Americans can expect to pay a lot more for medical care in retirement

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“There is strong upward cost pressure in the healthcare system right now from investments that providers need to make to prepare for the next pandemic due to work-related issues, particularly among hospital nurses,” said Hope Manion, senior vice president and Chief Health and Welfare Actuary at Fidelity Investments.

Fidelity also found that most Americans underestimated retirement health care spending, with the average person expecting the cost to be $41,000 — a shortfall of $274,000 from his estimate.

The most important thing is that you start saving and you start saving early.

Paul Frontin

Director of Health Benefits Research at EBRI

“People don’t realize that once they get Medicare, they’re still going to be hooked on a bunch of bills,” Manion said, adding that retirees have to pay for premiums, over-the-counter and prescription drugs, and some medical equipment.

Increased inflation adds up over time

If healthcare costs rise just 2% above consumer inflation over the next two years, a healthy 55-year-old couple could face an additional $267,000 in medical costs by retiring at age 65, according to an analysis by HealthView Services goes.

The same couple could expect to spend more than $1 million on health care expenses in their lifetime — almost the same amount they could expect on Social Security benefits.

“Whether you’re wealthy or an average person…when you look at your Social Security check, you’re paying for healthcare,” said Ron Mastrogiovanni, CEO of HealthView Services.

Planning pays off

After premiums are paid, Medicare covers about two-thirds of health care costs, according to the Employee Benefit Research Institute (EBRI), with out-of-pocket spending accounting for about 12%.

“Aside from shelter, food and transportation, [health care is] probably the most expensive item we will face in retirement,” said Mastrogiovanni. “You know what it is. Be prepared.”

Stay healthy

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While physical fitness can help control some healthcare costs, experts say anticipating medical costs over a longer lifetime should also be factored into the equation.

Take advantage of tax-advantaged health savings accounts

Health savings accounts are a way to save for future health care costs, but these require a high-deductible plan and have annual contribution limits.

For 2022 is the limit $3,650 for single insured and $7,300 for families. For those over 55, each of these limits increases by $1,000 with “catch-up” contributions.

Increase your savings with retirement plans

Increase savings now to increase security later. Experts say consider adding more money to your 401(k) plan or an individual Roth retirement account if you qualify.

“The most important thing is that you start saving, and you start saving early,” said Paul Fronstin, director of health benefits research at EBRI. “The sooner you do that, the better prepared you’ll be.”

Don’t rely on employer protection

There was a time when employers offered health benefits to retirees, but EBRI found that only about 4% of companies receive these benefits. That’s down from about 45% before a change in accounting rules in the late 1980s forced companies to include the liabilities on their balance sheets.

“When they had to do that, the bottom line just didn’t look good, so they started cutting benefits to the point that very few workers will be eligible for those kinds of benefits going forward,” Frontstin said. Americans can expect to pay a lot more for medical care in retirement

Gary B. Graves

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