Health Care Planning: Will you cruise through retirement?

Except for government employees and Social Security, retirement plans that pay benefits until death are pretty much a thing of the past. Plus, people today are living longer.  The cost of health care continues to rise more rapidly than inflation and is now one of retirement’s biggest (and most unpredictable) expenses.

Increases in longevity and starting families later means that many people who are nearing retirement age today also have responsibilities to their parents and their children. In addition, two major bear markets and historically low interest rates have taken a toll on many people’s retirement savings.

For all these reasons, many people today are understandably concerned about health care planning and how they will make it through their retirement years.

The primary wild cards that create risk in retirement planning are the retiree’s future health care costs and longevity.

The Increase in Life Expectancy

Life expectancy has risen 60% in the last century. At age 65, an American male in reasonable health has a 50% chance of living to age 85; for females, it is 53%. For a 65-year-old married couple in average health, there is a 72% probability that one of them will live past age 85.

The Increase in Health Care Costs

Fidelity estimated that a couple age 65 retiring in 2013 would, on average, have $220,000 in medical expenses in retirement (based on a 17-year life expectancy for the husband and 20 years for the wife.) Plus, that $220,000 does not include the expense of over-the-counter medication, most dental services and long term care.

It’s More Often a Woman’s Issue

Fidelity also projects that a female age 65 has a 50/50 chance of living to age 88 versus age 85 for a male. Because of the usual age difference between spouses, those longevity differences and higher rates of divorce, the vast majority of women in the U.S. will die single. Without a spouse, the probability of needing third party care increases. That could mean higher costs for care or a burden on adult children.

It is important to plan now with your legal and financial advisors for long term care and estate planning. Your financial advisor can help you protect how much of a retirement nest egg will be needed as survival resources. Your legal advisor can assist you in protecting your assets with appropriate legal documents.  The sooner you plan for these eventualities, the better off you will be.