Medical Costs In Retirement

average health care costs for retirees

Medical costs in retirement are often overlooked among those embarking on their financial planning for retirement. This essential factor in building an appropriate financial plan has the potential to ultimately take down even the finest of prepared budgets, if not accounted for. We are often instructed by our trusted financial advisors that maximizing refunds and minimizing taxes is the key to financial success in building a retirement “nest egg.” However, one important aspect is often forgotten – medical costs in retirement. Most are unaware that the very size of your retirement nest egg is the determining factor in your health care costs in retirement. That means that building a hefty 401k and maximizing Social Security benefits may actually hurt you in terms of your medical costs in retirement.

What Is The Relationship Between Medicare Coverage, Medical Costs In Retirement And Social Security?

There is a rather important relation in terms of Medicare coverage, or medical costs in retirement, and Social Security benefits. If you are a retiree taking advantage of Medicare then under The Medicare and Social Security Guidelines your premiums are to be deducted from your Social Security benefit prior to you receiving them. Which ultimately means that the two go hand in hand.

An Estimated Medical Costs In Retirement Example

According to the Medicare Board of Trustees report, Medicare has historically inflated at a rate of 7 percent for the last 47 years. This consistent inflation is expected to continue through at least 2022 without a hiccup. Unfortunately, according to The Social Security Trustees report Social Security is not expected to see the same steady inflation, but rather is expected to completely level out and even decrease in some cases through 2022. So what does this relation mean for the average earning American retiree? Consider the facts in the example below:
• A 60 year old male, working-class American citizen has earned an average of $50,000 his entire career life. He plans on a retirement age of 66 at which time he will enroll into both Social Security and Medicare.
– In 2020 this gentleman’s Social Security benefit, according to the Social Security’s Quick Calculator $21,288.
– If he selects Medicare plans Part B & D, as well as Plan F MediGap Policy in order to maintain “full coverage,” then his expected premium would be $6,118.67.
• If all stays on track as projected by Medicare and Social Security this man can expect that in 2020 his actual retirement benefit (less his Medicare expense) would be $15,169.33. Not the full amount of $21,288 expected had he not factored in his medical cost in retirement estimate.
– This equates to his medical costs in retirement estimating to consume 28.7% of his Social Security benefit.
• If all remains status quo by the time he is 85, in 2038, his medical costs in retirement by estimate will consume 55.8% of his Social Security benefit.
• And even still, if things remain constant, by the time this gentleman is 90 years old his medical costs in retirement will eat up 67% of his Social Security Benefit.
There are only a select minority of Americans who are fortunate enough to have other significant sources of income in retirement. For the vast majority though Social Security plays a large role in income. In fact, in 2009 it was reported by the Social Security Administration that Social Security made up 50 percent or more of retirement income for 66 percent of retired Americans, aged 65 and over. With the medical costs in retirement on the rise, Social Security benefits remaining rather constant and even worse projected to eventually decline, retirement income is certainly a cause for concern for many future retirees.

The Impact Of Medical Costs In Retirement

The impact of medical costs in retirement on the average American’s income cannot be taken lightly. As the precious income of retirees dwindles due to estimated costs of health care in retirement rising and Social Security benefits remaining constant, the result is inelastic spending ability among Americans when they need it most. It is therefore more important than ever for those nearing retirement to formulate a plan on how to generate guaranteed income in retirement in order to supplement their losses due to rising health care costs.

How Many Future Retirees Have Factored in Estimated Medical Costs In Retirement?

During a time where working may not be an option, it therefore becomes ever more necessary to have a solid financial plan in place with regards to your estimated medical costs in retirement and retirement income. So, you might be wondering – as society’s largest generation nears retirement how many have taken the necessary steps to adequately prepare themselves financially for what could comparatively be referred to as the most expensive time in their life? The answer may come as a shock to you – 8 percent. That is right, of the average 10,000 Baby Boomers that retire every day and that will continue to do so for the next 19 years, only 8 percent have sufficiently prepared themselves for what retirement might hold in terms of medical costs. That is frightening, to say the least.

How Can You Factor In A Medical Costs In Retirement Estimate Into Your Future Financial Planning?

In order to satisfactorily prepare yourself for what your future retirement may hold in regards to your finances, you must have access to tools capable of generating useful information. Using our FREE online calculator will provide you with a reliable estimated medical costs in retirement figure, with only a few simple questions. Our useful calculator will properly educate you on what your medical costs in retirement might possibly be, which will ultimately help you to adequately prepare today for your future, tomorrow.

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