After a life-long career, individuals look forward to their retirement – a time to relax, enjoy time with loved ones, and explore new interests. However, many retirees will face a similar challenge when they reach their golden age: health care costs. Health care is one of the biggest expenses in retirement and many are not prepared to meet its costs. Common misconceptions about Medicare and Social Security’s limitations and lack of financial planning, may put many retirees at a loss when it comes to health care.
Rising Health Care Costs
According to a report by HealthView, the total retirement health care costs for an average 65-year-old couple retiring in 2017 is $404,000. This number factors in Medicare premiums, supplemental insurance premiums, deductibles and copays for an average couple. A couple with pre-existing health conditions may be looking at an even larger bill.
Baby Boomers Aren’t Saving
As mentioned in a previous article, baby boomers are prioritizing caregiving for their aging parents and supporting their children through tough economic times, over saving for their retirement. The Economic Policy Institute reported that 41 percent of baby boomers do not have retirement savings at all. The median savings for households reaching retirement age is only $17,000 – a drop in the $400,000-plus bucket. Those without savings may be banking on public benefits like Social Security and Medicare to cover the gap in costs. However with rising health care expenses, program limitations, and an unpredictable future, many seniors may soon face a harsh reality.
Social Security Can’t Keep Pace with Health Care Costs
For years Social Security has been criticized for its failure to keep pace with the living expenses of senior citizens. A report released by HealthView revealed that the annual rate of health care expenses are growing at a rate twice as fast as the typical annual increase in Social Security benefits. It is likely that over time, retiree health care costs will exceed what they can collect through Social Security. As many as 61 percent of retirees, and 71 percent of retirees who aren’t married, rely on monthly Social Security benefits to provide at least half their income, according to the Social Security Administration.
Medicare Doesn’t Cover Everything
There is a common misconception that Medicare will cover the total cost of an individual’s health care. This is not true. While Medicare can cover some of the costs, beneficiaries still have to satisfy a deductible and make co-payments for certain health care services. Also, Medicare does not cover long-term care services, including nursing home care, assisted living and adult day care, as well as personal care, including housekeeping, assistance with daily living tasks, meal preparation and cleaning.
What Can Be Done to Combat Retirement Health Care Costs
First things first, start saving. If they haven’t already, individuals should start investing money into any tax-deferred retirement savings plans that are eligible to them, including 401(k)s and IRAs. An employee is allowed to contribute a maximum of $18,000 annually to a 401(k) or $24,000 if he or she is age 50 or older. An individual can contribute $5,500 annually to an IRA or $6,500 if he or she is age 50 or older.
Second, take full advantage of Social Security benefits. If an individual delays Social Security benefits until age 70, the benefit amount will be 32 percent more than what would be received at retirement age and 76 percent more than what can be collected at age 62. The increased benefits can be used to finance long-term care services or other out of pocket expenses.
Third, secure additional health care coverage through Medicare Supplemental Insurance (Medigap) and Medicaid. Medigap, a policy to supplement traditional Medicare benefits, can help pay some of the costs that Medicare does not cover, such as copayments, coinsurance, and deductibles. Some Medigap policies will also cover medical care outside of the U.S. Medicaid is a jointly funded federal-state program that provides long term health care coverage to those, including the elderly and disabled, who meet certain income and resource requirements. Medicaid will cover traditional care services, including doctor’s visits, inpatient and outpatient hospital care, and laboratory and x-ray services, as well as long term care services. These services include, but are not limited to, nursing home care, some assisted livings, and home health care aides who will assist with custodial care.
At Tully Law, PC we understand that planning for retirement can be difficult in a tough economy and while juggling family responsibilities. The experienced Long Island elder law and estate planning lawyers can help remove the burdens of planning, financing and obtaining proper long-term health care by utilizing the tenets of the Life Care Plan system, allowing family members to spend time with their loved ones. With offices conveniently located in Melville and Centereach, the Life Care Planning lawyers at Tully Law, PC can help New York City, Nassau and Suffolk County residents develop a unique plan to meet your or your loved ones needs. For more information or to schedule a consultation, contact our New York Life Care Planning office at 631-424-2800.