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This May Be the Biggest Monkey Wrench in Many Americans' Plans for a Comfortable Retirement

According to the Consumer Bankruptcy Project, retirees are the fastest-growing segment of our population filing for bankruptcy, and 39% of bankrupt retirees do so on account of medical expenses. This sad statistic is largely attributable to (i) a lack of awareness regarding the amount of money needed to cover out-of-pocket medical expenses in retirement; (ii) misunderstandings about Medicare coverage; and (iii) failing to consult with a certified financial planner, estate planning attorney, and/or elder care attorney well before planned retirement.

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When asked, 69% of baby boomers and 66% of retirees estimate that their health care costs in retirement will be $100,000 or less. However, the Employee Benefit Research Institute (EBRI) states that the average retired couple will actually spend about $265,000 in out-of-pocket medical expenses in retirement (includes Medicare premiums and out-of-pocket health care costs relating to all Medicare plans and supplemental insurance plans). Knowing the amount of money you may need for such out-of-pocket medical expenses is crucial to proper planning for a comfortable retirement.

While many pre-retirees assume that Medicare will cover all of their health care expenses after age 65, data compiled by EBRI suggest that Medicare will cover only about 62% of those expenses. Therefore, Medicare-eligible retirees should consider purchasing additional Medicare insurance (Medicare Parts B and D) or purchasing a "Medigap" policy from a private company to cover expenses not covered by Medicare Parts A, B and D, such as co-pays and deductibles. However, Medicare and Medigap plans do not cover the cost of hearing aids, which average $2,300 for just one ear. Nearly 25% of Americans age 65-74 suffer disabling hearing loss. So, again, the cost of hearing aids is an expense for which you may need to plan and budget.

In addition, 44% of men and 58% of women over age 65 will require some type of long-term care, which is NOT covered by Medicare. The average cost of an apartment in an assisted living facility is over $47,000/year, and 24/7 care in a semi-private room at a nursing home exceeds $92,000/year. A certified financial planner, estate planning attorney, and/or elder law attorney can help you plan for these expenses by advising you about long-term care insurance, cash value life insurance, and other strategies for ensuring you will not run out of money in retirement on account of medical expenses. Knowledge is power.

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