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Paying for Expected and Unexpected Health Care Costs in Retirement

Even the savviest of savors can find themselves in a financial hole if suddenly presented with unexpected health care costs during their retirement years. If Medicare and health insurance isn’t paying for hefty out-of-pocket expenses, many retired folks have no choice but to figure out other ways to keep up with the bills.

One of the most expeditious ways to pay for unexpected health care bills depends on whether or not you’ve lived in your family home for many years. If so, and you’ve been paying on the mortgage religiously, you just might be in the fortunate position of being a candidate for a reverse mortgage loan.

A reverse mortgage loan helps you tap into all that equity you’ve been saving up for decades. If approved, you can receive your proceeds in one lump sum payment or monthly disbursements. You’ll no longer have to pay a mortgage payment which can free up money for your health care costs. Plus, you don’t need to repay the loan until you die.

To find out how much of a reverse mortgage loan you qualify for, use this handy online reverse mortgage calculator.

Reverse mortgages aside, the best plan for taking care of health care costs in retirement is to plan ahead for the unexpected. According to a recent financial article, for decades, financial industry experts have been literally frightening pre-retirees into believing they will need massive amount of cash set aside at 65 to help pay for health care costs during retirement.

For instance, Fidelity Investments has estimated that an average 65-year-old couple will require close to $300,000 put aside for medical care expenses which includes long-term care in the 2020s.

The Employment Benefit Research Institute claims that a couple retiring in 2022 with “drug expenses at the 90th percentile” during retirement should plan on putting aside $325,000 by 65 years old.

What all this adds up to is that healthcare in retirement is not an easy thing to plan for.

The Truth About Healthcare Costs in Retirement

Says David Blanchett, the head of retirement for Morningstar’s Investment Management, “Healthcare if perhaps one of the hardest risks to plan for in retirement.

However, some financial researchers are actually pushing back on the notion that you’ll need hundreds of thousands to put away for retirement to cover healthcare costs, both expected and unexpected.

To start with, the Transamerica Center for Retirement Studies claims the the average median savings for U.S. retirees in their 60s is around $172,000. For people ages 65-74, the average savings is around $267,000.

That said, financial experts believe pre-retirees should think about healthcare costs an “an annual expense” that can be broken down in “easy-to-predict premiums” rather than the less predictable out-of-pocket expenses and from there, rethink that true costs of experiencing long-term care expenses and/or late in life medical shocks.

Viewing Healthcare Costs as an Annual Expenditure

Say the experts, looking at retirement healthcare costs as an annual expenditure rather than a massive lump sum, makes it simpler and easier for retirees to plan and eventually pay for them. Lump-sum estimates are not accurate healthcare cost estimates once you retire since they are “not incurred as lump-sums.”

If a couple, aged 65, are aware without a doubt that they’ll require $400,000 for healthcare costs they actually don’t know how much of that might be needed when they’re in their 70s or 80s. By the time their 80s arrive, they might have passed already. This is what makes planning for healthcare costs in retirement so difficult.

So How Much Should You Expect to Pay in Retirement Each Year?

Naturally, estimates vary from source to source, but not by a lot.

The experts estimate that annual healthcare costs at the 50th percentile at $5,200 per year, that is you’re cover by Medicare Parts A and B along with a prescription Plan D drug plan.

For those covered by a Medicare Advantage HMO plan including MA-PD prescription drug coverage plans, you should figure about $4,500 per year.

Retirees covered by the traditional Medicare Parts A and B, Medigap, and a Part D prescription drug plan, you should plan to pay around $8,000 per year for both expected and unexpected out-of-pocket medical expenses.

According to the Retirement Management Journal, the average per year healthcare expenses for all retirees ages 65-94, not including long-term costs, are about $4,500 per year which amounts to about 15 percent of all annual expenditures in retirement.

Peter Christopher

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