How much will health care cost in retirement?
Planning for health care costs in retirement is a bit different than planning for retirement in general. That’s because it’s difficult to predict exactly what long-term health care costs may entail.
Rather than overwhelming yourself with health care costs over a lifetime, consider these tips from Vanguard, an investment management company.
– Look at health care costs in annual terms. The amount that you spend on health care largely depends on how long you live, and there’s simply no knowing your exact lifespan. Concentrating on annual spending plans makes more sense. But you must also factor in inflation and the need for more health services as you age.
– Personalize your health care costs. Plan for your health care costs in retirement based on your individual health history and current health status. Consider the costs and coverage involved with Medicare plans, too. ThinkAdvisor notes that the Vanguard model, for example, considers 12 chronic health conditions, geography, marital status, age at retirement and more.
– Think about how much you’ll spend. The general rule of thumb in retirement is that you will spend between 70% and 85% of your current annual income. However, the Vanguard report cautions that this estimate may be too low. This is especially true if you are someone with high medical costs. As such, try to be realistic about how much you’ll spend, and target higher replacement ratios if necessary.
– Compare health care costs to other costs. While health care costs will likely increase with age, other spending categories tend to decline, according to the report, particularly in terms of transportation and entertainment. Still, forecasting high for all spending can help with rising or unexpected health care costs.
– Plan for long-term care. Long-term care costs vary significantly by person. Half of retirees won’t incur these costs, according to the report, while a quarter will spend less than $100,000 on long-term care and 15% will spend more than $250,000. This variability makes it difficult to plan. Consider your long-term care options, and also how financial assets, home equity and more can help offset the cost of those options.
So how much will health care cost in retirement? There’s no blanket answer for that question. But focusing on your individual needs and situation is a good place to start in creating an estimate.