Health care will likely make up a big chunk of your spending during retirement. A lot of people think Medicare will cover these costs. But is that really the case? As part of our ongoing series on retirement myths, I’ll examine that assumption.
First, let’s look at the cost of health care when you retire. A typical 65-year-old couple would need $283,000 to have a 90% chance of paying for their health care costs during retirement. That’s according to the Employee Benefit Research Institute.
What’s worse, the cost of health care is rising fast. Between 2010 and 2020, Americans’ total healthcare spending is expected to increase 5.8% per year. That’s more than double the average rate of inflation. Ouch!
Now, how much of that will Medicare cover? Well, the answer is some — but definitely not all.
For starters, Medicare doesn’t kick in until you reach age 65. And once you’re covered, it requires co-payments that range from 20 to 45 percent of the cost for many kinds of outpatient care.
Overall, you’ll end up footing the bill for about half of your health care costs during retirement.
And don’t forget about hearing, dental, and vision care. Only in rare circumstances does Medicare pay for these kinds of expenses. For those reasons, you’ll likely need to buy supplemental Medigap insurance. The coverage usually costs around $150 to $250 per month.
This is all the more reason for you to save as much as you can now. A financial professional can help you determine how much to set aside in order to reach your goals.
Watch for more retirement myth-busting in the next post from Kevin Hansen. He’ll explain the new thinking on withdrawal rates during retirement. I think you’ll be surprised.
See our previous Mythbusters blog post on sources of income during retirement
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