Why Retirement Planning Must Account for the Rising Cost of Healthcare

For most Americans in 2019, the idea of retirement is associated more with a sense of anxiety than the promise of relaxation it once inspired. Have I saved enough? When should I stop working? Will I have a guaranteed source of income? And more than ever before, how can I plan for the rising costs of healthcare?

These are all valid questions that need answers, but the stressors around future medical expenses and the cost of insurance coverage, in particular, have never been more pressing.

We are living longer, healthcare costs are rising faster than general inflation, government coverage and subsidies are less, and we won’t have the same employer and union-based benefits that our parents’ generation enjoyed. According to a 2019 Fidelity Benefits Consulting estimate, the average cost for healthcare after the age 65 will be $285,000 per couple.[i] But our own internal estimates find that the costs will likely be much higher, and possibly even double, depending on your income levels in determining Medicare coverage.

Many pre-retirees believe that Medicare will cover all of your health care costs in retirement, but that isn’t the case. Medicare only covers 60% of medical expenses, and whether you expect it or not, healthcare premiums and out of pocket medical payments will account for a significant percentage of yearly expenses throughout your retirement. There are numerous factors that will determine how much of an expense you’ll face, including when and where you’ll retire, how healthy you are, how long you’ll live, and above all, how much taxable income you bring in. 

On average, it is estimated that a largely healthy couple will spend between 8k-12k/year on healthcare after Medicare. If an unforeseen accident or illness arises, those costs are likely to spike exponentially. According to government findings, 70% of individuals will require an extended period of long-term care at some point over the age of 65.[ii]  Everyone thinking about retirement should look up the Medicare Modified Adjusted Gross Income (MAGI) to see what bracket they fall into in terms of premium payments for Medicare Part B.   

Another thing to keep in mind for your retirement is that your future self is a stranger. What I mean by this is that planning for retirement is often more of an exercise in self awareness than it is in actual numbers. The expense line item sheet for a couple that retires today is already a lot longer than what their parents could expect. Added costs of modern technology, whether it be internet access, cell phone bills, or cable and Netflix subscriptions, have changed expectations for standard quality of life expenses. What you might need or want to pay for in your retirement is impossible to predict, but you should assume that there will be a cost inflation for standard expenses that only future you will know.

There are many steps that can be taken to start planning for the rising costs associated with retirement, but perhaps the best way to help mitigate future healthcare expenses is a proactive approach to fitness. I mean this in both financial and physical fitness, but in particular, physical wellness and attention to small daily actions that promote health are a good idea and may affect the bottom line of your future financial standing. I’ve learned firsthand recently from watching my mother go through a year of pain, physical therapy, and great expense for planar fasciitis, that something as simple as walking barefoot every day can have a significant impact on retirement savings.

Whatever your standing and plan for retirement, I highly recommend consulting a financial advisor with the track record and experience to convey the real numbers and help you’ll need to devise a holistic plan for what lays ahead. At Sapers & Wallack, we’ve been talking honestly to our clients for over 80 years about what they can expect and how best to prepare for retirement. Don’t hesitate to reach out and start a conversation and strategy for your retirement today.


[i] Fidelity Benefits Consulting estimate; 2019. Estimate based on a hypothetical couple retiring in 2019, 65 years old, with life expectancies that align with Society of Actuaries’ RP-2014 Healthy Annuitant rates with Mortality Improvements Scale MP-2016. Actual expenses may be more or less depending on actual health status, area of residence, and longevity. Estimate is net of taxes. The Fidelity Retiree Health Care Costs Estimate assumes individuals do not have employer-provided retiree health care coverage, but do qualify for the federal government’s insurance program, Original Medicare. The calculation takes into account cost-sharing provisions (such as deductibles and coinsurance) associated with Medicare Part A and Part B (inpatient and outpatient medical insurance). It also considers Medicare Part D (prescription drug coverage) premiums and out-of-pocket costs, as well as certain services excluded by Original Medicare. The estimate
[ii] Statistics taken from http://longtermcare.gov/the-basics/who-needs-care/