You’re in your 50s, and you plan to retire within the next ten to fifteen years. What should you expect with regard to future healthcare costs?
Expect to pay more.
In 2022, overall health spending in the U.S. was $13,493 per capita, or a staggering $4.5 trillion (that’s “trillion” with a T). And healthcare costs—as is the case with most goods and services—have steadily risen in recent years. A month ago (July 2024), the U.S. Health Care Inflation Rate stood at 3.17% (i.e., about the same as the overall inflation rate).
“Okay,” you reply. “But isn’t that why we have Medicare (and Medicare cost of living adjustments)—to help retirees pay for healthcare costs?”
Yes. However, when we ponder the future of healthcare for retirees, we have to look at the health of Medicare itself. Consider:
- In 1973, payroll taxes paid for 73 percent of all Medicare spending. By 2023—with baby boomers retiring in record numbers AND living longer—payroll taxes covered just 36 percent of the program’s costs. (The shortfall is largely paid out of the federal budget, a practice that is growing our national debt.)
- In fiscal year 2023, Medicare cost American taxpayers $839 billion. That’s 14 percent of all federal government spending.
- Projections are that Medicare will run out funds in 2036—unless rising healthcare costs are curtailed and reforms are made to the system.
Translated, all this likely means you should expect higher taxes during your working years, higher Medicare premiums in your retirement years, or cuts to your Medicare benefits. (Or possibly some combination of these measures.)
We could blithely ignore these realities…or curl up in the fetal position and feel sorry for ourselves. But neither of those responses is helpful.
So here are three positive steps you can take to prevent wealth loss due to rising health costs in the years to come:
- Take care of yourself now. You can’t guarantee yourself a healthy future simply by eating right and exercising. But you can greatly improve your odds. How ironic that so many workers ignore their health when they’re young and trying to make money…only to turn around in retirement and hand that money over to doctors who are treating them for ailments that, in some cases, might have been prevented!
- Start saving now. If you think saving is hard now, wait until you’re older. You’ll have more distractions, potentially less income, and certainly less time for those savings to grow. Make hard choices now, so you won’t have a hard life later.
- Put a safety net in place now. The fact that you can’t predict with certainty what healthcare costs will be in the future is no reason to freeze. Suffice it to say you will need money for healthcare in the future. Why not put those dollars in place now (at a discount) through strategic insurance purchases? That might include long-term care insurance, medigap insurance (at the proper time) and even life insurance. Life insurance is an often-overlooked tool for managing the financial risks of longevity. Work with an experienced agent to explore any of these options.
Though you can’t predict your healthcare future, you can prepare for it. I urge you to get started today.
A smart first step is to consider your overall retirement income strategy. Do you have one? Have you created a clear plan for making your retirement savings (a) fund your lifestyle and (b) last as long as you live?
If not, I’ve got a free little quiz called the RISA. (i.e., the Retirement Income Strategy Assessment.) It takes less than 10 minutes and can help you figure out an income plan that aligns with your goals and tolerance for risk). Simply email me (bmoore@argentadvisors.com) for your free link.
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