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How much to save for health care for retirement: The number is growing

What would you and your spouse do with $351,000 when you retire?

That may sound like a nice nest egg, but you may need every penny just to cover health care costs in retirement, including medicare premiums and drugs after insurance pays its share, according to recent research.

And that figure is conservative, the research points out.

Americans no longer have retirement savings. A New York Life survey of 2,202 adults last month found that only 4 in 10 have a nest egg, although 74% expect to retire by age 64. This shortfall means many retirees may find their golden years marred by financial stress.

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How much should you save for health care in retirement?

Assuming retirees have Medicare Part A (hospital), B (medical), D (drugs) and G (expenses not covered by Parts A and B, such as coinsurance and copayments), the report says the following amounts are what people need for a 90.% chance of meeting their health care expenses, including premiums and out-of-pocket costs:

A 65-year-old man with average premiums will need $184,000 in savings and a woman will need $217,000. Couples will need $351,000. Representing an extreme case, a couple with particularly expensive prescription drugs will need $413,000 (accounts for Inflation Reduction Act out-of-pocket payment limits).

It’s important to note that these estimates do not include services not covered by Medicare, such as dental, vision, or hearing.

They also don’t include long-term care, such as community, residential or home care costs, which are “huge,” Spiegel said.

A survey by senior search engine Seniorly shows monthly costs for assisted living can be as high as $8,248 and home care can be as high as $3,861.

Using current savings and earnings rates, it would take the average American 17.2 years to save for one year of assisted living, he said.

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Why are health care costs so high for retirees?

Medicare premium increases, the program’s precarious financial situation, which creates uncertainty about how much can be fully covered by Medicare in the coming years, and cuts to employment-based retiree health programs all contribute. said Spiegel.

Over the past two decades, healthcare costs have far outpaced inflation.

Health care costs, including services provided as well as insurance, drugs and equipment, have increased 114.3% from January 2000 to June 2023, compared to an increase of 80, 8% in the prices of all consumer goods and services, according to a nonprofit health researcher. KFF.

“Health care costs tend to rise two to three times faster than the (cost of living) increase in Social Security income,” said Mary Johnson, a Social Security and Medicare policy analyst at The Senior Citizens League, a non-profit advocacy group. A recent league survey found that one in five seniors spends more than $1,000 a month on health care.

“There are so many retirees who simply don’t have the savings to meet these costs, and that can have far-reaching consequences for other family members who want to provide some kind of help,” Johnson said.

What can be done to help the elderly?

Financial advisors and health experts say some of these moves could help ease the burden on seniors:

Legislative changes Whether it’s reduced benefits, increased taxes on workers or some combination of the two, it could help strengthen Medicare, EBRI’s Spiegel said. Early planning, putting money into a health savings account (HSA), modifying your home so you can stay as long as possible and save money. Also, consider long-term health insurance. Instead of enrolling in Medicare, seniors can buy Medicare Advantage, also known as Medicare Part C, which is an all-in-one alternative to original Medicare. These plans typically have a $0 premium and offer benefits such as dental, vision and audio services.

A 65-year-old man with a Medicare Advantage plan would need $99,000 to have a 90% chance of meeting his health care needs; a woman would need $116,000; and a pair of $189,000, the EBRI report said.

These are significantly lower savings targets, but “Medicare Advantage plans often have limited networks or may require approval before certain drugs or services are covered,” he noted.

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