Rising Healthcare Costs in Retirement: Are You Prepared?

The secret to a comfortable retirement is to have more money on hand in retirement than you end up spending. But that’s not always easy to do, and every retiree’s greatest fear is running out of money in retirement. That means that to really be secure in retirement you’ll have to build up as large a nest egg as possible. But even if you do that you’ll still have numerous difficult decisions to make.

Probably the greatest unknown when it comes to retirement planning is the cost of healthcare in retirement. The fact that healthcare pricing is already opaque doesn’t make things any easier, but judging just how much you’re going to pay in retirement can be difficult. From healthcare premiums to deductibles to out of pocket costs, about the only thing that is certain is that you’re going to have to pay for healthcare and that you’ll likely pay more and more each year as you grow older.

Failing to account for healthcare costs, and underestimating the increase in cost that will occur as you age is probably the number one factor in blowing up most retirees’ financial plans for retirement. Don’t let that happen to you.

Rising Costs

It’s no secret that healthcare costs continue to rise every year. For those who are still in good health that increase is particularly galling, as they continue to pay more and more each year just for health insurance premiums even if they don’t end up using a doctor’s services. But in the event that they fall ill or need hospitalization or surgery, they’re still going to be on the hook for thousands of dollars in costs above and beyond their premiums.

Since maximum out of pocket costs can now reach into the tens of thousands of dollars per year on top of premiums, those nearing retirement need to be prepared to cover those kinds of costs. The likelihood of needing a hospital stay or some type of surgery at least once in retirement is quite high and needs to be planned for.

How Healthy Are You?

Even if you’re healthy as you enter retirement, you have to assess your ability to stay healthy throughout retirement. Your body will eventually slow down and you will eventually develop health issues that need to be taken care of.

Knowing your family health history can be an important part of preparing for retirement and assessing what your possible future healthcare costs might be. With even ordinary medical procedures now costing thousands of dollars, knowing what procedures you might need to get and what your out of pocket costs might be will help you assess how much you’ll end up spending on healthcare in retirement.

Can You Keep Your Current Health Insurance?

One vital question to ask yourself is whether you will be able to keep your current health insurance once you retire. Even if you have a plan that you like through an employer or through a retirement package, some health insurance providers change coverage for those over age 65. You’ll need to do your research and figure out just what coverage you’ll have, and what additional coverage you may need to purchase to make sure that you’re covered throughout retirement.

Medicare: Yes or No?

Many retirees with strong health insurance packages from former employers may be tempted to forgo signing up for Medicare once they reach age 65. That’s particularly the case for Medicare Part B, which requires payment of monthly premiums. But if you don’t sign up for coverage at age 65, the premiums you have to pay increase if you end up signing up later, and those increases are permanent.

In other words, you’re going to face a decision: sign up at age 65 and pay lower premiums for a longer period of time or wait until after age 65 and pay for a shorter period of time but risk paying substantially higher premiums. It’s a tough decision but also a personal one. And it may be one that you’ll want to contact a financial adviser about, in order to assess how much money you’ll end up spending in each scenario.

No one wants to spend more money on healthcare than they have to, whether it’s before retirement or after. But the reality is that healthcare spending is a necessity, and its costs will increase every year. Budgeting for that reality, and even overestimating the amount you’re going to spend on healthcare, is the only safe and secure way to ensure that you’ll have enough money in retirement that healthcare expenses won’t weigh heavily on your well-being.

It’s unfortunate that even after decades of disciplined saving, investing in gold and other secure assets, and dedicated planning for retirement, retirees still have to worry that a single freak health incident could wipe out their entire life savings. Much of that has do with spiraling costs that are systemic in nature and out of the control of retirees. But what is in their control is the ability to foresee at least a major part of the rise in cost and to act appropriately to build up their retirement assets to cover those costs.