When most people think about planning and saving for retirement, they generally think about the amount of money they will need to cover their basic living expenses – housing, food, utilities, transportation, entertainment, travel, etc. The cost of healthcare in retirement is generally not top of mind but it should be.
According to a recent study from Fidelity, an average couple, both aged 65, will spend more than $245,000 dollars over the course of their retirement on healthcare costs, and this number does not include the added expense of nursing home or long-term care. Most retirees will spend more on healthcare than any other single expense and healthcare costs are only expected to continue to climb in the future.
One reason for this disparity in perception is because many retirees assume that the bulk of their healthcare costs will be covered by Medicare. Unfortunately, this is simply not the case. Medicare Part A is free and covers hospital visits but insurance premiums have to be paid out-of-pocket for Medicare Part B (doctor services and outpatient care) and for Medicare Part D (which covers the cost of prescription drugs). In addition to these premiums, there are likely to be co-pays and deductibles that will also have to be met, and Medicare does not cover vision, dental, foot care, hearing aid or long-term care expenses.
One way to fill the gap in healthcare coverage is to purchase Medicare Supplement Insurance or MediGap. These supplemental policies are sold by private insurance companies and they are designed to pay some of the healthcare costs that Original Medicare doesn’t cover – like co-payments, co-insurance and deductibles. In addition, some MediGap policies will also cover healthcare expenses when you’re traveling outside the U.S.
There are a lot of variables between supplemental insurance policies so make sure you understand what you’re buying and what expenses are being specifically covered.
Of course, it is impossible to say with any certainty how much an individual or couple will spend on healthcare in retirement because it is dependent on several variables – how healthy you are, at what age you retire, and how long you live. But it is possible to get a fairly good estimate about the healthcare costs you are likely to incur by using a healthcare cost calculator, and AARP provides an excellent one.
If you’re already retired, the AARP Health Care Costs Calculator will help you to estimate your costs in the coming years (your spouse can be included as well). If you’re not yet retired, the calculator provides valuable guidance on how you can save on healthcare costs, including advice on changes that lead to a healthier lifestyle and fewer medical bills. The use of the AARP calculator is free; membership in the organization is not required.
Speaking of a healthier lifestyle, one way to save on healthcare costs is to be more active and physically fit, to eat more nutritiously, and to avoid unhealthy habits (like smoking cigarettes or an overindulgence in alcohol, for example). There are some great programs available to retirees to help them to get and stay fit, including the very popular SilverSneakers program.
SilverSneakers is an innovative fitness program offered through 70 participating health plans that provides access to 13,000 gyms nationwide, and it’s completely free. Typically, a participating program includes exercise classes, weight rooms, swimming pools and workout plans, in addition to sponsoring social events. According to data collected in one of their surveys, SilverSneakers members reported being in “excellent” or “very good” health compared to the national average.
Obviously, there are many challenges that retirees face in order to adequately meet their healthcare costs in retirement. But being aware of all the costs they are likely to incur in their retirement years will help them to plan accordingly. Plus, taking advantage of all the supplemental insurance programs will help them to defray their out-of-pocket costs as well. Finally, being healthy and fit is the best way to reduce healthcare costs at any age, though it’s especially important in one’s golden years.
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