Allworth Co-CEO Scott Hanson shares his thoughts (and some eye-opening stats) as open enrollment season approaches.
After taxes, food, and shelter, healthcare will probably be the biggest expenditure of your life.
Our internal audits also show that being able to afford high-quality healthcare is the top concern for most pre-retirees.1
It’s complex and the rules, costs, and coverages are ever changing.
Always remember, it will save you money, time, and stress to organize your approach.
That said, if you have questions about healthcare, you’re certainly not alone. The first thing you should do is reach out to your advisor. He or she can help you with your decision-making process and direct you to resources to help with your short- and long-term coverage needs while considering your overall financial plan and goals.
Drum roll please: Open enrollment is here!
For you readers who have yet to retire, identifying, choosing, and keeping the best, broadest, and most affordable healthcare coverage throughout your life is paramount.
That said, depending on your industry and the type of insurance coverage you have (or want), for state and federal government employees, as well as the private sector, most of the healthcare open enrollment periods for 2023 are either already underway or about to commence.
Generally lasting anywhere from just a few weeks to a couple of months, open enrollment periods are the dates through which you can either sign up for new coverage or alter or cancel an existing plan.
But be forewarned: While the length of open enrollment periods may seem arbitrary, the dates are typically about as flexible as a marble countertop. Simply, if you’ve been eyeing a change to your health insurance coverage, don’t wait. If you miss the window to sign up or make that change, you are almost certainly out of luck until next year.
How much does retirement healthcare really cost and what does Medicare cover?
First, let me lay out some potential costs of retirement healthcare.
Estimates vary, but while the typical person thinks they’ll end up spending about $41,000 out of pocket for healthcare during retirement, the actual estimated average expenditure per couple is likely going to be closer to $315,000.
Why the disconnect?
It’s primarily due to the fact that most people believe that once we turn 65, the Medicare fairy will take care of all our needs.
While that’s not actually the case for more reasons than I could possibly list here, the fact is that many people simply don’t realize that Medicare coverage costs you money. In fact, due to inflation, Medicare Part B premiums rose 14.5% just last year. But on top of those costs and increases, Medicare also has coverage limits, as Parts A and B don’t come close to paying for all the things you’re likely going to need. (Your remaining healthcare expenses will either need to be covered by supplemental insurance or come out of pocket.)
Here’s a partial list of common healthcare needs that are not covered by Parts A or B:
- Long-term care
- Most dental
- Eye exams
- Regular physicals
- Hearing aids
While the above can add up (hearing aids alone average $4,000), long-term care is the big one, with seven out of ten of us likely needing care for a minimum of two years.3 (Women need long-term care for an average of almost four years.)
So, how much does long-term care cost? The national average for in-home care is $5,000 a month, while the average cost of a private room in a nursing home facility has risen to $9,000 per.2
And Medicare covers virtually none of it. (In simplest terms, if you break your hip and go to the hospital, Medicare will pay for it. But if afterwards, you can’t walk for a year and you need in-home assistance to shop, feed, clean, and clothe yourself, unless you have long-term care insurance, you’ll likely be responsible for paying it all on your own.)
All that, and Medicare also has geographic limitations. That is, if you’re planning to move to say, Portugal, Spain, or Malta, (three of the most popular destinations for American expats) to take advantage of the (Malta aside) lower costs of living and the warmer winter weather, just remember that your Medicare coverage ends the instant you touch down across the pond.
One additional caveat of Medicare is that it’s progressively taxed. That is, people with higher incomes are forced to pay more. How much? As soon as your modified adjusted grow income (MAGI) hits $182,000 (for joint filers), or $91,000 (for single filers), the Social Security Administration turns around and hits you with an additional premium known as an income related monthly adjustment amount (IRMAA).
So, there’s that.
One last thing to keep in mind...
I admit that I don’t enjoy writing articles like this as much as I do some others. That’s because the healthcare industry, and the government’s answer to it, are unwieldy and complex, and since they most certainly qualify as massive bureaucracies, they are full of frustrating inconsistencies.
The intimidating fact is, that for those people who don’t plan, or for those who hit a string of bad luck, the healthcare abyss can be financially ruinous.
Health and healthcare are indeed “the big unknowns” for every one of our financial futures. And while certainly some of you reading this can self-insure, for even most great savers – and because one big health emergency could be so expensive that it permanently alters the rest of your retirement – I regularly write about healthcare because helping you plan for it is a big part of what we do, and because it’s vitally important to understand just how much there is to know.
1 Allworth Financial: The Healthcare Financial Factor
2 Cost of Long Term Care by State | Cost of Care Report | Genworth
3 How Much Care Will You Need? | ACL Administration for Community Living