Retirement planning is partly a savings and partly a game of guessing. While many of your day-to-day expenses will remain the same, there are major categories of banknotes that can take away much of your savings. The more you can plan, the better prepared you will be to meet costs.
Here are four things to keep in mind when preparing for retirement:
1. Health care
According to a 2021 Fidelity report, the average 65-year-old retired couple will need about $ 300,000 in after-tax savings to manage the costs of health care during retirement. Fidelity is a partner of NerdWallet. “And that’s just for regular medical care,” says Michelle Gessner, a certified financial planner in Houston. “This doesn’t even get the attention of unexpected chronic diseases.”
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Your specific costs will depend on where you live, how long you live, and your overall health. Taking care of your health and properly managing conditions like type 2 diabetes can help keep costs lower.
The other surprise in health care is that Medicare premiums are higher if your income exceeds a certain level. For example, if you are married filing a joint statement with adjusted adjusted gross income in excess of $ 182,000 by 2020, you will pay at least 40% more for your monthly Medicare Part B premiums. In 2022, the standard premium costs about $ 4,000 a year for a couple.
“It’s really crawling,” says Laurie Burkhardt, CFP in Boston. “And it’s easy, believe it or not, to reach that income level when you’re the age you’re taking the necessary distributions from your IRA.”
2. Long-term care
Older people living up to the age of 80 have about 1 in 4 chances of needing long-term care. And it’s not cheap: an assisted living facility costs $ 4,500 a month, on average. And while a home health care provider averages about $ 27 an hour, the costs add up.
“That’s pretty reasonable if you only need a few hours of care a week,” said Patti Black, CFP in Birmingham, Alabama. “These maths become unfeasible, the more care you need.”
Certified financial planners can help clients project costs over a number of years of long-term care to ensure that their savings can be managed. “I talk to clients about whether long-term care insurance should be part of their financial plan to transfer some or all of that risk,” Black said.
3. Dental care
According to the Kaiser Family Foundation, the average Medicare senior who used dental services paid nearly $ 900 a year out of pocket. And 1 in 5 Medicare beneficiaries spent more than $ 1,000.
Original Medicare does not cover most traditional dental care and 47% of Medicare beneficiaries do not have any dental insurance. But gum disease, tooth loss, and oral cancer are a major concern for seniors, and finding complete dental insurance can be difficult.
“Dental procedures can be a very rude awakening,” Burkhardt said. “Right now I’m going through it with my husband, who is retired and having a dental implant. He’s been surprised at how much it’s out of pocket.”
4. Prescription drugs
Since 2015, at least 1 million Medicare Part D enrollees a year have had drug costs high enough to exceed the catastrophic coverage threshold of $ 7,050 in 2022. If you have a condition that requires special medications, such as cancer, multiple sclerosis, or hepatitis C: Your out-of-pocket costs can be exceptionally high. Once you reach the catastrophic threshold, you will pay a small co-insurance or drug co-payment, but there is no limit to your out-of-pocket spending under Medicare Part D; may increase if your medicine is expensive.
“My dad has rheumatoid arthritis and his drugs cost $ 6,000 a month,” said Tess Zigo, CFP in Palm Harbor, Florida. “Which retiree has $ 6,000 a month for drugs alone?”
What to do
A financial planner who specializes in retirement needs can test your financial plan for health events and other expenses. If there are gaps in your coverage, they can help you with strategies to address unexpected costs, such as considering long-term care insurance or a hybrid policy that combines life insurance with a long-term care broker.
Getting the right insurance, from Medicare supplement plans to dental and medication coverage, is also essential.
“If the coverage is right, then these catastrophic expenses are not so bad,” said Dennis Nolte, CFP in Winter Park, Florida.
A good insurance broker can help you weigh your options, and a Medicare consultant, or a call to your State Health Insurance Assistance Program, or SHIP, can answer your questions about best Medicare coverage for your needs.
This article was provided to The Associated Press by the personal finance website NerdWallet. Kate Ashford is a writer for NerdWallet.
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