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Why Healthcare Planning is Vital to Retirement

Investopedia logoInvestopedia 03-01-2016 Zina Kumok
© Provided by Investopedia

You’ve saved, calculated and planned and are ready for retirement. It’s time to enjoy your golden years. But are you as ready as you think? Are you prepared for the inevitable healthcare costs that come with getting older? Many people are on track for a comfortable retirement up until their first medical emergency. Retirement planning is also about healthcare planning.


While many people think they can rely on Medicare for all their healthcare costs once they hit 65, they’ll still have to pay some expenses out of pocket. Plus, Medicare’s premiums — like other forms of insurance — fluctuate in price over time. “Medicare’s base premium is increasing 16% in 2016 from $104.90 to $121.80,” said certified financial planner (CFP) Jamie F. Block of Wealth Design Retirement Services. “Depending on your income you could pay as much as $389.80 per month. If you are married, you will double the cost at $9,355.20 per year.”

The premium for Medicare doesn’t cover Medigap, prescription drug coverage, or Advantage Plans. Medicare and other plans also don’t cover vision and dental expenses. Like the rest of your body, your eyes and teeth will need increased medical care as you age. Hearing aids are also typically not covered by medical insurance. “All of these ancillary expenses can add up over the years,” Horack said.

Additional Coverage

Whether you decide to purchase additional coverage or go without, factor in the potential cost in case something happens. There are calculators you can use to see how much you and your spouse need to save. Some sources say that if you retire at age 65, you should have almost $240,000 set aside just for healthcare costs. If you have to go to a nursing home or rehab facility, the costs will be even greater. Most Americans are overwhelmingly under prepared to retire. (For more, see: What is the Size of the Average Retirement Nest Egg?)

You might also consider purchasing other forms of insurance. Long-term care, disability and critical illness insurance are all great ways to prepare for the costs of getting older. Life insurance is another way you can protect your family in case of your untimely demise. These forms of insurance come with extra costs, but can save you money in the long run.

If you plan to retire before 65, you need to figure out how you’ll get health insurance. Can you join your spouse’s plan? Should you buy health insurance from the marketplace? Many older people will find that buying a private plan will be pricier than they anticipate. (For more, see: Top Signs You Aren’t Ready to Retire Yet.)

“Your health is a double edged sword in retirement,” Horack said. “If you are not healthy, it's possible you will not work as much or as long as you would like, so you may not be able to save enough for retirement. Then you may spend lots on healthcare and die early. However, if you are healthy, you run the risk of living a much longer time, which requires more money to fund your living expenses.”

The Bottom Line

At the end of the day, saving enough for retirement is still about saving money. But knowing the realistic costs you might incur as you age will be a great motivator to save more than you are currently. Talk to a financial advisor if you’re concerned about running out of money or want to know how much to save. If you save too much, it will just become part of your estate. If you save too little, the consequences are much less clear and much scarier.

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