Retirement & the Rising Cost of Healthcare

by Nancy Osborne, COO of ERATE®

(5/17/2012) The biggest challenge in funding retirement today may very well be covering healthcare expenses. With healthcare costs rising two to four times the rate of inflation, without a clear plan, this expense will absorb a growing portion of one's retirement portfolio. Over 90% of working Americans say they do not know how much they should allocate for healthcare expenses in retirement and only 40% even included it as a part of their retirement budget. For a couple in retirement, it is estimated that healthcare expenses could absorb 35% of their after tax income by the year 2030. Less than 10% of workers correctly estimated that their healthcare costs in retirement would fall within the range of $200,000 or more and this figure does not include both long term care and nursing home care. Many retirees wrongly assume that Medicare will cover most of their medical expenses while in fact Medicare only covers a portion of one's medical bills. Medicare also fails to cover dental, optical and hearing related expenses. It is estimated that someone with only average drug or medication related- expenses as a senior, will need to save $135,000-$155,000 to cover these expenses. As Medicare continues to consume an ever higher percentage of our Nation's gross domestic product or GDP, the Medicare Trustees predict this will reach an unsustainable level and could force dramatic changes to the program.

Planning as early as possible is critical to meeting this escalating retirement expense. Saving for medical expenses in retirement should be an integral part of a retiree's portfolio and must be considered one of the major costs in retirement. Of course one can begin by offsetting future medical expenses by living a healthy lifestyle today. Diet and exercise are critical to avoiding the high cost of any potential medications down the line. Secondly, the time to consider long-term care insurance is well in advance of retirement, the sooner one becomes a policy holder, the lower the premiums. Also consider a disability insurance policy in case of illness or injury so that a percentage of income will be covered. Almost 10% of workers have had the need to draw on their retirement savings to replace income when they were ill or injured and in most cases this money is rarely refunded back into the retirement portfolio.

Nancy Osborne, ERATE.com

Nancy Osborne has had experience in the mortgage business for over 20 years and is a founder of both ERATE, where she is currently the COO and Progressive Capital Funding, where she served as President. She has held real estate licenses in several states and has received both the national Certified Mortgage Consultant and Certified Residential Mortgage Specialist designations. Ms. Osborne is also a primary contributing writer and content developer for ERATE.

"I am addicted to Bloomberg TV" says Nancy.