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Planning for Post-Retirement Health Care Expenses
February 2020

Feb 28, 2020 | Cash Flow | Families | Other | Retirees

As financial planners, we help clarify our clients’ vision of an ideal life and retirement, craft a plan to help make that vision a reality, and provide assistance throughout the journey in handling life’s inevitable curveballs.


Planning for post-retirement health care expenses and potential long-term-care needs is a crucial component of any solid retirement plan. And, while contemplating the possibility of one’s own physical and cognitive decline can be a difficult process, doing so helps ensure that your plan (and vision) can weather unexpected stressors, and that your loved ones will not end up carrying the financial burden should you face unplanned-for scenarios.


According to Fidelity’s 2019 Retiree Health Care Cost Estimate, the “average” 65-year old woman who retired in 2019 will spend, over the course of the rest of her life, approximately $150,000 on premiums, deductibles, co-payments and coinsurance for Medicare Parts A and B and premiums and out-of-pocket costs for Part D. The “average” 65-year-old man who retired in 2019 will spend approximately $135,000 for the same expenses.


Medicare Part A, or Hospital Insurance, covers inpatient hospital stays and short-term stays in a skilled nursing facility. Part A is premium-free if you worked and had Social Security and Medicare taxes deducted from your pay for at least 10 years. If you are married, divorced or a widow/widower, you might qualify for Part A (as well as Social Security) based on the work history of your spouse, ex-spouse or deceased spouse.


Medicare Part B, or Medical Insurance, covers preventive care as well as medically necessary services and supplies. You do not need any work credits to qualify for Part B. Monthly premiums vary depending on income. The standard Part B premium for 2020 is $145 per month but can be as much as $492 per month for higher-income policyholders.


Medicare Part D provides prescription drug benefits. Premiums and other costs will vary according to the plan and options you select. In addition, there are Medicare Advantage Plans and Medicare Supplement Insurance (Medigap) plans you can purchase.


Medicare, however, does not cover costs associated with long-term care, and Fidelity’s estimate does not take long-term-care costs into account. Approximately 79 percent of women and 58 percent of men aged 65 and older as of today will need long-term-care support at some point in their lives. The average length of need is 3.7 years for women and 2.2 years for men. Long-term care, or “custodial care,” refers to support needed to perform “activities of daily living,” such as dressing, bathing, using the toilet, feeding yourself, and transferring to a bed, chair or wheelchair.


Nationally, the median annual cost of long-term care is approximately $102,000 for a private room in a nursing home, $50,000 for an assisted living facility, $53,000 for in-home care, and $20,000 for adult day care. Actual costs vary by state.


With ever-increasing life expectancies, rising health care costs, and medical advances that prolong life (but not necessarily health), it is more important than ever to understand the financial and health care issues you may face in your golden years, as well as the options for dealing with them. A good rule of thumb is to expect the best but be prepared for the worst. To paraphrase Benjamin Franklin, an ounce of prevention may be worth a pound of cure.


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