Health Care Costs and Retirement

by Leah Gorham

Proper planning for retirement is not only important for retirees to maintain the lifestyle they had before retirement, but may also be crucial for paying for the high cost of health care. Retirement health care costs are rising due to factors such as the increased use of technology and prescription drugs and at the same time, personal savings are decreasing and the Social Security system will likely fail to provide adequate support in the future.

In 2008 an analysis by the Employee Benefit Research Institute said that a couple currently at the age of 65 would need $635,000 to cover healthcare costs in retirement, not including long-term care costs. This estimate gives the retired couple a 90 percent chance of having enough money to cover all health bills beyond what Medicare covers as opposed to lower estimates.

Options for paying for health care and long-term care include Medicaid buying long-term care insurance, selling the family home when long-term care is needed, or tapping into the value of the home through a reverse mortgage. Many poor seniors will rely on Medicaid, while those with a higher income may prefer to buy insurance, which can cost about $3,500 a year if acquired at age 65. According to the American Council of Life Insurers approximately 48% of long-term care recipients and their families pay long-term care costs out of their own pockets, 41% qualify for Medicaid, 8% are getting temporary coverage provided by Medicare. and only 3% are paying with private long-term care insurance.

It is important to think about the options for long-term health care before the need is dire and prepare adequately for retirement health care costs early.

Source 1, Source 2, Source 3