Saving enough for retirement is a grave concern for millions of Americans planning for their future, and rising healthcare costs contribute to much of the financial stress retirees and pre-retirees are facing today. According to LIMRA1, 8 out of 10 non-retirees believe there’s a 50 percent chance they will experience a healthcare expense shock during retirement. One out of ten retirees has already experienced the shock of rising healthcare expenses, which means many non-retirees may simply be unsure about how much healthcare will end up costing them during retirement.
These startling statistics may prompt many to plan ahead for emergencies and other healthcare expenses during retirement. Here’s a closer look at the healthcare expense shock retirees are experiencing and some ways retirees and pre-retirees can prepare for these expenses:
Rising healthcare costs: Perception vs reality
Experts are suggesting that retirees today will be facing increases in healthcare expenses as the years go by. Data from the HealthView Services 2016 Retirement Health Care Costs Report2 reveals someone who retires today could have to account for more than $33,000 in total retirement healthcare costs than someone who retired a year ago. The reason? Inflation. The current rate of inflation of healthcare costs is increasing every year in conjunction with an increase in the cost of Medicare Part B premiums. Retirees simply have to pay more just to get basic expenses covered and the cost of non-routine visits or procedures could end up coming out of retirement savings.
Using the AARP Healthcare Costs Calculator3 to approximate healthcare costs throughout retirement can help some individuals get a better idea of how much to set aside for medical expenses. For example, a 64-year-old, non-smoking male who plans to retire at 65 in the State of Arizona can expect to pay $99,645 in total healthcare costs with only $54,682 covered by Medicare, according to the calculator. This puts him at a significant financial disadvantage if he hasn’t set aside money for healthcare expenses.
LIMRA reports2 55 percent of non-retirees believed that out-of-pocket expenses of $15,000 or more in a year would have an impact on their sense of financial security. This is even more important to those who have financial assets of less than $100,000 because these individuals have done less relevant research, according to the report. This group may be more likely to show interest in discussing investment and savings decisions to ensure a more secure financial future.
Ways to offset rising healthcare costs
For many Americans preparing for retirement or already enjoying their retirement years, making financial decisions that will increase income or savings along with lifestyle decisions that prevent serious health concerns during retirement needs to be a top priority.Delaying retirement
Choosing when to retire can help mitigate some of the financial burden of healthcare expenses during retirement. Those who delay retirement beyond full retirement age can keep earning money to increase their savings and potentially increase their Social Security Income at a later date. Some may even be able to extend employee benefits, including healthcare coverage, which can take care of some bigger medical bills with minimal out-of-pocket liabilities.Prioritizing health
Maintaining a healthy lifestyle is paramount before and during retirement. Healthier individuals will not only live longer but may be better able to ward off a number of diseases and illnesses that could warrant extra trips to the doctor and expensive hospital stays. Being proactive about maintaining a healthy lifestyle could be one way to offset rising health care costs during retirement while enjoying a better quality of life.Investing in annuities
Investing in annuities can be another way to protect retirement savings and offset healthcare costs throughout retirement. There are no limits on the amount an individual can invest in annuities and all earnings are tax-deferred until withdrawals begin. (Carriers may place a limit on the amount that can be invested into a single contract.)
Annuity contracts typically allow for penalty-free withdrawals of up to 10% of the contract value during the surrender charge period. Such withdrawals could be useful for covering emergency healthcare expenses.
Even though healthcare costs are on the rise, retirees and pre-retirees have several options for protecting against overwhelming expenses during retirement. Educating themselves about the concept of healthcare expense shock and predicting potential healthcare expenses can help more individuals make important financial decisions well before medical bills start piling up.
Annuities are not a deposit, not insured by any federal government agency, carry no bank or credit union guarantee, are not FDIC/NCUA insured and may lose value. Protective and its representatives do not offer legal or tax advice.
1. LIMRA Secure Retirement Institute: Lions and Tigers and Health Care! Oh My? Consumer Perceptions of Health Care Expense Shocks in Retirement
2. HealthView Services: 2016 Retirement Health Care Costs Data Report
3. AARP Health Care Costs Calculator
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