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Your life in retirement could be totally disrupted if you or your spouse suffers an extended illness – and the medical bills that result. Your life’s savings could be drained before you even know what happened.
Still, financial planners say, even people who have saved a comfortable nest egg for retirement neglect or forget to consider medical costs in their planning, despite the fact that medical expenses are a major reason bankruptcies among people 65 and older have doubled since 1991.
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“I frame it this way to clients in their 50s,” she says Lazetta Rainey Braxton, former president of the Association of African American Financial Advisors and CEO of Financial Fountains in Baltimore. “I start with telling them that medical costs are the biggest cost for retirees and the next is housing. You get this under control and your life is good.”
Surveys show that one of Americans’ biggest fear in retirement is being overwhelmed by medical costs and running out of money. The Employee Benefit Research Institute, a nonprofit research institute based in Washington, D.C. , says more than half of retirees in their survey don’t believe that they have saved enough to pay medical expenses in retirement.
Fidelity Investments says a 65-year-old couple that retired in 2016 will need $260,000 to cover health care costs in retirement, up 6 percent from 2015 and the highest since the company began calculations in 2002.
Fidelity also looked at the costs associated with long-term care, which it says could impact seven in 10 Americans who reach 65 in the next five years. Fidelity estimates that a 65-year-old would need an additional $130,000 to insure against long-term care expenses.
These startling numbers should be of particular concern to African Americans, who generally suffer more health-related ailments than white Americans. African Americans are more likely to suffer from diabetes and are more likely to die from heart disease, stroke and breast cancer, according to Families USA., a proponent of affordable health care for all Americans.
African American also have saved less for retirement. The average white family had more than $130,000 in retirement savings (cash in accounts such as 401(k)s, 403(b)s and IRAs) vs. $19,000 for the average African American in 2013, the most recent data available.
Braxton says people need to be honest about their own health and family medical histories. “This number (estimated health care costs) can be affected by health conditions like diabetes and other medical conditions,” she says.
“A lot of people I meet with for the first time are under the impression that somehow they will be covered by something at work, even when they have left says Brett King, senior vice president at Elite Financial Associates in Tampa, Fla. “Eighty-five percent of companies don’t cover retirees for anything.”
Financial planner Nick Abrams at AJW Financial Partners in Columbia, Md. says he makes sure he brings up planning for the costs of medical expenses when he meets with new clients.
“Some of them will bring it up because they are going through it with parents or a loved one,” he says. “They are seeing the cost and burden of health care. But some have no idea of the cost of health care and how that can impact their retirement.”
Also, Abrams says, one of the biggest adjustments is retirees leaving their jobs and not understanding Medicare – what it covers and what it doesn’t cover.
King says people also believe, incorrectly, that Medicare is no cost. “Part A (which covers hospitalization) is no cost,” he says. “Part B (which covers visits to doctors) is a cost and it can be expensive, depending on your income. It can cost $108 to $450 a month. Part D is prescription drug coverage, and it’s pretty expensive. A lot of drugs aren’t even covered. It really adds up. When you add the costs up, and include a Medigap policy which people will need to cover deductibles, a couple is spending $14,000 to $15,000 a year.”
Ultimately, people are just not financially prepared, says Mitchell Katz . financial planner at CA Wealth Management in Bethesda, Md. “Health care costs probably inflate 5 percent to 7 percent (annually),” he says. “People just aren’t ready to cover those costs. At 65 years old, their health insurance alone may be $600 (monthly). That will double in 20 years. “
Abrams says you should consider a long-term care insurance policy. They can be expensive, but tend to be cheaper if they are offered at work as an employee benefit. “If you live long enough, one of you will need it, if not both,” he says.
“If they don’t have coverage and cannot qualify or cannot afford it, we try to get some kind of coverage,” he says. “It might not be the Cadillac of long-term care, but it will help with costs.”
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