Written by Stephen Ostrofsky, CFP®
During a recent client meeting with a client, we reviewed their retirement benefits designed to provide for health care costs during retirement. The retirement benefits provided significant sums to my client, but was it enough to offset expected health and custodial care costs? What we found is that many retirees face significant risks from uninsured health and custodial care costs, due to their retirement age. Investors should develop retirement plans which include expected health and custodial costs based on your individual age, health status, family medical history, gender and state of residence.
Medical Health Care Costs in Retirement
According to HealthView Services: 2022 Retirement Health Care Costs Data Brief, which includes data from over 530 million medical health care cases, predicts “With inflation
rising to a 40-year high of 7.9% in 2022, the impact on future expenses will be significant. The 2022 Medicare Part B premium increase of nearly 15% (a record-high $518 annually for a married couple) may be a harbinger for future healthcare cost increases.” This inflation rate is the principal driver of future healthcare costs, which will continue to out-pace U.S. inflation and expected Social Security cost of living adjustments (COLAs). As this Report details, the compounding impact of health care inflation means that health care costs will be one of the most significant expenses in retirement.
The report estimates that the total projected lifetime health care costs for a healthy 65-year-old couple in 2022 is expected to be $673,587, in today’s dollars. The report details additional costs including out-of-pocket health costs such as deductibles, co-pays, hearing, vision, and dental care, resulting in greater total expected health care costs. Furthermore, Medicare “means-testing” thresholds may be raised that which could lead to greater income-based surcharges. According to the report, in 2022, “For a healthy 65-year-old couple, if healthcare inflation were to remain at 1.5x CPI for the next two years, a healthy 65-year-old couple would face an additional $85,917 in retirement healthcare expenses over the next 20+ years. That cost nearly doubles – to almost $160,712 – for a couple aged 55. Lastly, a 45-year-old couple in this same situation will need to pay $259,808 more as a direct result of high health-cost inflation for only two years.” The percentage is greater the earlier you retire because social security retirement income grows at a slower rate than the rise in health care costs.
Custodial Health Care Costs in Retirement
Custodial health care costs are not covered by Medicare (except, first 60 days) for services including assistance with activities of daily living (ADLs) such as, bathing, dressing, eating, getting in or out of bed or a chair and moving around, again these essential needs are not covered by Medicare. According to the Genworth 2022: Cost of Care Survey, “At least 70% of people over the age of 65 will require some form of long care services and support during their lives.” The 2022 Genworth Survey covers 435 cities across all 50 states and includes data from over 15,500 surveys from nursing homes, assisted living facilities, adult day care facilities and home care providers. The current median monthly costs of custodial care in South Florida during 2022 for Home Health Aide Services is projected to be $4385 and for Nursing Home Care (semi-private) is $9,019 and (private) is $10,904. For detailed cost of care expenses in your specific Florida County refer to the specific survey data.
With guidance from a True North Financial Advisors and your team of advisors you can:
- Develop a Comprehensive Plan;
- Control of Assets; in balance with
- Protection Against Spousal Impoverishment; and
- Help Communicate to Family Members.
If a client is simply advised that some estate planning should be done, it is an invitation to the client to procrastinate. After a review of the client’s situation and the client clearly understands, they should become highly motivated to make decisions related to their own healthcare and disposition of wealth. The estate and eldercare plan is the last step in this journey which allows one to determine their own healthcare and provide financially for their heirs, under the most favorable terms.
