The ability to pay for health-care needs is — and will remain — one of the most critical issues of retirement. Most people today will live longer than their parents or grandparents did. That means they'll enjoy a longer retirement — but it also means they will most likely need more money to cover health care and other costs during that time. Additionally, health-care costs currently are rising more than two-and-a-half times the rate of overall inflation. This makes it even more difficult to estimate what your health-care expenses might be throughout retirement. So how do you plan for this? Here are a few tips to get your started.
Various industry research has concluded that 69 percent of baby boomers and 66 percent of retirees estimate their health-care costs in retirement to be "$100,000 or less."
Those estimates are below Employee Benefit Research Institute projections that the average 65-year-old man would need $127,000 in savings, and a 65-year-old woman would need $143,000, to give each of them a 90 percent chance of having enough savings to cover health-care expenses in retirement.
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Life expectancy charts give you the average life expectancy for a man or woman in the U.S., but for a more personalized estimate, consider your own health record along with the medical and longevity history of family members. Knowing that your grandmother had high blood pressure or that your grandfather lived well into his 90s will provide a clearer picture of how long you should plan to live in retirement.
Retirement planning aside, knowledge of your family's medical history could help you plan for a hereditary condition or prevent a serious illness or health event by way of preventive care.
In order to achieve retirement readiness, you need to have a vision of your retirement, the means to achieve that vision and confidence in your plan. First, consider your needs, wants and wishes. Will you stop working or will you need to maintain some level of income? Will you be traveling, visiting grandchildren or taking up a hobby? Do you want to buy a vacation home? It might seem odd to talk about retirement travel plans during a conversation about health care, but your ability to pay for necessities such as doctors' visits and prescriptions is directly correlated to your efforts to plan, save and budget for the retirement you want.
During the first phase of retirement, many people remain active and healthy — leading to increased spending on travel and activities. As they age, they may become less active, reducing leisure expenditures. However, costs will rise again as they continue to age and their health-care needs increase. Financial experts call this the "Retirement Spending Smile" because of how the spending pattern is visually represented on a chart.