Healthcare Expenses: 4 Numbers Retirees Should Know

by | Aug 24, 2021 | Blog

Healthcare expenses are usually one of the biggest line items we see when putting together cash flow statements for our clients.

The older we get, the higher the likelihood of us, or a loved one, experiencing health issues. Often times, the costs associated with health issues are the last thing folks want to think about.

Having health insurance is a no-brainer. But even with the best coverage, paying the out-of-pocket costs associated with any sort of serious illness, or accident, can add up quick.

It is difficult to think about our own, or a loved one’s, health deteriorating. As financial planners, we want to at least let folks know what to expect numbers wise.

In this post, we are going to cover 4 healthcare related numbers all folks preparing for, or living through, retirement should know.

Healthcare Expenses: 4 Numbers Retirees Should Know

65

If you work until age 65, you’ll (most likely) have a pretty straightforward time when it comes to covering healthcare expenses. In most cases, folks have health insurance covered through their employer. And if you retire when you reach age 65, you can apply for Medicare right away.

It can get a little tricky if your plan is to retire before age 65, as you’ll have to bridge the time frame between when you retire and when you can go on Medicare. If there is a spouse, or dependents, in the picture that will have to be factored into the decision as well.

We’re not saying that it can’t be done, but covering healthcare expenses in early retirement with money from investment accounts can put a lot of stress on a portfolio. A plan needs to be in place, and thought through, well ahead of time if someone is to retire before being able to apply for Medicare.

$5,700

This is an average number of what a 65 year old will spend on healthcare expenses in their first year of retirement. That number goes to $11,700 if there is a spouse. And as we know, things get more expensive as time goes on, healthcare included. So this number will rise the further someone goes in retirement.

This assumes the retiree qualifies for Medicare and is on Original Medicare, with Parts A, B and D (inpatient care, outpatient care and prescription drug coverage).

$23

This is the average cost of professional care per hour in the United States. It varies depending on factors such as location and type of help required. But this is just custodial care, or non-medical related care. This is help with every day activities such as bathing, dressing and eating.

To take on the responsibility of caring for a loved one, or hire someone to help, is a highly personal decision. While there is certainly more to making this decision than finances, the financial implications will play a big part.

69% – 64% AND 64% – 55%

How to deal with rising healthcare costs is one of the biggest questions we get from retirees. According to a survey done by PIMCO, health related issues are the number one concern for pre-retirees and those in mid-late retirement.

69% of pre-retirees (people on the cusp of retirement) ranked health related issues as their number one concern heading into retirement.

64% of pre-retirees ranked market related issues as their number two concern heading into retirement.

64% of mid-late retirees (people already well into their retirement) ranked health related issues as their number one concern in retirement.

55% of mid-late retirees ranked market related issues as their number two concern in retirement.

One conclusion to draw from these numbers is that as you get further into retirement, what the market is doing becomes less important.

Another, maybe more relevant conclusion, to draw from this survey is that health is pretty much THE MOST important thing to retirees (and probably most people in general).

Health plays a big part in financial planning. And even though we can only plan (and control) for so much regarding our health, it is important to think through the possible scenarios.

We’ve said it before, and we’ll say it again, our job is to present our clients with all of their potential possibilities. And one of the possibilities that is difficult to talk about is that folks will have to use a good chunk of their retirement nest egg to help cover healthcare expenses. That’s an unfortunate reality for a lot of people.

Yes, it’s important to try and enjoy your retirement as much as possible. You likely worked hard for years in order to do just that. But what is that money for, if not to take care of yourself or the ones you love?

Part of what makes financial planning an ongoing process, and not a one time event, is the fact that the balance between “enjoying your money” and “needing your money to take care of yourself and your loved ones” is going to change dramatically as you move through life.

And we are here to help folks find what that balances looks like, FOR THEM.

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