Planning for the Cost of Healthcare in Retirement

Financial well-being October 04, 2016 By Jennifer Henagar

In the middle of your work day, you may find yourself daydreaming about retirement--places to travel, spending time with family, and enjoying hobbies and free time. There can be so much to look forward to, but your plans could be interrupted if you’re not also planning to afford the cost of healthcare. 

Regardless of when you begin your retirement planning, it’s very important to have an estimate of what healthcare will cost in retirement. You can’t count on Medicare to cover everything, and healthcare can be one of the biggest expenses in retirement. 

A retired household faces three types of healthcare expenses: 

  1. The expense of premiums for Medicare Part B (which covers physician and outpatient services) and Part D (which covers prescription related expenses). Typically these are taken out of a person’s social security check before the funds are sent to the recipient. 
  2. The expense of co-payments and deductibles related to Medicare-covered services.
  3. The expense of dental care, eyeglasses, and hearing aids, which are typically not covered by Medicare. 

Why is healthcare in retirement so expensive? 

As we age, we often need more healthcare services and inflation is also a factor. 

Inflation is when the value of currency goes down; a dollar today can’t buy what it could 40 years ago. As an example, consider the cost of a loaf of bread. In 1976, it was only $0.30 per loaf; $0.71 in 1996, and $1.41 today.

According to a 2016 HealthView Data Report, healthcare inflation is expected to average slightly over 5.1 percent annually for the next 20 years. A person retiring today could face more than $33,000 in total retirement healthcare costs than a person who retired a year ago because of healthcare inflation. A healthy married couple, age 65; retiring this year can expect to pay $377,412 over their lifetime. As this example demonstrates, there is an overwhelming increase in healthcare cost. 

The best advice is to not procrastinate with saving for retirement, consult with a financial advisor and try to plan ahead. The return on your investments could keep you ahead of inflation. 

As Benjamin Franklin said, “Don’t put off until tomorrow what you can do today.” The sooner you begin, the smaller the amount of money you will have to put away because time will be on your side.

By Jennifer Henagar

Director of Financial Well-Being, First United Bank - Durant

Jennifer Henagar has worked in the financial services industry for over 20 years. She is currently the Financial Well-Being Director but has a diverse background in Wealth Management, Human Resources, Organizational Development, Executive & Professional Coaching, and various positions at a Credit Union. 

Jennifer graduated with a Bachelor’s degree in Finance from Southeastern Oklahoma State University and a Master’s degree in Business Administration from Texas Woman’s University. She obtained her graduate certificate in Executive and Professional coaching from the University of Texas at Dallas in 2015 and earned her Ramsey Solutions Master Financial Coach designation in 2016. 

Jennifer and her husband Greg live in Atoka County and have five children and two grand-children. For fun, the family enjoys bowfishing and traveling to new places.