Your Retirement Number is as Unique as You Are

Discover yours before it’s too late

There is a great deal of speculation regarding just how much people need to save for retirement. One million dollars? Two million? Is it five or is it seven percent of your working income? Financial professionals are quick to point out the cold-hard truth that your “number” depends on how much debt you bring into your retirement – and what sort of lifestyle want to live.

But let’s set that aside for a bit because there is an even more important number that needs to be addressed prior to heading to retirement: the dollar figured associated with health care.

Yes, indeed, those ugly unknowns: Will I or my spouse or partner be diagnosed with a potentially fatal disease? Will I or my spouse or partner have chronic health issues during retirement? Will either of us require account-draining long-term care?

The most commonly quoted number currently is just shy of $300,000 per retired couple, according to a recent Fidelity survey titled, “Retiree Health Care Cost Estimate.”

Unfortunately, when life-altering issues arise, it’s too late to plan how to pay.

Just How Much Does Retirement Health Care Cost?

Some joke that you might need to sell an arm or a leg to pay for health care at retirement age. This light-hearted attempt at softening the blow might have more truth in it than the intended humor.

Devin Wolf“It’s no secret that expected heath care costs in retirement are enormous,” said W. Devin Wolf, principal and lead advisor at Financial Plan, Inc., in Bellingham, Washington, just south of the Canadian border. “Many people fail to understand how proper planning can mitigate these costs.”

Wolf said he believes advisors owe it to their clients to address heath care costs in retirement financial planning and he offers the some guidelines. For instance, be sure to include health care costs in expense projections as retirement does not pay a health care benefit.

“When people evaluate retirement needs, they often ignore or underestimate health care costs because their health insurance has been paid by their employer,” explained Wolf.

Next step in Wolf’s checklist is to collaborate with a health care expert.

“Health insurance is changing at a rapid pace, so working with a health insurance specialist to find the right plan for your clients’ needs is critical,” said Wolf.

Next up is to build coverage strategies – especially if one is retiring before age 65 when Medicare eligibility kicks in, explained Wolf. These strategies may include a partial retirement during which employer coverage is maintained or purchasing COBRA insurance from the soon-to-be former employer or via the Affordable Care Act exchanges.

Income becomes a tricky maneuver in these cases as what is known as “Modified Adjusted Gross Income” or MAGI sets the pricing threshold on the exchanges.

“It is critical to understand this and build a withdrawal strategy that optimizes health care costs,” said Wolf. “This is often counterintuitive to traditional planning.”

Finally, Wolf stresses that an understanding the cost, penalties, and timeline associated with Medicare are imperative.

Not signing up at age 65 leaves one with a permanent 10 percent penalty per year between age 65 and when one signed up. Premiums for Medicare’s Part B – which covers preventative care and doctors visits as well as outpatient surgery, lab work and medical equipment – are based on your MAGI for the two years prior to enrollment.

“It is important to plan around these threshold and life-changing events such as retirement that will allow you to apply for a reduction in your Medicare Part B income-related premium,” he said.

What About Long-term Care?

Here’s where the discussion of retirement health care costs takes a somber turn.

According to the AARP (American Association of Retired Persons), 70 percent of those turning 65 today will need some form of long-term care during his or her lifetime. Yet, four in ten of those 70 percent are depending on Medicare to shoulder the cost. While Medicare usually does cover a 100-day stay in long-term care, that won’t be enough time for the average stay. AARP reports that the average long-term care stays are: men, 1.5 years and women, 2.5 years.

Back to Your Number

The not-so-fun and even frustrating part about tracking how much money Americans save for their retirement years is that the data is generally a year behind.

With COVID-19 messing up most of 2020, it remains to be seen how informative data from that year will be, however, Statista Research Review – which has reported on saving and spending trends since 1960 – reported that Americans put 13.7 percent of their income into savings during the pandemic.

That’s a pretty big jump from 2019 marked at 7.6 percent. It will be a few years before statisticians know if 2020’s nearly six percent increase was pandemic related by comparing the numbers for the years to follow. In the meantime, using 7.6 percentage as a working number is not good news for future retirees.

Gabriel Twining“To realistically achieve a comfortable retirement, a 7.6 percent savings rate is not going to cut it for most Americans,” said Gabriel Twining, also a principal and lead advisor with Financial Plan, Inc., in Bellingham, Washington, noting that the 2019 number represents what he considers a less than adequate increase over past years. “The fact that this rate represents an increase in savings is unsettling. The magic number for exactly what savings rate makes retirement possible is different for everyone and based on a huge variety of factors. But, in general, it is going to be far greater than 7.6 percent.”

Making Health Care a Bolded Budget Line Item

Retirement has a plethora of numbers associated with it. Some are more important than others. As health care costs continue to rise, wrapping your mind and your budget around its price tag so you can accurately determine what percentage of your working income needs to be saved is a valuable move long before the Golden Years dawn.


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