Do you really understand your medical costs in retirement?
Until a year or so ago we didn’t have any accurate way to analyze or project healthcare expenses in retirement. In all honesty, we still don’t!
We’ve always had basic Medicare expense numbers. They’re just number. The problem is no one knows the future of their personal health, or the medical expenses they may incur throughout their retirement.
Medical expenses can easily derail your retirement plan
Planning for healthcare expenses is very similar to investment planning. You don’t know how and when you’ll see the spikes, but you know they’re coming at some point.
You know over a long period of time (such as your retirement), healthcare expenses are going to rise! There’s no way around it!
And of course, your health will decline as well. This will force you to pay more often for more healthcare services in retirement.
This is just like investing, dare I say nearly identical. With investing you know the markets will rise over your retirement lifetime. You simply don’t know when the spikes or dips will come.
You know the economy will grow over your retirement. You don’t know how fast or when the biggest bursts will occur.
Inflation with healthcare is a silent killer
Of course the cost of everything rises over time, that’s just the reality of inflation. Medical expenses are a bit different however.
Healthcare expenses during retirement will very likely grow at a rate of 6% to 7% per year. One of the absolute biggest retirement killers is failing to estimate and plan for these expenses.
For starters, you should consider both national and local averages for healthcare costs during your retirement. It’s not an option, it’s a necessity.
You should also grow those expenses at 6.5%. This should illustrate what will likely/realistically happen to your medical costs.
Are you wasting medical care money?
To make matters even more complicated, most retirees are overspending on healthcare – specifically Medicare – in retirement. Saving $50 or $100 a month may not sound like much. I can tell you with 100% certainty it makes a MASSIVE difference in your ultimate retirement plan success or failure.
Small hinges swing big doors. In many cases, $600 to $1,200 per year in savings can make or break a fulfilling and enjoyable retirement.
Don’t forget, your Medicare premiums are based on your income
Another aspect of planning for Medicare is managing your modified adjusted gross income in retirement (MAGI). You must be aware of the income brackets which determine your modified adjusted gross income, because those brackets ultimately determine the Medicare expenses you’ll be responsible for.
That income number is based on your form 1040 from a couple years before you start paying Medicare premiums. If you’re on – or near – the bubble of a higher bracket, you should consider ROTH distributions for income (as a last resort) to reduce your MAGI. More preferably distributions from a taxable account.
Do your homework, understand your medical expenses
Regardless your financial situation, medicare expense planning and other healthcare expenses is vital to your long term financial success! If you’re not looking at every aspect of your finances, you should be.
Make the most of your retirement! Have a professional review your Medicare expenses today!