This expense could cost retirees $ 285,000 – The Fool Motley

You probably took into account the costs of housing, utilities, insurance, purchases, taxes and travel in your retirement plan. But if you forget about health care, your retirement savings may not be enough for you – $ 285,000, more precisely. This is Fidelity's latest estimate regarding the needs of a 65-year-old couple retiring in 2019 to cover the costs of their health care. That's an increase of $ 5,000 compared to a couple retiring in 2018. And that number is expected to continue to rise.

If you have not planned health expenses for your retirement, you risk emptying your retirement savings faster than expected, so that you will not have enough money to pay your bills during your retirement. of your last years. But that must not happen. Below, I explain why the costs of health care in retirement increase and how you can plan them.

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The increase in the cost of health care in retirement

The costs of health care related to retirement are increasing for several reasons. First, people are living longer today than a year or two ago. So they just need more money to cover those extra years. This is especially true for women who generally live longer than men. The Fidelity study estimates that a 65-year-old woman who is retiring today would need $ 150,000 to cover the costs of retirement health, while a 65-year-old man would only need $ 135,000. These estimates include Medicare premiums, deductibles and copays, but do not include items not covered by Medicare, such as dental care, long-term care and vision care.

If you retire before age 65, you put an even greater burden on yourself because you will have to take out your own health insurance to cover yourself until you are eligible for Medicare. These policies are usually more expensive health insurance policy than you contract with an employer. But staying without health insurance during this time is risky because a single accident could cost you thousands of dollars.

Inflation is another factor contributing to the rising costs of health care related to retirement. According to the survey, the annual rate of medical inflation has declined over the past two years, but it remains above the regular inflation rate. According to the Federal Reserve Bank of St. Louis, medical costs have increased 70% faster than the general inflation rate over the last 20 years, and there is no indication that this has changed.

How to plan health costs in retirement

You can use the $ 285,000 figure as a starting point for determining the amount to save for health care, but if you are several years away from retirement, increase it to account for inflation. The Centers of Medicare & Medicaid Services' actuarial office estimates that healthcare costs will increase by 5.5% annually between 2017 and 2026. Thus, a 65-year-old couple retiring from work in the United States is expected to retire. next year may need $ 300,000 to cover his health care expenses. It may not be as stiff as that, but prevention is better than cure. You should also have higher health costs if you expect above average health costs due to a personal or family history of health problems.

You can save for retirement-related health expenses in your 401 (k) or IRA, but if you have a high deductible health insurance plan – one with a deductible of $ 1,300 or more for an individual or $ 2,700 for a family – a health savings account (HSA) may be your best option. HSA contributions reduce your taxable income this year and you will not pay any taxes if you use them for eligible medical expenses. If you use this money to pay for a non-medical expense, you will have to pay taxes, plus a penalty of 10% if you are under 65 years old. Individuals can contribute up to $ 3,500 to an HSA in 2019 and families up to $ 7,000. You can add an additional $ 1,000 to these limits if you are 55 or older but have not yet registered for Medicare.

If your current pension plan does not include health care or does not allocate enough money for health care, do it now. Do not forget to add the cost of any additional health insurance policies, such as those of Medigap, that you plan to buy to help you pay for what Medicare does not cover not. Once you have obtained your updated estimate of the cost of retirement, increase your savings accordingly. If your budget does not allow you to save as much as you want today, save as much as you can and try to increase your contributions by 1% of your salary each year.

Health care is one of the most unpredictable expenses of retirement, but in almost every case it amounts to hundreds of thousands of dollars. It is essential to plan accordingly so that your retirement is on the right track. So integrate these costs into your retirement budget today.