement. That figure does not include the potential cost of nursing home care.

The good news, if any, is that due to recent health care reforms, the estimated cost actually fell 8% from 2010. However, since this annual study was first conducted in 2002, Fidelity estimates that retiree health care costs have increased by an average of 6% each year.

These numbers are even more alarming when you consider that employer-sponsored retiree health insurance, which was relatively common just 20 years ago, is rapidly disappearing. The culprit? Rising health care costs, longer life expectancies, and changes in accounting rules.

Rising medical expenses are particularly challenging for anyone who is thinking about retiring early. Medicare coverage does not kick in until at least age 65, so unless you already have an insurance policy to bridge the gap, you will need to have some savings set aside to cover health insurance premiums or other out-of-pocket costs.

No matter when you plan to retire, you cannot ignore the cost of health care, so consider these suggestions to help you prepare for a happy—and healthy—retirement.

  • Retire Later. Working even just two or three years longer than you planned can help you stash away more dollars in your retirement savings accounts. It also allows you to enjoy more years of employer-provided health insurance (assuming your employer offers health insurance). If you can no longer manage a full-time job, consider working for an employer that provides health insurance to part-time employees
  • Save More. You can solve many retirement expense challenges by simply contributing more to your employer-sponsored retirement savings plan. In 2012, you may be able to contribute as much as $17,000. If you’re age 50 or older by December 31, 2012, you can stash away another $5,500, if your employer’s plan allows it. If you’re self-employed, you can contribute as much as $50,000 to a SEP-IRA in 2012.
  • Bone Up On Medicare. As your eligibility date for Medicare approaches, take the time to learn as much as you can about the various Medicare policies available. This includes Part A (hospital coverage), Part B (medical insurance), Part C (Medicare Advantage Plans), and Part D (prescription drug plans). It’s a complex system to navigate and the more you know the better choices you can make.

How about you? What are your biggest concerns about medical expenses in retirement? Have you developed a plan to cover your expenses?


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