How much do you need to afford retirement healthcare?

Retirement healthcare

At least $220,000 is how much a 65 year old couple would need to cover healthcare expenses if they were to retire next year. The number was calculated by Fidelity Investments, the American multinational financial services corporation that has been assessing retirement healthcare costs for the past 12 years. While this is the same amount since an 8% drop after 2012, the actual cost may be higher. The report includes Medicare premiums, deductibles and co-insurance, but leaves out long-term care and assumes a 20-year retirement for women and 17 for men. As it turns out, lifespans are growing longer which increases the chance of needing long-term care at some point down the line.

Reasons given to account for the drop in healthcare costs include a moderate reduction in prescription drug prices due to a more widespread availability of generic medication, and Obamacare’s closure of the coverage gap that starts when spending on drugs reaches a predetermined threshold. Also known as Medicare Part D’s doughnut hole, when the gap is completely close in 2020 it will leave retirees with a reduced, 25% co-insurance where there used to be no coverage at all. Slower Medicare spending per enrollee through 2022, a reduction in the median age of beneficiaries thanks to healthier, younger baby boomer seniors, and a weak economy have all been cited as well.  

However, both Fidelity’s benefits consulting group senior vice-president Sunit Patel and HealthView’s CEO Ron Mastrogiovanni believe that the drop will be short-lived and will pick up 5%-7% in the next few years. Thus the importance of making informed decisions such as when to retire. The earlier you retire the more you can expect to spend during retirement. On the other hand, delaying retirement can save you money. Retiring at age 62 could cost you an extra $17,000 a year in health insurance premiums for this period prior to Medicare eligibility and estimated out-of-pocket costs. Conversely, delaying retirement until 67 could shave off $10,000 a year in retirement healthcare expenditure.

Understandably, few people can afford the luxury of choosing when they will retire. Other options to minimize healthcare spending are maximizing Social Security benefits with delayed filing, Roth IRA’s, and health saving accounts (HSA), both of which are tax-advantage retirement plans, meaning that accumulations and withdrawals are tax-free, among other perks. Additionally, living a healthy life that includes physical activity and a nutritious diet is the best way to preserve a sound mind and a fit body and decrease the chances of needing medical care in the short and long run.