Developing a financially sustainable plan for retirement can be one of life's most stressful processes. Those considering retirement need time to look at the many factors – some of which are unknown – that affect us when we look into a future that we have not yet experienced firsthand. As retirees, we need to not only consider our income, but also our expenses over a retirement that could last as long as 30 years. Retirement for baby boomers and beyond includes a future where two of the most critical aspects of retirement planning – our health and longevity – remain unknowable.
According to a recent article on cincinnati.com, titled “Consider health care when retirement planning,” long-term healthcare may be a considerable expense, with most of this spent during the last three years of life.
Healthcare spending has outpaced inflation over the past decade—from a 6 percent increase to just 2.5 percent for core inflation.
So what do we do about rising long-term care costs?
You should examine your cash flow in retirement: monthly income versus expenditures. Then line that up with the cost of Medicare Parts A, B, and D, which is about $1,700 for an individual. With a supplemental "Medigap" C plan, you add $2,200 per year in premiums. That’s close to $4,000 per person, or $7,900 per couple.
Generally speaking, your total premiums and healthcare costs under Medicare can be estimated based on two factors. A study by the Employee Benefits Research Institute in 2013 predicts that a 65-year-old retired couple will need to fund $255,000 to $360,000 in Medicare premiums alone (including Medigap), as Medicare will cover only 62 percent of medical costs. Also, remember that Medicare doesn’t cover long-term healthcare. When you run out of funds, Medicaid fills the gap, which means costs for in-home healthcare and nursing homes must be covered by other sources, such as long-term care insurance.
Here are some things to consider when planning for a retirement with long-term healthcare:
- Will you have savings and assets at retirement to cover your projected healthcare costs?
- Are you and/or your spouse in reasonably good health now, and does your family have a track record of living into their 80s or 90s?
- Will you work during any stage of retirement and earn money?
- Do you know when you want to start taking Social Security, and why?
- What do you project will be your annual income and expenses during retirement, and have you looked at possibly needing to increase your annual income beyond inflation to address potentially higher health care costs?
- If you need long-term care, have you factored in those needs and costs?
- Do you have an understanding of various types of long-term care insurance policies?
Reference: cincinnati.com (January 19, 2015) “Consider health care when retirement planning”
Discussing your plans with an experienced estate planning or elder law attorney when planning for retirement is critical to enjoying your retirement years without becoming a burden on children or the state. We can help. Give us a call at (978) 342-1914 or visit us at www.dellamonaca.com.