Fidelity just released its latest in a series of scary-sounding reports about how much healthcare is likely to cost in retirement. According to the company’s most recent analysis, a 65-year-old couple retiring this year will need about $260,000 to cover their healthcare costs throughout retirement. And that does not include the cost of long-term care.
While that’s a big number, over the course of a 20-year retirement, it works out to less than $1,100 per month, which may be less than you’re now spending. Find out by adding up how much you’re currently spending on health insurance premiums, co-pays, and deductibles, and how much, if anything, you are contributing to a health savings account. When I did the math, less than $1,100 per month looked like a bargain!
The biggest unknown when it comes to healthcare costs in retirement is your potential need for long-term care. To manage that risk, consider buying a long-term care insurance policy before you retire, especially if you have a family history of dementia. Keep in mind that this isn’t an either/or decision—either you buy an expensive policy that would cover most of your potential long-term care costs for the rest of your life or you go without insurance. You could buy a more affordable policy that would cover a portion of your costs.
Other steps that would be helpful in managing later life healthcare costs include:
- Use a high-deductible health insurance plan in combination with a health savings account and maximize your HSA contributions. Assuming you don’t need all of the money you build up in an HSA, you can carry that money into retirement and use it for healthcare costs. HSA money can also be used to pay a portion of a long-term care policy’s premiums.
- Once you turn 65 and are eligible for Medicare, consider a Medicare Advantage plan, which will typically cover a higher percentage of claims than traditional Medicare. Medicare Advantage plans may also pay for expensive items such as hearing aids, which traditional Medicare does not cover.
- Have honest conversations with your family about future medical care issues. People often “don’t want to be a burden” to their adult children, but those children may be very open to the idea of a multi-generational living arrangement, which used to be much more common. Also discuss how much care you would want if you became terminally ill and specify your wishes in a living will.
- Take care of yourself. Many of today’s most common health issues are self-inflicted through poor diet, lack of exercise, too little sleep, and other controllable factors.
How concerned are you about your future healthcare costs and what steps are you taking to prepare?