Planning for retirement is both a savings and a guessing game. While many of your day-to-day expenses will stay the same, there are significant categories that can eat into a big chunk of your savings. The more you can plan, the better prepared you will be to meet the costs.
Here are four expenses to keep in mind when planning for retirement:
1. Health care
According to a 2021 report by Fidelity, the average 65-year-old retired couple will need about $300,000 in after-tax savings to manage health care costs in retirement. Fidelity is a NerdWallet Partner. “And that’s just for regular health care,” says Michelle Gessner, a certified financial planner in Houston. “That’s not even counting unscheduled care for chronic conditions.”
Your specific costs will depend on where you live, how long you live, and your general health. Taking care of your health and properly managing conditions like type 2 diabetes can help keep costs down.
The other health care surprise is that Medicare premiums are higher if your income is above a certain level. For example, if you are married and file jointly with a modified adjusted gross income greater than $182,000 in 2020, you will pay at least 40% more for your monthly Medicare Part B premiums. In 2022, the standard premium costs approximately $4,000. $ per year for a couple.
“It’s really climbing,” says Laurie Burkhardt, CFP in Boston. “And it’s easy, believe it or not, to reach that level of income when you’re at the age where you receive the required distributions from your IRA.”
2. Long-term care
Older people who live to age 80 have about a 1 in 4 chance of needing long-term care. And it’s not cheap: an assisted living facility costs an average of $4,500 per month. And while an average home health aide costs about $27 per hour, the costs add up.
“That’s pretty reasonable if you only need a few hours of care per week,” said Patti Black, CFP in Birmingham, Alabama. “That math becomes unfeasible the more care you need.”
Certified Financial Planners can help clients project the costs of a few years of long-term care to ensure their savings can handle it. “I talk to clients about whether long-term care insurance should be part of their financial plan to transfer some or all of that risk,” Black said.
3. Dental care
The average elderly person with Medicare using dental services was paying nearly $900 a year out of pocket, according to the Kaiser Family Foundation. And 1 in 5 Medicare beneficiaries spent more than $1,000.
Original Medicare does not cover most traditional dental care, and 47% of Medicare beneficiaries have no dental insurance. But gum disease, tooth loss and oral cancer are bigger concerns for older people, and it can be difficult to find comprehensive dental insurance.
“Dental procedures can be a really rude awakening,” Burkhardt said. “I’m going through it right now with my husband, who’s retired and getting a dental implant. He was shocked at how big the payout is.”
4. Prescription drugs
Since 2015, at least 1 million Medicare Part D enrollees per year have had drug costs high enough to exceed the catastrophic coverage threshold, which is $7,050 in 2022. If you have an illness that requires medication specialized level – such as cancer, multiple sclerosis or hepatitis C – your out-of-pocket expenses may be exceptionally high. Once you reach the catastrophic threshold, you’ll pay either a small coinsurance or co-payment for drugs, but there’s no cap on out-of-pocket spending under Medicare Part D; it can add up if your medicine is expensive.
“My dad has rheumatoid arthritis and his medications cost $6,000 a month,” said Tess Zigo, CFP in Palm Harbor, Florida. “What pensioner has $6,000 a month just for drugs? »
What to do
A financial planner who specializes in retirement needs can test your financial plan for health events and other expenses. If there are gaps in your coverage, they can help you with strategies to deal with unexpected costs, such as considering long-term care insurance or a hybrid policy that combines life insurance with a long-term care rider.
It’s also essential to get the right insurance, from Medicare supplement plans to dental and drug coverage.
“If the coverage is correct, these catastrophic expenses aren’t that bad,” said Dennis Nolte, CFP in Winter Park, Fla.
A good insurance broker can help you weigh your options, and a Medicare consultant — or a call to your state Health Insurance Assistance Program, or SHIP — can answer your questions about the best coverage. Medicare for your needs.
This article was provided to The Associated Press by personal finance website NerdWallet. Kate Ashford is a writer at NerdWallet.