Anyone who is planning for retirement is confronted by two important considerations: How can I guarantee income for as long as I live, and how can I afford quality health care for the rest of my life? This column will focus on the second issue: health care costs in retirement.
The implementation of the Patient Protection and Affordable Care Act (PPACA) has made planning for health care costs more difficult. PPACA isn’t a cure for runaway costs, nor will it ever insure everyone who is uninsured. That was never its purpose.
This Act is nothing new; it requires cost shifting to succeed. We are shifting health care costs from one group of people to another. Young people will pay more so old people can afford coverage. But that information suffers without a clear definition of who is old. Old is people ages 50 to 64. Why is that important? There are three main reasons:
- Cost shifting: Massive cost shifting is beginning to impact people on Medicare and Medicare Advantage plans. Retirees were promised that PPACA wouldn’t touch Medicare; but that isn’t true. Medicare reimbursements have been reduced dramatically. Medicare Supplement premiums will increase, because they will have to pay more. Medicare Advantage will be decimated. Plans with no premiums will need to add premiums, co-pays will increase dramatically, and stop loss maximums will soar. That means more out-of-pocket costs for retirees. Most retirees will face a lower standard of living unless they can find additional money to fund health care costs.
- Fewer doctors: Doctors are leaving the Medicare system in droves. Many no longer accept Medicare, leaving retirees with fewer choices. Most retirees’ quality of life will decline if they cannot afford to get access to the health care provider they prefer.
- Higher premiums: Premiums will be an especially difficult challenge. Here are two examples. What would the cost consideration be for a couple who want to retire at age 60? What would their premiums and out-of-pocket costs be from age 60 until age 65, when they would be eligible for Medicare? If our clients pay low premiums, then they have enormous deductibles. If they pay high premiums, then the deductibles are lower. Either way, costs can range from $10,000 to $30,000 per year for that couple until age 65. Thus, retiring at age 60 would require between $50,000 and $150,000 for just those five extra years. For retirees over 65, it gets better, but not by much. And with the cost shifting impacting Medicare recipients, it will be even more difficult to plan for those health care costs.
Furthermore, these costs will be dramatically higher a decade from now. Fidelity Investments provides an annual estimate of what seniors can expect to pay for health care during their retirement. The number is currently $220,000 per couple — and Fidelity used a low inflation rate to arrive at that figure!
This information is really disconcerting, because half of Americans arrive at retirement with nothing saved. Seventy-five percent have saved less than $28,000, and even for that top quarter, the average amount saved is $147,000. How can retirees expect to live quality lives for 20 years with so little money, much less handle the enormous health costs they face?
The opportunity is spectacular. We must see everyone we can. We must share this information, and we must show that we have strategies that use the financial miracles of compound interest, tax-deferred compound interest, and — the greatest financial miracle of all — leverage to help maximize every retirement dollar our clients have. Get out there and help people!