Healthy People Need to Save More for Retirement

It sounds crazy, but if you’re healthy you probably need to save more for retirement than people with a battery of health issues. Why? Statistically, people who are healthy will live longer. That means more years paying for healthcare in a system where costs continue to increase exponentially. So, the longer you live the more money you have to have.

HealthView Services provides healthcare cost data to the financial services industry based on information from 530 million healthcare cases plus actuarial, government and economic data. HealthView’s latest report projects healthcare costs, the impact of health conditions, and strategies to manage and potentially reduce healthcare costs during retirement. The report highlights specific reasons why healthcare needs to be incorporated into retirement planning.

Reason #1: Driven by healthcare inflation, costs will be greater at the end of retirement than the beginning (and significantly higher for younger Americans)

Total lifetime health care costs for a healthy 65-year-old couple retiring this year are projected to be $387,644 in today’s dollars ($572,960 in future dollars). This includes premiums for Medicare Parts B and D, supplemental insurance (Mediagap), and dental insurance, as well as out-of-pocket costs related to hospitalization, doctor visits, tests, prescriptions drugs, hearing services, hearing aids, vision, and dental.

In the first year of retirement, the couple’s total annual premium and out-of-pocket expenses will be $12,286. In twenty years, at age 85, they will need $34,268 to cover these costs. (This excludes longterm care.)

Reason #2: Healthier, longer lives will mean higher healthcare costs in retirement.  As with all aspects of retirement planning, expected longevity (using actuarial data and based on health and gender) provides the optimal framework for projecting costs. Although annual expenses will be greater for retirees in poor health, lifetime expenses will generally be higher for healthier retirees because they will, on average, live longer.

Reason #3: Health-related behavior modifications can significantly impact longevity and healthcare costs. RAND Corporation data shows that 50% of the adult population in the United States suffers from a chronic condition, including high blood pressure, type 2 diabetes, obesity, and high cholesterol.21Of this population, many fail to adhere to their physician’s treatment protocols – in fact, as many as half do not even take their medications as prescribed.

Reason #4: Health-related investment choices can make costs more manageable. Healthcare costs, which rise as we age, will be one of the highest expenses in retirement. To ensure that sufficient funds will be available, product choice, portfolio mix, and decumulation strategies are critical for long-term financial stability.

Selecting financial products that help reduce Medicare surcharges in retirement and taking advantage of strategies, including health savings accounts (for those in high deductible plans), creates opportunities to maximize retirement income. Some of these products are Roth 401(k)/Roth IRA, certain life insurance and annuities products (including non-qualified annuities), and health savings accounts (HSA).

HSAs offer triple tax benefits: contributions are pre-tax, gains aren’t taxed. and as long as they are used to pay health-related expenses (including Medicare Premiums), withdrawals do not count toward taxable income.

The report contains much more valuable information and is worth the time to read. The conclusion: the longer you live the more expensive healthcare becomes and the more it will drain your retirement savings. Plan now for the inevitable future.

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