Retirement is a life phase rooted in the American psyche — it’s something we work toward our whole lives. After decades of the daily grind on the job, when retirement rolls around, we want to be able to relax and do what we’ve always dreamed of doing — be it traveling the world, taking up new hobbies, or simply enjoying time with family.
When we dream about retirement, we don’t typically envision those golden years dominated by steep medical bills and financial stress. Yet, whether you realize it or not, medical care can consume a large portion of your retirement budget.
Most people think that they can rely on Medicare to take care of their medical expenses during retirement, but that’s not the case. In fact, a recent report1 by the Employee Benefit Research Institute (EBRI) showed that Medicare beneficiaries will need substantial savings to make up for gaps in the coverage.
Here are a few important takeaways from the report;
- In 2017, a 65-year-old man needs $73,000 in savings and a 65-year-old woman needs $95,000 if each have a goal of having a 50 percent chance of having enough savings to cover premiums and median prescription drug expenses in retirement. If they want a 90 percent chance of having enough savings, the man needs $131,000 and the woman needs $147,000.
- A couple with median prescription drug expenses needs $169,000 if they have a goal of having a 50 percent chance of having enough savings to cover health care expenses in retirement. If the couple wants a 90 percent chance of having enough savings, they need $273,000.
- For a couple with drug expenses at the 90th percentile throughout retirement who want a 90 percent chance of having enough money saved for health care expenses in retirement by age 65, targeted savings is $368,000 in 2017.
And with the retiree share of healthcare costs likely to go up in the future, it’s more important than ever to plan for these expenses in retirement.
If you are planning for or approaching retirement, be sure you understand the impact of healthcare expenses on your retirement strategy. If you don’t know how paying for health care could affect your retirement or whether you’re saving enough for your future needs, try talking to a financial professional. You need a plan to help you afford future medical expenses and thus help limit the negative impact those costs can have on the retirement you’ve been dreaming about.