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Help with Healthcare Costs in Retirement

“A financial planner’s client was traumatized in the dentist’s chair, but it was not the drill that scared her. It was the dentist’s bad news.”

The frightening news was that she needed thousands of dollars of dental work, a cost she had not anticipated when she retired a few months before the appointment. What if this happens again, she thought. Am I going to run out of money? She was in good shape, her financial planner assured her. But not everyone is as fortunate, as reported by Reuters in an article titled “How to shockproof your retirement healthcare costs.”

Almost all retirees fear that a medical expense shock will decimate their savings. In a national survey by Brightwork Partners, as many as four out of five boomers agreed that they are worried about this. However, they are too confused by all of the details, to actively plan for medical costs during retirement.

Help is on the way from national retirement researchers and investment companies. While most retirement healthcare research focuses on the big picture, like Fidelity’s recent estimate that a couple is likely to spend $280,000 on healthcare costs in retirement, a new study from Mercer Health and Benefits and Vanguard Research got a lot more granular.

The goal of the study is to develop a model that can be used by people before they retire, so they can create a budget that includes this admittedly staggering number. This model will be able to help set necessary saving goals and plan on how to achieve the goal.

An average 65-year-old woman retiring and using Medicare in 2018 will need $5,200 to pay for medical expenses. That’s including Medicare, additional health insurance and out-of-pocket costs. By 85, the cost jumps to $10,100 annually, or, for a less healthy person, $14,000. As they age, people need more health care and researchers say we should consider “healthcare inflation” as starting at 6.6% annually, with a rate of 4.5% over time.

Before retiring, experts say people need to be honest with themselves about their health and the costs that will ensue. If they have chronic illnesses like diabetes, cancer, heart disease or arthritis, they need to expect to spend more than the average amount.

The biggest medical care shock to retirement savings is long-term nursing home care. However, these researchers found that only one in seven will face those costs for two years or more.

Rather than panicking, think about these issues in advance and prepare for the costs. You should also consider what you can do to address expenses. One option is to move closer to family members, who might be able to help with care at home.

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