A lot of our Road to Retirement articles tend to focus a lot on your retirement plan. One of the biggest parts of your retirement plan is determining and evaluating your expenses.
When it comes to expenses there are the obvious ones, your mortgage/rent, food/groceries, and the cost of your insurance. However, one of the most overlooked expenses is your medical costs. But how do you calculate that? Sure, you will probably have a handle on how much your home will cost, and you can guess how much groceries are, and insurance is relatively static, but there’s really no accurate way to project how much your medical expenses will be. So how do you budget for that?
First, we can look at the national average. On average, a retired individual age 65+ will spend $150,000 in their lifetime on one-time medical fees and between $100,000-250,000 on long-term care. It’s important to note that Medicare and your health insurance will help you pay for your one-time medical fees and surgeries and that both of these expenses are spread out over anywhere between 10-35 years. But Medicare and most traditional health insurance providers do not help you pay for Long-Term care after 100-days of treatment and, even then, there are limitations based on where you’ll be able to receive that treatment.
That might make it sound like you’re going to be hopeless if you don’t have $250,000 saved up just for medical expenses, but that’s not the case. There are a lot of ways to effectively budget for both one-time medical services and long-term care prior to retirement. Obviously, the sooner you start considering this, the better, but it’s not impossible to start planning for this as late as a few years before retirement.
Since medical fees are often taken care of via insurance and vary the most depending on your personal health, your plan, and even where you live, that’s something we’ll hold off on discussing, and we’ll instead focus on Long-Term care.
Estimating the Cost of Long-Term Care
Long-term care costs have been rising dramatically in the past 20 years and are projected to keep increasing. Advances in medicine mean people are living longer and the cost of PPE and other medical tools are increasing, while labor shortages mean less and less people are working in this extremely difficult and specialized field. These changes (among others) lead many to believe that prices are likely to increase between 100-300% in the next 20 years.
As you can tell, that’s a pretty wide difference in terms of projected cost. Making it pretty difficult to give you a solid estimate on how much this might cost you. What we recommend is to look back on your medical history. Do the older members of your family tend to need nursing care? If so, how intensive? Are you healthy? Where would you want to receive care, if you needed it?
From there, you can check out Genworth’s Online Cost of Care Calculator. Simply select the location you’ll be living, and then slide the “calculate future cost” to the year you’ll be 67 (the most common age of long-term care recipients). Women on average require 3-5 years of long-term care, whereas men tend to need 2-3 years.
If you want a quick formula to see what you might pay if you’re part of the median age/health requirements here’s what you’ll need to do. Take the future cost of a year of long-term care, women can multiply that number by 3.5, whereas men can multiply it by 2.5.
Now, that number might shock you, but remember, it’s never too late to start planning.
Budgeting for Care in Retirement
We’d be burying the lead if we didn’t start this conversation off by talking about Long-Term care insurance. This is a rare form of insurance that specifically covers you when you need support in performing routine activities (e.g. getting out of bed, bathing, eating, dressing). Long-Term care is often described by its location, be it a nursing home, hospice, or an in-home caregiver/specialist.
Most of the people seeking long-term care don’t have a choice on where they get their treatment due to cost, limits due to insurance, or the availability of family to help bridge care gaps. Long-term care insurance gives you and your family the flexibility of choice, something hard to find when it comes to post-retirement medical care. This means if you’d rather receive care at home, you can get it. If you’d rather receive care in a nursing home, you can get that too.
Click here to Schedule a Long-Term Care Call
There are also life insurance options that feature long-term care riders that help make it more affordable. These are often limited in how much they’ll pay out, but they do exist and are worth looking into.
Ultimately, the most effective budgeting tool is a savings account/an IRA that you plan to use explicitly for long-term care. These options obviously require you to have some foresight, but that’s what a plan is for, right? From the San Diego public employee retirees I interviewed, many of them started seriously thinking about and planning for retirement at age 50 and were still able to save enough to cover their expenses. Most of them also wished they started sooner.
For more on saving up for retirement, click here.
There is a lot to consider when retiring, but just know it’s never too late to start figuring these things out. The sooner you start planning the sooner you’ll be able to find peace of mind!
Interested in our other retirement articles? Check out the list below.
How your Benefits Translate into Retirement
How do you keep an Income while Retired?