A Publication of WTVP

As you plan ahead for your retirement, you might catch yourself doing a little daydreaming. Maybe there is a new hobby you want to explore or a trip you’ve always wanted to take. If so, you may have calculated the costs involved and set goals for what you’ll need to do to achieve the retirement lifestyle you envision.

You absolutely should be doing these things. The problem is, most of us tend to focus our planning and spending on the “upsides” of retirement, overlooking what can be one of the biggest expenses in our golden years: our healthcare. In fact, a 2014 study conducted by AARP found that just 38 percent of the 1,000 older Americans surveyed had planned and saved for out-of-pocket healthcare expenses after retirement.

Overlooking the impact of healthcare costs can throw a major wrench in an otherwise well-thought-out retirement plan. The good news is, there are steps you can take now to help ensure these expenses are covered—without necessarily forfeiting that dream vacation.

  1. Know your estimated retirement healthcare costs. Many of us grossly underestimate the amount we will spend on healthcare in retirement. Nearly half of the 55- to 64-year-old pre-retirees who responded to a 2013 Fidelity survey believed they will need only $50,000 for these costs. In reality, a 65-year-old couple who retires in 2015 is estimated to need more than four times that amount—or about $220,000—to cover all their healthcare expenses in their retirement years, according to 2014 research by Fidelity. That is in addition to any amount Medicare might pick up and other non-covered healthcare costs, such as over-the-counter medications and dental care. Having a reasonable understanding of these expenses is an important step in planning your investment portfolio.
  2. Weigh the costs and benefits of early retirement. Medical care will likely represent a significant part of your retirement expenses, regardless of when you retire. But it can play an even larger role if you retire early. If you retire before you are Medicare-eligible at age 65 and aren’t among the lucky few with employer-funded insurance, you will need to explore interim coverage options. One option is to purchase private healthcare coverage. Another is to self-insure, funding all your healthcare costs with your own savings. But be aware: the Affordable Care Act mandates that those who don’t purchase health insurance pay a penalty. Depending on your income, the penalty alone could amount to thousands of dollars a year. Only you, with the help of a trusted advisor, can determine if the benefits of early retirement outweigh these costs.
  3. Factor healthcare expenses into your retirement income budget. Once you understand your health insurance options, you can factor insurance premiums, co-pays, prescription costs, as well as dental and vision care into your retirement budget. Don’t forget long-term care costs, and factor in your current health status and life expectancy. A 55-year-old couple who lives two years beyond their life expectancy will incur more than $57,000 in additional healthcare costs, according to HealthView’s 2015 Retirement Health Care Costs Data Report. Budget for these items just as you would housing and food expenses so you don’t come up short.

Of course, everyone’s case is unique—and unpredictable. You may live to be 100 and never go to the doctor. Your spouse may live to the same age and require considerable medical care. The key is to make the best decisions you can on the information you have. Your financial advisor can help keep you on the right track. iBi

Lisa Affolter is a senior vice president and financial advisor for Commerce Brokerage Services, Inc., a subsidiary of Commerce Bank.