Are You Prepared for These Retirement Costs?

Dan C. from Chillicothe, OH asks: Greetings Mitch. My wife and I are nearing retirement, and we think we’ve done a pretty good job of saving and investing to get to this point. But I keep reading that retirees are not taking into account health care costs, and that we should be setting aside hundreds of thousands of dollars to prepare for it. I’m not sure we’ve taken that step to the tune of hundreds of thousands, and it’s starting to worry me a bit. Any thoughts on this health care issue? Mitch’s Response: Thanks for writing, Dan, and I totally get your preoccupation with this issue. I’ve seen a myriad of studies/research in recent years that have projected healthcare costs in retirement, and each study shows total costs of $250,000 and up. Those are big numbers. I’m not sure what you have been reading in particular, but I’ve seen that Fidelity has estimated 65-year-olds today could face up to $275,000 in total health care costs over life expectancy, and in a similar study RBC pegged it at $400,000. Of course, these numbers are meant to be projections over a 20+ year life expectancy, but nevertheless.1 J.P. Morgan did some research that took a different approach, and looked at annual out-of-pocket expenses related to premiums for Medicare and Medigap, plus Parts B and D. For a 65-year-old, the median numbers looked to be around $4,600 a year with the number climbing to $18,030 per year by age 85. Again, pretty intimidating projections, which don’t even factor-in the cost of long-term care if you have policy premiums or the expense of actual care.2 Looked at in nominal terms, these numbers understandably could stoke a bit of anxiety. But, I think there’s room to take a nice sigh and know that these costs can be managed, if addressed correctly and head-on. First of all, many of these expenses amount to monthly premiums, which are of course paid over time. It’s not like you need to write a check for $400,000 on day one of retirement! In fact, if costs are contained and managed elsewhere in your retirement plan, you could still even potentially see your assets grow as you make payments related to your health care over time. As your investment portfolio is managed for growth and income, you pay out your premiums a little bit at a time, which (assuming your assets are managed well) could avoid having a harmful impact on your wealth trajectory. Now, to be sure, there is always the possibility that a major medical event/procedure can necessitate a large outlay of money to treat, and it could require heavy payments for ongoing care and treatment. In life, those obstacles often come unannounced and can deliver some difficulty, but like any other situation you assess what’s needed and adjust the plan accordingly. At Zacks Investment Management, we’d work with you to try and manage our way through it. In fact, to help investors avoid common investing mistakes and answer questions like the one you just asked, we have put together a free guide, 9 Retirement Mistakes that You Need to Avoid. Our goal is to provide investors with additional insights into how to effectively prepare for retirement. We recommend this guide to anyone who is wondering if they are ready for retirement or if they know they are making one or more of the following mistakes: - Mistake #6: Trying to Time Markets - Mistake #3: Pouring Money Into Gold - Mistake #8: Lack of a Diversified Portfolio - Mistake #1: Having a Too Conservative Portfolio - Mistake #7: Mutual Fund Investors Underperforming Markets Explore all these common mistakes, and four others, by claiming your copy of our guide, 9 Retirement Mistakes You Need to Avoid.3 Click below to download our guide to learn more. --------------------------------------------------------------- ABOUT ZACKS INVESTMENT MANAGEMENT If you want some ideas on just how to position your portfolios accordingly, reach out to us here at Zacks Investment Management and we’ll show you how. Zacks Investment Management was born out of one of the country’s largest providers of independent research, Zacks Investment Research. 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