Real
talk about the expenses most people are afraid of
by Liz
Weston/NerdWallet | May 25, 2019
You won’t pay for
health care in retirement with one lump sum. That’s the way these expenses are
often presented, though, and the amounts are terrifying.
Fidelity Investments,
for example, says a couple retiring in 2019 at age 65 will need $285,000 for
health expenses, not including nursing home or other long-term care.
No wonder 45% of
people in their 50s and early 60s have little or no confidence that they’ll be
able to afford their retirement health care costs
University of
Michigan survey
The Employee Benefits
Research Institute says some couples could need up to $400,000 — again, not
including long-term care.
The Center for
Retirement Research at Boston College hasn’t updated its figures recently, but
back in 2010 estimated a typical couple could spend $260,000 for medical and
long-term care, with a 5% risk that costs will exceed $570,000.
No wonder 45% of
people in their 50s and early 60s have little or no confidence that they’ll be
able to afford their retirement
health care costs, according to a survey by the University of
Michigan.
Medical costs may be
more predictable than you think
The approach of
presenting people with a huge, perhaps unattainable, figure has long bothered
Jean Young, senior research associate with the Vanguard Center for Investor
Research.
“The thing is, it’s
not helpful, it’s not actionable, it’s not relatable,” Young says.
You also may need six
figures to cover food, or transportation, or shelter in a typical retirement.
But these are costs you pay over time — just like you’ll pay for health care.
Young and other
Vanguard researchers partnered with actuaries at Mercer Health and Benefits
consulting firm to create a proprietary model based on what retired people
actually spend on health care. What they found was that medical costs tend to
be in certain ranges, based on a handful of factors:
·
Where
you live.
·
Your
health.
·
Your
parents’ health.
·
Whether
you buy supplemental coverage.
·
Your
income.
Higher-income people
pay larger premiums for certain parts of Medicare.
Some premiums also vary by location, as do medical costs in general. How much
health care you’ll consume is greatly influenced by how healthy you are when
entering retirement, and, to some extent, your genes.
“The actuaries know
that the health status of your parents tends to pass generationally,” Young
says.
A typical range:
$4,900 to $6,000
Here’s the number the
researchers came up with: $5,200. That’s the median amount a typical
65-year-old woman could expect to spend annually for premiums and out-of-pocket
medical, dental and vision costs in 2018. (Median is the point where half pay
more and half pay less. The study used women because they have slightly higher
long-term costs, but the gender difference is about 2%.)
That assumes the
woman lives in a medium-cost area, is at medium risk for health care costs (she
either smokes or has a chronic medical condition or two) and buys supplemental
Plan F, the most popular Medigap policy. Eighty percent of those in
similar situations would face costs in the range of $4,900 to $6,000.
The models also
include worst-case scenarios. If her health deteriorated to the high-risk
category, her costs could exceed $11,000. If she opted to do without a Medigap
policy and had a bad year, she could pay over $21,800.
Long-term care is still
a wild card
Retirement planning
involves a lot of educated guesses. How long you’ll live, inflation rates,
returns on your investments, your expenses — these may not end up being what
you expected. Financial planners typically craft their assumptions about what’s
most likely to happen and may suggest insurance or contingency plans to cover
the worst-case scenarios.
Long-term
care costs remain the big wild card.
Long-term care
costs remain the big wild card. Half of people over 65 don’t incur any
long-term care costs, Young says, and a quarter incur less than $100,000.
“The problem is, 15%
are going to spend a quarter of a million or more,” Young says.
Those who exhaust
their savings may end up on Medicaid, the government program for the indigent
that pays for long-term care (Medicare does not). People who have a few million
dollars saved may opt to “self-fund,” or pay for it without help.
Those in between
might consider some kind of long-term care
insurance, or earmark assets they can tap if necessary, Young says.
That could be your home equity or investments that give you income while you’re
healthy but could be sold to pay for long-term care.
The key is to not use
up those resources for other costs. Holding something in reserve is
particularly important for women, who are twice as likely to require paid care.
“We live longer; we
tend to care for our husbands,” Young says. “The risk is higher for women.”
This article was
written by NerdWallet and was originally published by The Associated Press.
Liz Weston is a
writer at NerdWallet. Email: lweston@nerdwallet.com. Twitter: @lizweston.
The article Let’s Get
Real About Health Costs in Retirement originally appeared on NerdWallet.
https://considerable.com/health-costs-retirement/
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