Are You Saving Enough to Cover These Retirement Expenses? - 401k Maneuver

Are You Saving Enough to Cover These Retirement Expenses?

When it comes to retirement planning, there is often a big discrepancy between how much money people think they need and how much they actually need.

And so, year after year, investors fund their retirement accounts based on how much they can afford to save now, rather than really understanding how much they may need in the future. 

Retirement expenses vary depending on an individual’s tax situation during retirement, transportation needs, household expenses, and healthcare costs. 

The focus of this article will be on the various healthcare expenses and how much you should expect to spend during retirement.  

Healthcare Costs

retirement expenses

If you think most of your healthcare costs will be covered by Medicare, think again. 

Most retirees will need a lot more to cover out-of-pocket expenses and supplemental coverage.

According to HealthView Insights: 2021 Retirement Healthcare Costs Data Report

  • An average, healthy 65-year-old couple retiring in 2021 will spend $662,156 on their healthcare costs throughout retirement.
  • Healthcare expenses will continue their historical trend of inflating at 2 – 2.5 times the rate of U.S. inflation. ƒ
  • Lifetime health costs for most couples retiring in 2021 can range from $156,208 to $1,022,997.¹ 

Take a moment to let these numbers sink in. 

Now, your individual healthcare expenses will vary depending on how healthy you are, how long you live, how and where you retire, how you pay for medical expenses, among other factors. 

But one thing is for sure: healthcare expenses are only going to rise. 

So, are you saving enough for retirement NOW to cover the unknown? 

Medicare Expenses

retirement expenses

Many people assume Medicare is all they need for health insurance. 

Here’s why this is not the case…

  • Medicare isn’t really free. You may have to pay a monthly premium based on income. 
  • The most basic Medicare plan does not cover certain out-of-pocket costs such as deductibles, copayments, and supplemental insurance.
  • Medicare doesn’t cover dental, vision, or hearing aids.
  • Unless you opt for Medicare Part D, medications are not included in your plan.
  • If you retire early, you will need another form of health insurance since Medicare doesn’t kick in until 65 years of age.

The HealthView Insights 2021 report states, “Retirees in the highest Medicare IRMAA threshold will pay an additional $430 each month for Parts B and D premiums based on their modified adjusted gross income.”²

In addition, in the 2020s, “Medicare Part B premiums will inflate by an average of 5.9% per year, Part D by 4.9%, and dental premiums and out-of-pocket spending by 4.5%.”³  

While you can’t predict the exact amount you’ll spend on healthcare during retirement, you can ensure you’re saving enough today to cover your expenses later.

Long-Term Care

retirement expenses

People are living longer. And, as a result, more retirees are requiring long-term care. 

The U.S. Department of Health and Human Services estimates, “Someone turning age 65 today has almost a 70% chance of needing some type of long-term care services and supports in their remaining years.” 

Long-term care is not cheap. Far from it. 

Genworth, a long-term care insurer, recently published the Cost of Care Survey, conducted by CareScout®. 

According to the report, “From 2004 to 2020, the cost for facility and in-home care services has risen on average from 1.88% – 3.80% per year. That’s an increase of $797 annually for home care and up to $2,542 annually for a private room in a nursing home.”

The Cost of Care Survey also reported…

  • A private room in a nursing home in 2020 averages $105,850 annually.
  • An assisted living facility in 2020 averages $51,600 annually.
  • A home care health aid in 2020 averages $54,912 annually.⁶

If you aren’t researching these costs and factoring them (and inflation) into your retirement savings plan now, you may end up being a financial burden on your family. 

Or worse, end up in a state facility or another facility where you don’t want to be – all because you didn’t plan properly. It may sound harsh, but, sadly, it’s a reality for some retirees. 

Key Takeaway

retirement expenses

Healthcare expenses will vary depending on your situation during retirement, as will additional costs such as taxes, transportation needs, and household expenses. 

Even if your expenses are on the low end during retirement, it’s still a chunk of change you’ll need to have available. 

If you currently have a 401(k) or IRA (or both), and you don’t have a retirement plan in place that factors in these expenses, it’s time to get one in place. 

From there, you can make contribution adjustments to ensure you’re on track. 

We recommend seeking professional help with your retirement planning. A professional can guide you and also find other unexpected expenses you need to plan for. 

Before you reach out for help, check out our guide on how to understand The Different Types of Licenses Financial Advisors Have and What They Mean to You .

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Sources: 

  1. https://hvsfinancial.com/wp-content/uploads/2020/12/2021-Retirement-HC-Costs-Report-op-final.pdf 
  2. https://hvsfinancial.com/wp-content/uploads/2020/12/2021-Retirement-HC-Costs-Report-op-final.pdf 
  3. https://hvsfinancial.com/wp-content/uploads/2020/12/2021-Retirement-HC-Costs-Report-op-final.pdf 
  4. https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html
  5. https://www.genworth.com/aging-and-you/finances/cost-of-care/cost-of-care-trends-and-insights.html
  6. https://www.genworth.com/aging-and-you/finances/cost-of-care/cost-of-care-trends-and-insights.html
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