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December 1, 2015
What goes up, must come down. Right…?
Actually the adage is wrong when it comes to healthcare costs!
Healthcare costs are on the rise, again. They continue to go up, Up, UP, UUUPPPPPPP!
Healthcare costs for retirees are skyrocketing… Again…
American retirees will need to save more for health care related expenses than they have in recent years, forcing many to plan proactively in the future as these costs are projected to continue rising, new research reveals.
After several years of decline from 2012-2014, projected savings targets needed to cover health care in retirement rose between 6-21% between 2014 and 2015, according to research released in October by the Employee Benefit Research Institute.
Last year, EBRI’s analysis found that retiree health savings targets declined between just 2-10%, a decrease that was due in part to enhanced prescription drug coverage provided health care reforms under the Patient Protection and Affordable Care Act. Similar impacts were felt in 2015 as well.
Why Are Healthcare Costs Rising for Seniors?
While various factors are at play, “the main reason for the increase in needed savings is related to the yearly adjustment for out-of-pocket spending for prescription drug use,” said Paul Fronstin, director of EBRI’s Health Research and Education Program and co-author of the 2015 report.
Because actual out-of-pocket spending for prescription drugs in the most recent data turned out to be higher than expected, future estimates have gone up, too.
Just how much more you will need to save to cover health care expenses depends on a variety of factors, including your age, gender, and your personal savings goals.
How Much More Do You Need to Save?
EBRI found that the range of cost increases depends on how much health expenses a person is likely to have and how high a probability they want to have enough money on hand.
For example, in 2015, a 65-year-old man would need $68,000 in savings, while a woman of the same age would need $89,000 if each has a goal of having a 50% chance of having enough money saved to cover health care expenses in retirement.
But let’s say each of these individuals wanted to boost their chances of having enough savings to 90%. In that case, EBRI found that a 65-year-old man would need $124,000 saved up, while a woman would need $140,000.
Long Term Care Needs Special Consideration
Since the EBRI analysis does not factor in the savings needed to cover things such as long-term care, retiring before reaching Medicare eligibility, and higher Medicare premiums related to higher income, Fronstin says, “many individuals will need more than the amounts cited in this report.”
What You Can Do About Rising Healthcare Costs?
Faced with high expenses down the road to retirement, it is important to take action so you can ensure your savings will be sufficient enough to cover any unexpected costs later in life. Here are 5 tips that should help:
1. EBRI notes that individuals who choose to work past age 65 will need to save less than what is reported, as they may be able to postpone enrolling in Medicare Parts B and D (the latter Part of which covers outpatient prescription drug coverage) if they receive health benefits as active workers.
2. Try to save more or conserve adequate money for medical expenses. You should be concerned about saving enough to cover health insurance premiums and out-of-pocket expenses in retirement, especially since Medicare generally covers only about 60% of the costs for health care services for beneficiaries age 65 and older.
3. Use a good retirement calculator to factor healthcare expenses into a realistic retirement plan. One important feature of the NewRetirement Retirement Calculator is that the system projects your healthcare expenses into the future. You can even customize the rate at which you think these expenses will rise. Set an optimistic number and a pessimistic number and see if you have enough money to fund your medical spending.
4. Shop every year for the best Medicare Supplemental plans. Your health evolves. Insurance coverage changes. Your insurance plan really needs to be evaluated and re evaluated each year.
5. Contact your elected officials about healthcare issues. “Issues surrounding retirement-income security are certain to become an even greater challenge in the future, as policymakers begin to realistically address financial issues in the Medicare program with solutions that may shift more responsibility for health care costs to Medicare beneficiaries,” EBRI researchers conclude.
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