Health Care: Retirement Budget Buster?

By Joshua Eidson

Retirement is generally expected to be the period of life when you get to decide what you want to do and when—a time of freedom and relaxation dedicated to one’s personal mission, ministry, or hobby. Retirement is a well-earned respite from the day-to-day grind of full-time employment. Even though most retirees and future retirees dream of being able to budget more time and financial resources to the things they want to do, we all need to know about one big retirement budget buster: health care.

The average retired couple can expect to spend $260,000 from age 65 until death, according to a study by Fidelity Investments. Of course, the best way to help manage these rising costs of health care is to live a healthy lifestyle with quality food in sensible portions and regular exercise. Your level of health risk is one of the leading drivers of increased health care expenses. Start now, or keep up the healthy eating and lifestyle to improve your health risk factors.

Even with a healthy lifestyle, it can be hard to determine medical expenses during retirement, especially as life expectancy has increased over the last several decades. (Although the last couple of years have indicated a slight decline in the U.S.) Many people are outliving their retirement nest eggs, due to the increasing health-related costs due to aging.

When individuals reach full-retirement age, as defined by the Social Security Administration, retirees can expect some assistance with health plan premiums from the Medicare program. According to Medicare.gov, in 2017, the average annual out-of-pocket health care costs totaled $7,600 for healthy individuals. Medicare offers a few levels of coverage options with numerous supplemental add-on plans available in the marketplace to fill in the gaps in coverage. A couple of factors affect Medicare premiums: level of retirement income and location. If you have a sizeable retirement fund at your disposal, you should expect to pay more for the government-subsidized plans. Location is also a factor in your monthly Medicare premium. As cost of living varies in different locations around the country, so do Medicare premiums.

Every retiree’s situation is unique, and the same is true for health and related expenses during the golden years. When planning and saving for retirement, keep health care concerns and projected costs top of mind. As one ages, increasing medical expenses may be offset by declining expenditures in other areas. However, four of five American workers have not calculated health care needs in retirement, according to a 2018 survey conducted by the Employee Benefit Research Institute and Greenwald & Associates. The key is to plan for expenses and consider ways to meet them before they are incurred.

Some health care costs can be controlled; others cannot. The areas we can control start with a healthy lifestyle well before retirement age. Another way to help with future medical costs are tax-advantaged Health Savings Accounts (HSAs) for those who are eligible. Only you know what’s best for your personal health. Own it, and enjoy your future ministry.

About the Writer: Joshua Eidson is accounting administrator for the Free Will Baptist Board of Retirement. A native of Middle Tennessee, Joshua graduated from Welch College in 2007, where he earned a B.S. in Business Administration. He and his wife Rachel have four children.