Health Care in Retirement—What You Need to Know

When it comes to retirement, there is a lot of talk about saving enough money to continue your lifestyle after you retire. What isn’t often talked about is how much some basic needs will cost you in retirement, such as health care. Did you know that a 65-year-old couple that retired in 2012 need about $240,000 to cover medical expenses throughout retirement, according to Fidelity Investments (“2012 Retiree Health Care Costs Estimate”). And that’s a 50% increase from the $160,000 first estimated for those retiring at age 65 in 2002.

The rising cost of health care in the United States has become one of the primary risks to a financially secure retirement. With health care costs expected to continue increasing faster than inflation, the time to plan for your future health care needs is now—before you retire. You’ll need think about or plan for:

Long-term care services: Are you familiar with the variety of long-term care services available? If it becomes necessary, what type of long-term care services would you prefer? How will you pay for any needed long-term care services? Do you have long-term care insurance?

Advance directives: Have you communicated your medical care wishes in the event you suffer a catastrophic medical event? Have you named someone else, a spouse or other family member, to make medical decisions for you in the event you are incapacitated?

Paying for health care in retirement: Do you know what your out-of-pocket health-care costs might be after you retire? Are you aware that Medicare, while it covers many health-care costs, has significant limitations? Are you familiar with the various types of insurance that can help pay health and long-term care costs not covered by Medicare?

Did You Know:

In 2011, men reaching age 65 had an average additional life expectancy of 17.3 years, while woman reaching age 65 could expect to live an additional 20.0 years on average. (Source: “A Profile of Older Americans: 2010,” U.S. Department of Health and Human Services, February 2012)

About one-third of individuals who turned 65 in 2010 will need at least three months of nursing home care, 24% will need more than a year, and 9% more than five years. (Source: “What Is the Distribution of Lifetime Health Care Costs from Age 65?,” Center for Retirement Research at Boston College, March 2010)

The average daily rate in 2012 for a private room in a nursing home was $248, an increase of 3.8% from 2011. (Source: “2012 MetLife Market Survey of Nursing Home, Assisted Living, Adult Day Services, and Home Care Costs”)

The average length of a nursing home stay is 835 days. (Source: “CDC Vital and Health Statistics, Series 13, No. 167,” June 2009)

At an average daily rate of $248, an average nursing home stay of 835 days currently costs over $207,000.

If you’re planning for your retirement, now is the time to sit down with your advisor to talk about your plans and get advice. 

  1. I sell Medicare plans and these numbers don’t even remotely add up. The only situation I see a person or couple spending $240,000 is becoming very sick and opting for only original Medicare. Most Medicare Advantage plans have a zero premium beyond the Part B premium which is approximately $1200 a year. A Medicare advantage plan typically caps your out of pocket exposure at approximately $5000 a year. If you had 20 years you hit the max out of pocket exposure, you’d be out $100,000. However, 20 bad years and you probably wouldn’t have made it to 85 anyway. If you have a supplement, like plan F, the same person above would if been out approximately $50,000. This article is a bit off, do the math.

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