Nearly 50% of American retirees underestimated their healthcare costs. Here are 3 ways to protect yourself
It’s tempting — quite tempting — to look forward to your retirement through rose-colored glasses, to imagine your golden years as an endlessly happy epoch marked by relaxation, fulfillment and, crucially, good health.
But according to a new report, just about half of all American retirees underestimate their healthcare expenses. These folks are all around you. Maybe it’s you.
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The Schroders 2024 U.S. Retirement Survey reveals that 47% of all retirees report that their retirement expenses are higher than expected, while 49% believed Medicare would cover more healthcare than it did. And KFF notes that Medicare households spend more on health care than other households.
Schroders based its findings on interviews with 498 retired investors up to 79 years old. The survey suggests that for many, the sobering realities of senior healthcare costs don’t hit home until retirement begins.
On average, retired Americans report spending 14% of their monthly income on healthcare costs such as insurance premiums, out-of-pocket expenses, prescription costs and more. No wonder a vast majority of retired Americans — 85% — listed higher-than-expected healthcare costs as a top concern.
A 65-year-old retiring today can expect to spend $157,500 in healthcare and medical expenses throughout retirement, according to the Fidelity Investment Retiree Health Care Cost Estimate for 2023. Yet 43% of those aged 55-64 and 49% of retirees 65-74 lack a retirement account, according to 2022 figures from the U.S. Federal Reserve.
Those two figures represent a bracing discrepancy. Here’s how to ensure you won’t be on the wrong side of it.
The ins and outs of Medicare and average health care costs
Aside from relying on Social Security, many seniors count on Medicare to help with healthcare expenses in retirement. In a nutshell it’s health insurance for people 65 or older and includes Part A (hospital insurance) and Part B (medical insurance).
Usually, Part A is premium-free if you’ve paid Medicare taxes for at least 10 years. You can also buy it at either $278 or $506 a month, depending on how long you or your spouse worked and paid Medicare taxes. Part B carries a monthly premium of $175.
Specifically, Part A covers inpatient hospital care, skilled nursing facility, hospice, lab tests, surgery and home health care; Part B covers doctor and other health care providers' services and outpatient care, durable medical equipment, home health care, and some preventive services.
But retirees can still expect to pay healthcare costs beyond Medicare coverage. Fidelity notes that the average 65-year-old couple will spend about $12,200 on healthcare in their first year of retirement, while per-person personal healthcare spending for those 65 and older was $22,356 in 2020, according to the non-profit Centers for Medicare & Medicaid Services. Traditional Medicare does not cover dental, hearing, and vision services and carries deductibles along with other cost-sharing requirements.
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3 ways to cut your healthcare expenses
While the financial news for pre-retirees and those 65 and older may seem glum, many can leverage savvy strategies to control costs. There’s a definite urgency, as Gallup reports that one in three adults ages 50 and up have forgone basics such as food to pay for healthcare.
Price-check your pharmacy. Many seniors take drug prices for granted based on convenience, but they aren't created equal insofar as pharmacies go. Billionaire Mark Cuban has set up CostPlus Drugs, an online service that delivers prescription medications at discounted prices. Using the example of a 30-count supply of 400 mg Imatinib (a cancer growth blocker), Cuban claims that customers can save close to $10,000 a year.
Limit long-term expenses via preventive care. Medical self-care acts as a preemptive strike against soaring expenses. Chapter.org lists a variety of vaccines and shots that prevent hepatitis B, flu and COVID-19, as well as screenings that help healthcare providers catch treatable infections and diseases early. All are covered under Medicare.
Enroll in a Medicare Savings Program. If you lack retirement savings and/or have limited income and assets, Medicare Savings Programs (MSPs) can help cover Medicare costs. These special benefit programs sponsored by state Medicaid agencies do have income limits for individuals and married couples. These vary widely depending on your location and situation — anywhere from roughly $1,200 to $6,700, according to the National Council on Aging — so check with your State Health Insurance Assistance Program. These agencies also provide guidance and counseling to address healthcare cost needs.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
