Rising health care costs and impact on future retirees


In recent months, Americans’ anxiety about inflation has grown steadily. A Gallup poll coordinated in March noted that 17% of Americans think the high cost of living and inflation are a significant problem, up from just 8% in January. For people approaching retirement, there are planning considerations to make as prices continue to rise – most notable, given the significant cost to retirees, is that of health care.

Although inflation can drive up the prices of prescriptions and medical supplies in the short term, health care costs get ahead long-term inflation, regardless of market conditions. This means that future retirees should plan ahead and include health care costs in their overall financial plan.

Estimated costs

According to a model Vanguard developed with Mercer Health, even with Medicare, average health care costs can reach over $5,000 per year. In my work with clients, I typically focus on health care planning when an individual or couple is five to 10 years away from planned retirement. This advanced planning can allow someone to develop a thoughtful approach to preparing for – and ultimately paying for – future health care costs.

A few years before retirement, start thinking about the logistics of the retirement timeline. For example, if a person plans to retire at age 62 but will not be eligible for Medicare until age 65, they will need to determine how they will cover their health care expenses for three years. For some, they might consider joining their partner’s health insurance plan (if the partner is not retiring at the same time), going with COBRA, or finding a short-term insurance plan to cover the ‘difference. Alternatively, it could mean tapping into liquid assets or an HSA to pay for healthcare expenses before Medicare coverage kicks in.

Then, map planned expenses from the start and develop a corresponding savings plan to meet future goals. Medicare.gov provides useful information on eligibility and premium estimates. Vanguard also provides personal advisor services to customers, such as a healthcare cost estimator that forecasts healthcare and long-term care expenses.

Assess family history

Health considerations, such as family medical history, longevity expectations, and current health status, are equally important for timing logistics, as these factors can influence your choice of Medicare coverage. Of course, the concept of planning for a potential health scenario can be emotional. However, a forward-looking approach, guided by a financial advisor, can limit the need to make abrupt and difficult decisions in the midst of a health crisis.

A possible additional expense – not covered by Medicare – is the need for long-term care. The peak conditions that often drive the need for long-term care include dementia, stroke, Parkinson’s disease and osteoarthritis. Evaluate family history long before retirement and determine if long-term care might be an expense worth considering.

The need for long-term care can be a financial “wild card” since some clients may not need it during their lifetime. I work with clients to brainstorm hypothetical situations as this can determine appropriate health care goals linked to a financial plan:

  • “Are you planning to move in retirement?” Some locations (like the West Coast and the Northeast) may have higher health care costs.
  • “Will someone take care of you as you get older?” If the answer is yes, it will offset the costs. However, without the support of a spouse or child, it likely means the need for outside resources, which can be costly.
  • Where will I feel most comfortable as I get older? » It could be the difference between home nursing care, a shared room in a nursing home, or private resources in a more expensive facility.

Don’t forget the financial “compromises”

In addition to assessing family history and calculating potential future health care costs, it is important to understand the financial trade-offs that will come into play over the various decades. For example, many retirees in their 60s see part of their retirement income fund travel or new hobbies. As retirees age and this activity declines, there is a natural trade-off in spending – money that once funded a golf habit can now be directed towards prescription costs. It is important to keep these financial concessions in mind, as retirement income will naturally fluctuate during the different seasons of life.

Health care is only one piece of the retirement planning puzzle. And, as prices continue to rise in this space, making plans years before retirement is key to ensuring long-term financial security.

Senior Financial Advisor, Vanguard

Julie Virta, CFP®, CFA, CTFA is a Senior Financial Advisor with Vanguard Personal Advisor Services. She specializes in creating personalized investment and financial planning solutions for her clients and is particularly familiar with comprehensive wealth management and estate planning for multi-generational families. A graduate of Boston College, Virta has over 25 years of industry experience and is a member of the CFA Society of Philadelphia and the Boston College Alumni Association.


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