Managing a Retirement X Factor: Health Care

Pills and a stethoscope on top of dollar bills.

Health care is a constant area of stress for people as they approach retirement. In fact, according to the Voya Retire Ready Index, 91 percent of workers are concerned about their ability to cover health care expenses in retirement.

This comes as no surprise when you consider how health costs have risen over the past few years, especially compared to relatively slow growth around workers’ wages and Social Security benefits. A recent study from HealthView Services found that estimated health care costs for a retired couple have grown 6.5 percent since just last year. And costs are likely to continue to rise, with expected health care inflation of 5 percent to 7 percent over the next eight years, according to the year-end 2014 summary from the Centers for Medicare and Medicaid.

Many preretirees assume that when they turn 65, Medicare will take care of retirement health decisions, but often that is not enough. Having a strategic plan for health care and saving diligently while working are just as important as figuring out where you’re going to live and how you will spend your time.

Factoring in health care is an important part of a holistic retirement plan. For many, the cost of health care is their biggest retirement X factor; the same Voya study found that workers rank health care as their No. 1 greatest challenge to retirement security. Most of us don’t know how our health will play out in retirement. Given this, health care should be factored into your retirement savings strategy early.

One way to help figure out how much you may need is to translate savings into monthly income in retirement. That way, you can estimate potential monthly health care expenses, factoring in increasing costs due to inflation and aging. To counteract increased health costs due to aging, remember that other expenses, such as travel and leisure activities, will likely decrease as you age.

Getting to a monthly income needs figure is much easier to wrap your head around than figuring out a total amount over the course of a 25- to 30-year retirement. There are online tools available to help you run these calculations. Check to see if your retirement plan provider offers tools and resources that translate savings into monthly income and factor in health care costs. In addition, a financial advisor can help assess your personal situation and walk you through possible retirement scenarios.

Once retirement is upon you, it’s time to get into the weeds of health care. About three months before turning 65, evaluate your health care options, namely reviewing the various Medicare offerings.

Medicare has a few different parts (A, B, C and D) that offer different types of coverage. Part A covers hospital or nursing facility stays; Part B covers doctor visits, outpatient services and preventive care for a premium; and Part D is a prescription drug plan. Part C is the Medical Advantage Program, an alternative to traditional Medicare offered through private plans with potentially more benefits and/or lower copays for a premium. Part C can often be a good choice for individuals who might have more complicated health situations. What is often referred to as “original Medicare” – parts A and B – should cover about 80 percent of your health care costs. Individuals are then responsible for anything that falls in the remaining 20 percent.

To determine what you need and which program might be the best option for you, assess your current health care needs. Do you have any regular prescriptions or treatments you’ll need to pay for throughout retirement? Are there medical specialists you need to see besides your general practitioner who might fall outside of Medicare coverage? Also be sure to take into account your family’s medical history to try to anticipate any needs that may come up later in life.

By saving, planning and thinking through all of the nuts and bolts of your health care expenses and options, you can have more confidence going into retirement and focus on enjoying your days of newfound freedom.


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