Is retirement right around the corner? If so, you may be in the process of finalizing your strategy. Perhaps you are considering when to actually leave the working world or when to file for Social Security benefits. You might be finalizing your investment strategy or thinking about downsizing to a more affordable home.
The final years before retirement are often your last opportunity to take action to solidify your financial future, so it’s important to consider every possible risk. One risk you definitely shouldn’t ignore is the threat posed by sizable out-of-pocket health care costs in retirement.
Are you starting to think about your legacy and how you’ll pass it on to the next generation? It’s never fun to think about your own death. However, it’s too important to ignore. You may have a substantial amount of assets that you want to distribute to loved ones. You may have a spouse, children or other family members who are dependent on you for support. You might even own a business that could face hardship after your death.
All these issues require some level of estate planning. If you fail to develop a robust estate plan, you could leave your loved ones, business partners and others in a difficult financial situation.
You’re probably aware of the risk posed to retirees by long-term care, which is extended assistance with daily living activities such as eating, mobility and bathing. Long-term care is often provided either in a facility or in the home, and it is usually very costly.
AARP recently published a report on the current state of long-term care. Specifically, it ranked each state by the quality and affordability of care available to seniors. While the scores and information vary by state, there is some information that’s applicable to all retirees, regardless of where they live.
According to AARP, more than half of all people turning 65 today will require long-term care at some point in the future. The report also estimates that care provided in a nursing home can cost more than $90,000 per year, while in-home care costs north of $30,000 annually.1
If you’re approaching retirement, you’re probably assuming that most of your health care costs will be covered by Medicare. To a certain extent, that assumption is correct. The combinations of Medicare parts A and B cover a large portion of hospitalizations and trips to the doctor’s office. Part D covers a substantial share of prescription drug costs.
Two years ago, Gallup conducted a study in which it asked Americans about their biggest financial concern. The winner? By a wide margin, Americans said they were most concerned that they wouldn’t have enough money in retirement. Nearly 60 percent said they were either very or moderately worried about the issue.1
Every year, Fidelity studies healthcare costs to estimate the amount of money retirees can expect to spend on medical expenses. The most recent study, conducted in 2015, found a 65-year-old couple could expect to spend $245,000 out-of-pocket on healthcare in retirement. That’s a 29 percent increase over the past 10 years.1
That figure includes things like copays, deductibles, premiums and prescription drugs. Surprisingly, it does not include long-term care costs, which can also be a significant expense for many retirees.