Could This Blow Your Financial Retirement Plan?

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Could This Blow Your Financial Retirement Plan?

Most people expect their spending to go down in retirement — in fact, the rule of thumb is typically that you’ll spend just 70% to 80% of your pre-retirement income. But there’s a hidden, yet monumental expense waiting in the sidelines that could flip your financial retirement plan on its head.

We’re talking about Healthcare

If you are like most Americans, healthcare is expected to be one of your largest expenses in retirement, in fact according to Fidelity Investments, a retired couple could spend $280,000 over the course of their retirement on health care costs alone. Shocking!

Unlike generations before us, most people won’t have access to employer- or union-sponsored retiree health benefits. So, health care costs will likely consume a larger portion of your retirement budget—and you need to plan for that.

Costs on the Up

There are a few reasons for this rise in healthcare costs, one is people are simply people are living longer. Health care inflation continues to outpace the rate of general inflation, and the average retirement age is 62 for most Americans—that’s 3 years before you are eligible to enroll in Medicare. The average 65+ year-old retiree should now expect to pay around $5,000 a year on health care premiums and out-of-pocket expenses.

Get Ahead of the Costs

You should carefully weigh all options when it comes to financial retirement planning, the earlier you start thinking about healthcare costs, the better. Learning how to stand up to the healthcare system is the biggest thing you can do to control health care costs.

It’s time to start asking questions! When enrolling on a retiree healthcare plan, ask these important questions — with answers you’ll find at the Social Security and Medicare sites.

  • When am I eligible?
  • What are my choices?
  • How do I choose my Medicare supplement options?
  • What do the plans cost?
  • When and how do I sign up?

Once you’ve addressed these key questions it’s time to take further control of healthcare costs. Obviously taking care of your health and finances are going to drastically help, but by asking yourself and your provider further questions, you could hughly reduce your healthcare costs.

A key example being “Do I need this test?”. Doctors don’t always consider the costs of tests, but you can’t afford not to. A doctor should be able to explain how a test is going to help either diagnose or treat you; if they can’t, it’s worth digging into whether the test is necessary.

The same goes for medication: It’s well within your rights as a patient to find out why you need a particular medication and what other — potentially cheaper — alternatives exist, including diet and lifestyle changes.

Understanding Your Insurance

There’s a lot to learn about the world of Medicare. You’ll need to know about Medicare Parts A, B, and D, as well as Medicare Advantage and “Medigap” supplemental insurance plans.

There’s one more question you need to ask, and that’s if a provider takes your insurance and whether that provider is in your network. In-network providers have agreed to pre-negotiated rates with your insurance company; out-of-network providers have not. That means in most cases you’ll save money by staying in network. However, don’t assume your in-network doctor also uses an in-network lab and is affiliated with an in-network hospital. There are state health insurance assistance programs that will offer you personalized counseling about your benefits.

What about out-of-pocket costs? While it covers many costs, Medicare does not provide coverage for dental, vision or hearing conditions, or long-term care among other things, meaning these services must be paid out-of-pocket or by a separate health insurance plan. Even services covered by Medicare generally require the patient to pay a deductible, coinsurance and copayments. Needless to say, costs can add up very quickly.

Plan for the Future

Although health care costs continue to rise, there are financial planning steps that you can take today to help prevent health care costs from eating into your retirement lifestyle.  It’s important to have a written financial plan for retirement. That plan should consider rising health care costs, as well as your longevity and when you plan to retire.

If you are approaching retirement, the best way to plan for future medical expenses is to build up your financial reserves. If you are unsure how much money you’ll need, start by creating a retirement budget that includes realistic estimates of your medical expenses and see how they stack up against your savings. Depending on the progress you have made so far, you may need to increase your savings rate to cover the difference.

Additionally, talk to a retirement income financial advisor at CKS Summit Group about your overall financial plan. Although many expenses in retirement are uncertain, the earlier you start planning, the more likely you are to achieve the financially secure retirement you desire.

AT CKS Summit Group, we design, build, and manage custom retirement portfolios that are fully capable of simultaneously generating stable growth, increasing income, and preservation of principal throughout a client’s lifetime, with only limited downside market risk. Don’t let the worry of healthcare costs and your retirement income keep you up at night. Contact us today by calling 586-286-5820 or click here to set up your complimentary strategy session.