- A 65-year-old couple retiring in 2019 can expect to spend $285,000 on healthcare in retirement.1
- Big projections can feel overwhelming, so encourage clients to start small.
- Knowledge of family health history could give them a better idea of how to prepare.
While the needs of your clients can vary greatly, clients approaching retirement will face common realities: Where to live, how to stay fit, access to health care, and future sources of income. One of the biggest obstacles on the road to their ideal future could be healthcare costs.
A 65-year-old couple retiring in 2019 can expect to spend $285,000 in healthcare costs throughout retirement,1 but take a moment before spooking your clients with this sticker shock. Keep in mind that no one pays the entirety of their healthcare expenses as a lump sum, and nailing down an “average” for something as fluid as healthcare costs is next to impossible. Breaking things down to more digestible parts may put your clients at ease.
Break it down
For clients concerned with how they’ll manage healthcare costs in retirement, consider discussing two key elements — premiums and out-of-pocket costs — instead of focusing on an overwhelming lump sum.
Make sure your clients understand that premiums, much like their car payment or Netflix subscription, stay flat each month and are often paid from monthly income. In retirement, this money could come from a hobby they’ve monetized, annuitization, stock dividends, pension, Social Security, etc.
The story changes with out-of-pocket costs. These charges can catch clients off guard: emergency dental work, an ambulance ride, a longer-than-anticipated hospital stay, etc. Since these costs are harder to plan for, you might suggest clients pad savings when you can, set aside any leftover HSA money, or open a dedicated emergency account just for this purpose.
Helping clients keep premiums and out-of-pocket costs separate in their healthcare-funding strategy may bring some peace of mind to their retirement vision.
Not all health conditions are created equal, especially when it comes to cost. It may be helpful to suggest clients familiarize themselves with their family health history to better forecast what they may face in retirement, physically and financially.
We’ve prepared a helpful infographic covering common medical conditions, involved costs, and best courses of action. Consider sharing this resource with your clients to get them thinking.
It’s easy to picture retirement as a series of tradeoffs between living the dream and wealth preservation: save more here to splurge there, dedicate a line of your budget to the bucket list, work part time to support your favorite nonprofit, etc. The truth is, you can downsize your home, you can cut down on travel and entertainment, but you can never eliminate healthcare costs.
While elimination is out of question, minimization efforts may be worth the while. I’m reminded of Bea, the sweet Italian widow who lived next door when I was growing up. She would spoil my family with homemade pasta every week, and my sister and I would help her with chores after school, so we had a good thing going. Three decades later, Bea is 97 and currently lives in a community home. She takes zero medications, gets regular visits from my mom, and recently bowled a 300 in a Wii bowling tournament. My mom asked her what the secret is — she says a daily walk, lots of garlic, and a glass of red wine with dinner to “put the night in.”
While Bea’s situation is certainly anecdotal, her story sheds light on an important truth: Planning for healthcare costs is a two-part equation. Financially, let’s consider how to best manage the core components (premiums and out-of-pocket costs) instead of fretting about astronomical projections. And two, prioritizing long-term health — before and throughout retirement — could pay dividends. After all, the cheapest medical bill is the one your client never gets.
Things to Consider:
- Clients should know their family health history and potential costs to prepare for.
- Avoid big, intimidating figures and focus on a digestible plan of action.
- Show your value by addressing the bigger retirement-planning picture.
1 “Retiree Health Care Cost Estimate,” Fidelity, 2019