Retirement Health Care Costs On the Rise | American Funds

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By the Numbers

APRIL 10, 2017

Expect the Unexpected Cost of Health Care in Retirement

There are certain expenses you can plan for in retirement, whether it’s a dream vacation or a grandchild’s college tuition.

$350,000The targeted savings needed in 2016 for some 65yearold couples to cover their health care costs in retirement 

How much do you think you will spend on health care costs in retirement? The answer may surprise you. According to a recent study by the Employee Benefit Research Institute (EBRI), 65–year–old couples should target savings of $350,000 to cover health care costs in retirement.

While that number may seem shocking at first glance, consider that Medicare generally covers only about 60% of health care costs for qualifying beneficiaries ages 65 and above. That leaves retirees responsible for supplemental insurance premiums and out–of–pocket costs for prescription drugs, which can add up quickly. 

“The message is: Start saving early and save as much as you can," says Paul Fronstin, director of EBRI’s health research and education program. "The earlier you come up with a plan, the easier it will be to meet your goal."

Fortunately, there are some steps you can take to plan for health care costs in retirement.

If you have a high-deductible health insurance plan, you may consider opening a health savings account (HSA). Contributions to an HSA are tax deductible and grow tax–deferred. Withdrawals are also tax–exempt if the money is used to pay for qualified medical expenses.

You might also consider purchasing long–term care insurance, which can help protect your savings in the event you require long–term care in the future.

“By maximizing products such as health savings accounts, long–term care and life insurance, as well as selecting efficient investments, we can overcome these large outlays from our retirement nest eggs,” says Ryan Tiernan, national accounts manager at Capital Group. “Thinking about health care costs as a distinct essential expense and investing appropriately will become increasingly important.”

Source: “Savings Medicare Beneficiaries Need for Health Expenses: Some Couples Could Need as Much as $350,000.” Employee Benefit Research Institute, January 31, 2017.


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