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The Price of Healthcare After Retiring

August 23, 2016
Once you leave the workforce, you experience a drop in many of the everyday costs of life. However, most people often overlook the increasing cost of healthcare after retirement. In many cases, retirees are taking a step down by going to Medicare from their employer provided coverage. Healthcare costs during retirement mostly end up representing the largest expense in your budget. Worst of all, these costs can be difficult to pinpoint and will vary by individual.
Plan Now!
Like any other budgetary factor in your life, it is best to start planning for your retirement healthcare costs before you are ready for retirement. Medicare premiums can take a big bite out of your monthly budget. While you are not likely to pay for Medicare Part A cover, which provides assistance for hospital visits, there are monthly premiums associated with Part B coverage that includes your regular doctor visits and other outpatient care.
In addition, there are costs associated with Part D for prescription drugs and supplemental coverage available, often referred to as Medigap coverage, to help you cover the cost of deductibles, co-pays and other medications. There is a variety of information available directly from the government regarding Part A and Part B, but it does not cover everything.
For example, Part B is tied to inflation. For 2015, the average cost for Part B was $105/month with no plans to increase those costs in 2016. If you do not receive Social Security or had an income above $85,000, you may have higher monthly premiums. Also, Part D plan costs are set by providers and vary by location and plan.
Medicare Does Not Cover it All
Too many Americans assume that Medicare will be there to cover all of their healthcare expenses in retirement. The reality is that some expenses will come out of pocket, such as long-term care, dental coverage, and vision. The amount of extra money you will need during retirement depends upon your overall health, longevity, and retirement age.
Healthcare is Cheapest Year One
For most retirees, healthcare expenses in retirement are often the most affordable during their first year. On average, monthly healthcare expenses for a couple that is 65 is $583, with costs often rising to more than double that figure by the age of 85.
Additionally, women often need to save more than men because women tend to live longer than men. This means that a 65-year-old woman can expect to spend roughly $22,000 more in total healthcare costs during retirement than the average man of the same age.
Developing Estimates
Planning ahead for the costs of healthcare during retirement is important because most couples or individuals probably do not realize just how expensive their healthcare can become during this period of life. For example, HealthView Services found in a late 2015 estimate that an average, healthy 65-year-old couple would need $266,589 for healthcare during retirement. This information was collected by scouring the data of 50 million actual individuals, with the following caveats:
• Cost only includes Medicare B and D coverage and supplemental.
• Assumes life expectancy of 87 for men and 89 for women.
• Costs are 6.5% more than the HealthView estimate from 2014.
Additionally, the inclusion of dental expenses, vision coverage, co-pays, and other out-of-pocket costs, the estimate from 2015 rises to $394,954. A healthy couple aged 55 years, with a plan to retire in the next decade, should expect to need $463,849 to cover their healthcare expenses.
With proper planning and a clear, concise knowledge of Medicare coverage, you do not have to be overwhelmed and underprepared for the costs of healthcare during retirement. By planning ahead, you can avoid the shock of health costs during retirement and tackle the challenge.
For more information, please contact Manhattan Ridge Advisors.