With rising costs and people living longer, health-care expenses are an essential element in retirement planning.

Many investors worry about inflation and taxes as the prime threats to their savings. But, in a trend that is expected to continue, health-care costs have outpaced inflation and wages for more than a decade.

Adding to the planning challenge is that health expenses are unpredictable. Investors may acknowledge, however, health-care spending will rise with age. And life expectancy has been on the rise. The Centers for Disease Control found that life expectancy rose to a record high in 2012. Women typically live longer, with an average life expectancy of 81.2 years, compared with 76.4 for men.

Healthy retirees may face higher costs simply by living longer. In fact, health care is the only component of household expenditures that increases with age.

Consider the expenses of a healthy individual compared with someone with a chronic illness. According to HealthView Services, a healthy 55-year-old male can expect about $223,434 in health-care costs over a lifetime, compared with $116,275 for a diabetic 55-year-old male. For a 65-year-old healthy couple, total health care could exceed $390,000.

Retiree coverage declines

In 1990, new federal requirements for private companies to report retiree health benefits led many private sector companies to revamp their retiree health programs, many by limiting or eliminating benefits. Today, fewer large companies offer health insurance to retirees. Consequently, the reduction benefits puts more pressure to save enough personal resources to cover health-care in the future.

With fewer employer benefits, retirees may rely on Medicare, but even Medicare’s future is uncertain. With the rising number of retiring baby boomers, the federal government’s mounting debt, and the projection that the Medicare trust fund will be depleted by 2030, there will likely be pressure to pursue entitlement reform in the future. At some point, Medicare may offer reduced benefits.

Given these challenges, it is critical for investors to include health-care costs in their financial plans. To learn about saving options and tax-saving strategies, it is important to meet with a financial planning professional who understands your personal financial situation. Explore more details in our investor education piece, “Successful retirement planning must consider health-care factors.”


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