Retiring Before Age 65? Look out for the Biggest Expense! (Spoiler: Healthcare)
As an advisor, when I ask people what they think their biggest expense is going to be once they retire, the answer I get is usually Travel. And while that is a great thought and I wish that was the correct answer, it is not for most people.
The biggest single expense for retirees today is Healthcare.
According to a new study by Fidelity, the estimated amount of money a 65-year-old couple retiring in 2019 can expect to spend on healthcare and medical expenses throughout retirement is $285,000. Some estimates that take into account the rising cost of healthcare put the estimate closer to $390,000. And that does not count any long-term care expenses either.
For those that have saved very well for retirement and are thinking about early retirement, healthcare insurance is usually the biggest impediment and cost once they are no longer covered under an employer-sponsored plan.
For some perspective, the average balance in a Fidelity 401(k) for 60 to 64-year-olds in America is $183,700. Those near-retirees may of course have other accounts, but it still speaks to the possible shortfall.
Retirees widely misunderstand health insurance, which can be an expensive problem. 72% of adults over the age of 50 admit they don’t fully understand how Medicare works, a survey from the Nationwide Retirement Institute found. More than half believe that coverage is free. Medicare will help cover some costs in retirement, but it is far from free. You’ll still face some out of pocket expenses. Dental care is one of the biggest blind spots for retirees, as original Medicare doesn’t cover this expense at all.
How can you avoid pricey surprises?
It’s important to understand which costs you’re responsible for, what your insurance will cover and its costs. If you haven’t built healthcare costs into your retirement plan specifically or don’t have a plan at all and would like to work with a fiduciary financial advisor who cares, shoot me an email or give me a call for a friendly chat.