National Retirement Planning Week serves as an effective reminderfor people to focus on their finances after their work careers have ended. Along with securing an income stream andSocial Security claiming strategies, understanding healthcare cost risks are anessential part of a successful retirement plan.
LIMRA Secure Retirement Institute asked advisors to list themost serious risks their clients might encounter in retirement. Paying for health care costs beyond whatMedicare and supplemental insurance covers was the top concern ofadvisors. When retirees were asked whatthey saw as serious risks, health care costs came in fourth on a list of fivechoices. The retirees’ top concern wasthe possibility of cuts in Social Security or Medicare benefits.
Healthcare expenditures increase with a person’s age. Themost current U.S. Bureau of Labor statistics show that in 2009 retirees age 65and older paid an average of nearly $5,000 for healthcare. Even with policies designed to “bend thecurve" of cost increases, healthcare expenses are expected to rise anaverage of 5 percent each year.
A study by Fidelity Benefits Consulting concluded last yearthat a 65-year old couple retiring in 2014 could expect to pay an average of$220,000 to cover medical expenses throughout their retirement. This modelassumed the couple would qualify for Medicare and not have access to employer-providedretiree health care coverage. LIMRASecure Retirement Institute research shows only 40 percent of pre-retireesexpect to have medical coverage from their employer and even that percentagemay be vulnerable to future employee benefit reductions.
Earlier Secure Retirement Institute research showed 56percent of retirees experienced some or significant health issues, yet only 48percent of pre-retirees anticipated they will have similar health concerns.
Overly optimistic health expectations can cause people tounderestimate how much they really need. Having enough money to last a through their lives is the top retirementgoal for 71 percent of retirees and pre-retirees.
To meet that goal, an effective retirement plan must includea realistic estimate of healthcare costs.