How Much Should You Save for Healthcare in Retirement?

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A recent study from Fidelity Investments contained sobering news for those planning for retirement: A 65-year-old couple retiring this year should expect to spend about $315,000 in medical expenses over the course of their lives. That’s up 5% from 2021 and up nearly 100% from 2002. And of course, healthcare costs must be factored into financial plans. So for this week’s Big Q we asked advisors: How much do you advise clients to save for healthcare expenses in retirement?

Heather Welsh

Photography by Ken Love

Heather Welsh, financial planner, Sequoia Financial Group: On average, we include retirement medical expenses of just over $9,000 per year per person as a baseline in our financial plans. This is assuming retirement at age 65 or older. For those retiring earlier, we increase that figure by 50% until they reach age 65 and are eligible for Medicare. 

That’s a starting point. Healthcare costs can vary significantly based on factors such as your personal health status, family history, and geography. It’s important to keep in mind that healthcare costs have historically accelerated more rapidly than most other goods and services, at one and a half to two times the consumer price index. 

Also, as the healthcare industry moves away from fee-for-service payment models toward value-based care, many doctors are moving to concierge practices. According to Harvard Medical School, the costs for concierge care can be as much as $30,000 per month. These fees are on top of insurance costs and depending on the type of practice, insurance may or may not be accepted.

Andrew Wang

Courtesy of Runnymede Capital Management

Andrew Wang, managing partner, Runnymede Capital Management: Those retiring before age 65 will have a gap before Medicare kicks in, so I think in general, you should plan on spending around $10,000 to $14,000 a year. Once Medicare kicks in, then you should plan on spending around $5,500 to $7,200 per year. 

High inflation is a newer challenge for planners. For example, when there’s a tight labor market and it’s harder to find nurses, hospitals will have to pay nurses more, and that’s going to trickle through to patients. We have been talking internally about the inflation adjustments we will need to make within client’s plans.

Dean Harman

Photography by Tara Flannery

Dean Harman, managing director, Harman Wealth Management: One big factor we talk to clients about a lot is the transition to Medicare. Do you want to work another year or two, to bridge to Medicare? Or are you really prepared to go out and get private health insurance for $1,100 a month or some crazy number?

The biggest issue is something no one wants to talk about, and it comes later in life. If you need long-term care, that’s not covered by Medicare. That can cost anywhere from $30,000 to $100,000 a year. And people are in a real conundrum right now because long-term care insurance is getting ridiculously expensive. I think people need to be realistic, and there’s some ugly truths that you have to address.

Flavia Araujo Trento

Courtesy of SVP Private

Flavia Araujo Trento, private wealth advisor, SVP Private: The answer to that question is as diverse as our client base. Most of our clients work in the innovation economy. Many are founders, entrepreneurs, or executives. They don’t think of retirement in the traditional sense, where you hit 65 and hang up your boots. They think of it as reaching financial independence. And many of them are looking to get there in their 40s or 50s. Part of that planning involves healthcare expenses. So we look at what would it take to cover all of this client’s healthcare costs, often including the family. 

After that, we look at what would happen when our clients become eligible for Medicare. Then it becomes a different question: What would it take to cover the costs and the Medicare supplemental insurance policy, plus the expenses that are not covered by Medicare? 

Finally, the biggest expense, and the one with the most uncertainty: long-term care. Since we are talking about high-net-worth clients for the most part, many of them are determined to age in place. They want to know if they will be able to afford home care and, if necessary, around-the-clock care in their own home. So it’s a pretty intense process, and one that is customized to the client as much as possible.

Dan Ludwin

Courtesy of Salomon & Ludwin

Dan Ludwin, president, Salomon & Ludwin: In terms of funding healthcare, we see it as just another cashflow requirement. Whether cash flow is for retirement, travel, education, weddings, healthcare, whatever it may be, it’s no different. These are all just things that need to be thought through, planned for, and executed. 

My goal is to make sure we’re using the right assumptions around healthcare costs. And I do think that’s where the planning software—we use MoneyGuidePro—makes a big difference. Rather than just guessing what we think it’s going to be or what the deductions or co-pays and all that stuff will be, the system kind of figures all that stuff out for you. At the end of the day, we just want to make sure that we send you 10 grand a month: $1,000 of that is going to go to health care, $1,000 might go to your mortgage, and $8,000 is going to go to your regular bills and life. And we just want to make sure that we document it and then continuously verify it. 

Rachel Gottlieb, UBS

Courtesy of UBS

Rachel Gottlieb, financial advisor, UBS: Healthcare is probably the biggest expense in retirement, and it’s an expense that increases as we age because your healthcare needs are greater. So we typically say a 65-year-old couple needs to save between $300,000 and $600,000 on average at the start of retirement to cover future health care expenses. When we do a financial plan, we inflate healthcare at an average of 4.9% a year. Sometimes, just to be conservative, we’ll throw in like a 6% assumption. 

Florina Shutin

Courtesy of Wells Fargo Advisors

Florina Shutin, senior financial advisor, Wells Fargo Advisors: The most costly issue is long-term care. That’s where people fail to plan, and it can have a disastrous outcome in terms of their estate. Long-term care can cost anywhere from $8,000 to $15,000 a month in today’s dollars, and Medicare doesn’t cover it. So I encourage clients to purchase long-term care insurance. We start having that conversation as soon as they hit 50 because people are much more likely to qualify for long-term-care insurance in their early 50s, mid-50s, even early 60s, and then it starts becoming much more costly. In some cases, they become less insurable or uninsurable. 

There are two companies that I use to fund long-term care. They have policies where you can pay a lump sum up front. That can be difficult for many people, but they do allow you to expand the payment over 15 to 20 years.

I just turned 50 and purchased this insurance for myself. I bought $100,000 worth of long-term care, and that’s going to create a pool of $1.5 million for when I’m in my 80s and 90s. At that point, it will pay out a benefit of between $15,000 and $18,000 a month. I will pay $7,500 a year for 15 years, and then I’m done. In 30 or 40 years, long-term care is going to cost triple and quadruple what it costs now, so you have to save for it somehow. And if you don’t have a long-term care policy, you’re going to have to start dipping into your estate.