How To Estimate Health Care Costs In Retirement

average health care costs for retirees

Knowing how to accurately estimate your health care costs in retirement prior to retiring, can potentially save you a whole lot of difficulties in the future. The last thing you want after working your entire life to save enough money to retire, is for an unexpected medical bill to derail your entire financial plan right before your very eyes. Practical estimates of health care costs in retirement today, lead to a properly calculated financial plan for tomorrow.

Questions To Ask Yourself When Calculating Estimates Of Health Care Costs In Retirement

Determining your estimates of health care costs in retirement will depend on many factors. There are several variables that play a key role in determining what it is that you can expect to pay out in medical expense during your golden years. Asking yourself the following questions will help you to determine these variables and how they will impact your overall financial plan.

– How long do you anticipate that you will need medical insurance coverage?
Factoring in what age you are planning on retiring is important in figuring how long you will require health care coverage. Additionally, you must consider family and your own health history to determine how long you expect to live.
– How much health care coverage will you need?
Taking into consideration any chronic illnesses, preexisting conditions or family history that may leave you susceptible to expensive medical procedures or other costs, is essential in knowing which health care plan is best for you. Selecting the appropriate health care plan in retirement will ultimately save you money in pricey expenditures.
– Do you have an adequate amount of investments and savings to cover these expenses?
Given the amount of money that you have accrued in savings and other investments over the years will you have enough to cover minimal health care expenses, or will you be at a deficit?

Accurate Estimates Of Health Care Costs In Retirement Require Consideration Of Inflation

Every individual facing retirement must at some point must face the facts that the costs of health care in retirement are staggering. Many retirees or future retirees do not respect the impact that health care costs can have on their retirement savings, but they should. After all health care costs in retirement are the leading risk factor in terms of failed financial retirement plans and have the ability to derail even the best-laid retirement plans.

As if the cost of health care in retirement were not already high enough you as a future retiree have inflation to look forward to. The consideration of inflation in figuring estimates of health care costs in retirement are essential to practicable financial planning. As of now it is estimated that health care expenses in retirement will continue to inflate at a rate of 7 percent per year.

In order to use this information to generate a somewhat accurate estimate as to what your health care costs in retirement might be you must account for:
– the health care annual premium expense;
– the rate of anticipated health care inflation;
– your rate of return; and
– the amount of time you plan on spending in retirement.
If you figure the numbers using the formula for the present value of a growing annuity with a $7,500 annual premium, at an 8 percent inflation rate, with a 7 percent rate of return, for 30 years you are looking at a lump sum health care cost of $260,000.

The Role Social Security Plays In Estimates For Health Care Costs In Retirement

You have worked your whole life paying toward a Social Security benefit that will one day help supplement your income in retirement. However, did you ever expect that that very benefit may be decreasing over time? Due to recent legislation and economic climate Social Security benefits are expected not to inflate at the same rate as medical expenses in retirement, but rather remain constant over time and perhaps even decline! Ouch.

So what does that mean for you as a retiree trying to figure out how to estimate your health care costs in retirement? It means that as the cost of health care in retirement continues to rise and your benefits do not, you will then be responsible for filling a larger gap in terms of out-of-pocket medical expense costs.

How To Estimate Health Care Costs In Retirement

In order to estimate how much you need to save to cover your health care costs in retirement you must first start by laying out all of the necessities on the table. Anything that has to do with health care that you will need, you must account for. Figure out annual insurance premiums on plans you intended to select including dental, vision, and hearing. Don’t forget prescription drug coverage, as Medicare does not cover this expense. Factor in inflation and how long you intend on being in retirement.

Really it is all very complicated and there is much room for error. You could go through the whole process on your own and hope for the best or you could just let us at Jester Financial Technologies do all the hard work! Use our FREE online calculator and get an easy, fast and accurate approximation as to what your estimate of health care costs in retirement might be. Contact us today.