NEW YORK (Reuters) – A typical couple could potentially spend $285,000 on out-of-pocket healthcare costs in retirement.
But that is hardly the scariest number you need to consider when it comes to medical costs as you age.
This estimate, released on Tuesday by Fidelity Workplace Consulting, is based on Medicare premiums for Americans 65 and older, plus the deductibles and co-pays required for medical care and prescription drugs. It also accounts for inflation and investment growth.
If you have $1 million in retirement savings and plan to spend a healthy 4 percent of that per year plus Social Security, your monthly healthcare budget would need to account for about $5,000 per year per person.
These bulk figures sound large, yet what is not included may be even more worrisome:
Since Medicare, the government health plan for those over 65, does not cover long-term care costs, Fidelity’s average spend does not include it either.
But this is where you find the big price tag. The average cost of nursing care is more than $80,000 per year according to the Administration on Aging, an agency of the U.S. Department of Health and Human Services. Home healthcare can be even more expensive at $20 an hour.
While Medicaid is a government safety net for low-income individuals of any age, it does not work for all nursing homes, nor for home care. The only way to insure against running out of money for private-pay nursing homes or home care is to get long-term care insurance. The problem? It is so expensive that even the companies selling long-term care policies are getting out of the business.
Genworth, the biggest provider, just announced that it is not going to sell traditional individual policies and hybrid ones with annuities through brokers. While group policies and direct-sales will still be available, it is just one more contraction in an already shrinking market.
There are still ways to protect yourself. Jesse Slome, executive director of the American Association for Long-Term Care Insurance, favors a some-is-better-than-none approach. Limited long-term care policies, which have lower premiums and lower benefits, sold by companies such as New York Life and Mutual of Omaha, will at least pay some of your costs, he said.
Medicare does not cover dental and vision costs. The good news? “Those are things most people can anticipate and afford,” said Hope Manion, senior vice president, Fidelity Workplace Consulting
As 66-year-old Slome learned in a year on Medicare, it is hard to let go of savings you worked so hard to accumulate. Slome noted this as he was about to head out to the optometrist for a long-avoided update to his eyewear.
“I was moving something in the garage and a hedge clipper scratched the glasses. I have distance glasses and computer glasses and reading glasses. All three pairs will be redone – this is a thousand-dollar visit,” Slome lamented.
A smart way to leverage retirement savings for ad hoc medical costs is through health savings accounts, which allow triple-tax-free savings for healthcare costs, Manion said. You will need a high-deductible health plan to qualify, however.
Americans between the ages of 50 and 64 are the ones who need to worry most about healthcare costs, because some people cannot keep working even if they want to. Fifty-four percent of people in this age group are worried about covering healthcare costs before Medicare kicks in, according to a recent survey from AARP.
“That age band is really scary,” Manion said. “That’s when premiums skyrocket.”
This is also typically the time when chronic health conditions worsen and doctors pile on prescriptions as well as procedures. Medicare does a better job managing these costs than private-pay insurance, Manion said.
Last year Slome went into the hospital just a few weeks before he became eligible for Medicare. In three days, he blew through $6,500, all out-of-pocket costs because he had a high-deductible plan.
“Three weeks later, it would have been zero!” Slome said.