There are many unexpected expenses you’ll undoubtedly come across in your golden years. But this one in particular could be detrimental to your retirement years.

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.

If you are like most Americans, healthcare is expected to be one of your largest expenses in retirement, in fact according to Fidelity Investments, an average retired couple age 65 in 2022 may need approximately $315,000 saved (after tax) to cover health care expenses in retirement. What’s more, the projected lifetime cost of care for a healthy 65-year-old is $404,253 – and that doesn’t factor in long-term care costs, which could be as high as $100,000 a year. 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.

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. In 2022, the standard monthly premium will be $170.10, up from $148.50 in 2021. Even when Medicare coverage is factored in, by age 75 health care expenditures will account for 15 percent of your overall spending, which is double what you would have spent during your working life.

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 hugely 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.

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. In 2022, beneficiaries could see a cut to their Part B premiums. The increase for 2022 was driven in part by Medicare potentially needing to cover an expensive new Alzheimer’s drug, Aduhelm. Initially the cost of the drug was $56,000 per patient each year, but the manufacturer, Biogen, later reduced that to $28,200. Given the price cut, Health & Human Services Secretary Xavier Becerra in January asked Medicare to “reassess the recommendation for the 2022 Medicare Part B premium.”

The average premium for Part D, which covers drug costs, will be about $33 a month in 2022. Seniors with high drug costs may run into a coverage gap. For 2022, the gap begins when the total your plan has paid reaches $4,430, up from $4,130 in 2021.

If you’re new to Medicare, you may be surprised to discover what it doesn’t cover. Part B pays for only 80% of doctor’s visits and other outpatient services. In addition, Medicare doesn’t cover dental care, eye appointments or hearing aids.

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.

The health care conversation may be tough, but start talking now before it’s too late.

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.