Did you know the majority of Americans grade themselves as having a “C” based on their readiness for retirement, according to RothIRA.com? Worse, few have any concept of retirement healthcare costs.
What grade would you give yourself?
If you’re like the 54% of workers who said that they don’t have a clue on how much they should save for retirement, then go ahead and give yourself a “C” too. More times than not, people who don’t know how much they should have saved up, don’t have enough saved up to stay on track for retirement at 65.
The biggest financial retirement mistake being made by the majority of Americans today is not having enough savings for retirement. The reason for this is that they simply don’t know how much they should have put away for retirement healthcare costs in retirement.
(Editor’s note: Probably the most over-looked area of retirement planning is preparing for retirement healthcare costs. I know little about it, and when Danielle approached me with an article on the topic, I jumped at the chance to get an expert opinion on the subject. There’s much more to preparing for retirement than just building up the biggest investment portfolio possible. Retirement healthcare costs are equally important. It’s worth investigating the possibilities and costs even if you’re years away from retirement. – Kevin)
The Big Picture – Get Your Savings and Investments in Order
Experts say that the average married couple should have about $280,000 minimum set aside for healthcare costs alone. However, one out of every three baby boomers that Northwestern Mutual surveyed admitted to having between $0 and $25,000 total in savings for retirement.
According to the RothIRA.com, 38% of workers claim to have less than $10,000 put away for retirement. Neither of these groups of people is adequately prepared for retirement costs.
Many people claim the reason they aren’t prepared as well as experts say they should be is that they simply didn’t know how expensive healthcare would be in retirement.
How to Avoid this Common Mistake by Getting Professional Help
Avoiding this mistake is crucial if you want to be able to enjoy a worry-free retirement. To do that, there are a few steps you’ll need to take to ensure you are prepared for retiring on time.
The first step you should take is hiring a financial planner. A financial planner can help you figure out how much savings you will need to live a comfortable retirement.
One thing you should highly consider discussing with your financial planner is your health. Your health status can greatly affect your monthly spending, so you’ll want to have extra money set aside if you have specific health conditions that require more care.
The next thing you’ll want to prepare for is the possibility of becoming unemployed sooner than planned. There is a possibility that as you age, you may find job opportunities are less abundant than they were when you were younger. You also never know when a layoff may occur so you can’t count on continued employment. You should be prepared for this possibility by having savings that can replace your monthly income if the unexpected occurs.
Finally, if possible, you’ll want to set up a health savings account (HSA). An HSA is a savings account that you can contribute money into tax-free to save for future healthcare expenses.
This account helps to pay for qualified medical expenses for you and your immediate family members. When you reach retirement, you can use that savings to pay for Medicare premiums as well as doctor copays, prescription copays, and even dental, vision and hearing expenses, which Medicare doesn’t’ cover. This makes the HSA a great vehicle for saving for retirement.
Covering the Gaps in Medicare – The Retirement Healthcare Costs Dilemma
It’s also a wise decision to enroll in some kind of Medicare supplemental insurance. This can include a Medicare Advantage plan or Medigap plan. A Medigap plan helps cover the gaps in Original Medicare such as deductibles, coinsurance, and copays.
Because Medigap plans typically offer comprehensive coverage on these dollar amounts, the premiums can increase from year to year. Premiums are also affected by the beneficiary’s age, location, gender, and more.
For instance, Plan G will be the most comprehensive plan available to new enrollees in 2020. That means Plan G will usually be the most expensive plan per person.
For a 65-year-old female, non-tobacco user in the Dallas/Fort Worth area, a Medigap Plan G currently starts at around $101 per month. With a 70 year old woman, the lowest premium for Medigap Plan G quotes at around $112. This grows with time to $132 at age 75 and $156 at age 80.
Rates vary widely across the country too based on the cost of healthcare in the respective region. People in states like Florida and Washington pay considerably more. Research costs with a Medicare insurance broker to find the options that best suit your personal needs and budget.
In planning for healthcare costs in retirement, purchase supplemental coverage. You can eliminate much of the potential stress and worry over medical expenses during retirement. That will free you to focus on enjoying your golden years.
Danielle K Roberts is the co-founder of Boomer Benefits where she and her team help baby boomers navigate their Medicare insurance options. She is a member of the Forbes Finance Council and writes frequently about Medicare, retirement and personal finance. Facebook | Twitter