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Retirement Health Care Costs

Faith & Finance with Rob West | Sep 6, 2021

Show Notes

You may have seen estimates for sky high health care costs during retirement that most workers could never hope to amass. But are the numbers really true? One of those forecasts says a 65-year old couple will have to spend as much as $400,000 during retirement. We have some surprising new information from a top brokerage on that topic.

  • Brokerages like T. Rowe Price often go with very high numbers when estimating retirement healthcare costs.
  • Their aim is to have people invest as much as possible during their working years to then pay for healthcare later in retirement. Not necessarily a bad approach, but fear shouldn’t be the driver behind the advice.
  • Refreshingly, T. Rowe Price shared an article, backed with facts, stating the catastrophic estimates are NOT accurate for the majority of retirees. Heathcare spending is the top concern for retirees but it’s important to look to sound advice not fear of the unknown.
  • The article shares three steps to simplify the planning exercise.

    • First: Don’t view healthcare as a large one-time expense…look out 20-30 years.
    • Second: separate premiums and out-of-pocket expenses. Premiums for Medicare and prescription drug coverage will make up about 75% of health care costs for most retirees, no matter which Medicare coverage they choose.
    • Since these fixed month-to-month expenses comprise the bulk of annual health care expenses … most of that spending is predictable and you can simply make it a category in your monthly retirement budget
    • Third … take those huge estimates for retirement health care costs with a big grain of salt. They’re usually based on a single type of coverage that requires the most out-of-pocket spending. You will likely choose a better plan.
  • T. Rowe Price estimates that half of retirees with traditional Medicare (Parts A and B), a prescription drug plan (Part D), and a supplemental plan … will spend less than $1,200 a year on out-of-pocket expenses.
  • Here are the steps you should take to make health care cost planning easier:

    • Compare premiums and out-of-pocket costs for the various Medicare coverage options. Include prescription drug coverage and choose one that fits your needs.
    • Calculate your premiums based on that plan and make a category for them in your monthly budget.
    • And finally, keep enough in your savings account to meet annual out-of-pocket expenses. Do that by reviewing those costs in prior years.
  • Read the T. Rowe Price article, “How to Break Down Health Care Costs in Retirement.”

On this program we also answer a few listener questions:

  • I have three pieces of property to sell. Should I sell them all separately?
  • What are some principles to guide spending with a credit card?
  • Is you are going to pay down your mortgage, do you first need to decide how long you are going to be in the house?
  • I have 20K in a credit union savings account. I contribute 3% to my 401K at work. I have $500/mo to save. What should I do with this money?

Remember, you can call in to ask your questions 24/7 at (800) 525-7000 or email them to Questions@MoneyWise.org. Also, visit our website at MoneyWise.org where you can listen to past programs, connect with a MoneyWise Coach, and even download free, helpful resources like the free MoneyWise app. Like and Follow us on Facebook at MoneyWise Media for the very latest discussion! And remember that it’s your prayerful and financial support that keeps MoneyWise on the air. Help us continue this outreach by clicking the Donate tab on our website or in our app.

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