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Do I have enough cash to cover my own health care needs in retirement? Here is the simple math you need to figure it out

Do I have enough cash to cover my own health care needs in retirement? Here is the simple math you need to figure it out
Do I have enough cash to cover my own health care needs in retirement? Here is the simple math you need to figure it out

Baby boomer couples should expect to shell out $315,000 during a 20-year retirement for co-pays, deductibles, premiums, prescriptions and other health care costs, according to the Fidelity Retiree Health Care Cost Estimate.

That number gets even more daunting when compared to the median retirement savings boomers have set aside. Based on numbers from the Transamerica Center for Retirement Studies, the average 65-year-old has $202,000 socked away, which amounts to a $113,000 shortfall by age 80 — and many retirees will live much longer.

Among people who are 65 years old today, according to the Centers for Disease Control and Prevention, about 22% of men will live to age 90 and 9.5% will make it to 100, while about 34% of women will live to see 90 and 14.9% will celebrate their 100th birthday.

Using the 4% rule of retirement withdrawals, boomers would need a nest egg of $393,750 to cover just their estimated $15,700 in annual healthcare costs.

Add in inflation — which could hike the cost of today’s $100 medical charge to $164 in 20 years — and boomers will want to consider how they can save more to handle not only their health care costs but all their other retirement expenses, too.

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Focus on annual costs

Instead of looking at the big number, consider your annual costs for health insurance, prescriptions and other regularly occurring expenses.

For example, the standard 2022 premium for Medicare Part B — which covers physician services, outpatient hospital services, some home health services and medical equipment — is $170.10, with an annual deductible of $233.

The Part A deductible for the first 60 days of in-hospital care is $1,556. And there’s no premium for Part D drug coverage until your income is more than $91,000 ($182,000 for a couple), when the monthly payment is $12.40.

All together, that totals less than $4,000 a year, which seems much more manageable.

Separate long-term and catastrophic care costs

As most people will find their health care costs increase as they age, some may want to consider an annuity to cover major expenses later in retirement, including annuities with long-term care benefits.

Other options include a reverse mortgage on your home, or life insurance policy to pay off medical bills, cover the care of a surviving spouse or as an asset to borrow against.

Disability or long-term care insurance is expensive, but can be a better option than paying more than $100,000 a year for a care facility. According to the American Association for Long-Term Care Insurance, in 2022 a 55-year-old couple would pay $5,025 per year for $165,000 in immediate benefits and $400,500 at age 85, with benefits increasing 3% per year.

Consider a Health Savings Account (HSA)

HSAs offer a tax deduction on contributions and withdrawals for qualifying healthcare expenses are tax-free.

If you’re working and your employer offers a qualifying high-deductible health plan, you can save $3,650 for a single person or $7,300 for a family, plus another $1,000 per person if you’re over 50.

To qualify, your plan must require a minimum deductible of $1,400 for a single person ($2,800 for a family) and maximum out-of-pocket amounts of $7,050 for singles ($2,800 for families).

If you’ve got income, you also can continue to contribute to a traditional Individual Retirement Account or Roth IRA.

Stay healthy and busy

Paying attention to exercise, nutrition and getting regular check-ups for preventative care can keep typical age-related health issues manageable, instead of allowing them to become expensive full-blown health crises later.

Working longer is also a great strategy to reduce your health care costs. Staying on the job means retaining your employer’s health benefits, which allows your retirement savings to continue growing instead of paying medical premiums.

One approach is offering to transition from full-time to part-time work with your employer for the early years of your retirement. Plus, working longer means you can delay claiming Social Security, which can raise your monthly benefit amount for when you do claim your benefits later.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.