For a lot of us working and saving and planning for retirement, how we will pay for our healthcare, is probably not at the top of our list. This may be in part because of Medicare. Medicare is a social program started in 1965 to insure the American population over the age of 65, who found it difficult to impossible to secure health insurance in their later years. In 1965 the life expectancy was 70 years old. Since then, people have started living a lot longer, and one of the main reasons for that is the use of medications, technology, and surgeries to prolong life and health. A longer life with more medical intervention also costs a lot more which is why Medicare is about 14% of the total federal budget and in 2018, ran up a $583 billion-dollar bill.[i]
Medicare is a great program that has helped a lot of older Americans live longer, healthier and combined with Social Security, out of poverty. Unfortunately, both those programs were designed to create a social safety net, but do not cover all the costs. Did you know the average couple retiring this year at 65 will need an estimated $280,000 to cover their medical and health expenses in their retirement? Would you be more surprised to learn that number does not factor in long-term care costs and that 52% of people will need long-term care at some point in their life? In 2000 long-term care costs were around $30 billion and by 2015, that number was a whopping $225 billion.[ii]
Health Care and Early Retirement
Health care costs are one of the challenges to anyone considering retiring early, as once they leave their employers health plan they will be responsible for their own health care until they reach Medicare eligibility age at 65. Private healthcare can be quite costly, as would a workplaces COBRA program. If you plan to retire early budget around $1000 per person for your healthcare.
One of the most valuable assets, beyond your finances, for a good retirement will be your overall health. Good health will allow you more mobility, the ability to mentor/volunteer/or work if you choose, it will also save you a fortune. So, as you are working on building a robust portfolio to last you well into your golden years, so to should you be looking at your body and mind. Schedule yearly physicals and checkups. A healthful diet and exercise, even just walking a few miles a week, can make the world of difference for your health. Experts say even 15 minutes of activity a day can extend your life by 3 years.[iii] Depression and loneliness can be as bad for you as smoking or being morbidly obese, so making sure you are factoring in your mental health as well is important. Much like taking a car in for oil changes, tire rotations, and tune-ups keeping your body in good shape will help you to stay in it.
Medicare will cover some, but not all of your health care needs in retirement. For example, medications and even hearing aids, may not be covered. Due to this, many seniors must pay out of pocket or use supplemental coverage like Medigap or Medicare Supplement to offset the cost. It may behoove you to look into an HSA (Health Savings Account) and contributing to it as you would your 401(k). HSAs are a tax-friendly retirement investment tool where you can pull money out for healthcare needs tax-free. They are gaining popularity, with over 21.8 million people opening an HSA in 2017 alone.[iv]
Quality of Life
Taking care of yourself and allocating funds for health care will make a huge difference in the quality of your retirement. Fostering strong social connections, feeling a sense of purpose, and finding opportunities to learn and connect, will also help enrich your retirement. Studies have shown strong friendships being one of the best signifiers of long life. If you are one of the 87% of people want to age in place and stay in your home[v], making some adjustments to the home may help you stay safe and comfortable. When 75% of the injuries for people 65 and older are from falls and they often take place in the home. The main culprits are often a slip in the bathroom, an uneven floor, or a lack of lighting.[vi] Simple things like moving your bedroom to a first floor can make all the difference. Any renovations should conform to universal design standards, also known as barrier-free design. This makes a house more user-friendly regardless of age or mobility. This may involve wider doorframes, grab bars and benches in bathrooms, continuous flooring, and varied height storage and appliances. When done well, universal design can be aesthetically pleasing and most importantly, make your home a safer place to be. For those thinking of downsizing, choosing a location that also conforms to universal design principles and is easily accessible to doctors, transportations, and amenities, will keep you safer and more socially connected.
It may seem far away now, planning for your supplemental Medicare and grab bars in your shower, but life has a way of sneaking up on us, as does time. The more time invested early and the more preparation made, the less you need to worry down the line. Less worry leaves more time for the more enjoyable parts of life: friends, family, fun. To a Good Retirement!