Because most Americans are unprepared for health care costs in retirement, RBC Wealth Management—U.S. has issued a guide to help them, titled, Taking Control of Health Care in Retirement.
From a survey that Ipsos conducted for RBC, the firm learned that 80% of respondents are concerned about funding the cost of health care in retirement. However, only 56% have factored health care into their retirement planning, and of this group, 50% said they think they probably underestimated the true cost of health care in retirement. Respondents said they thought they would need an average of $2,700 a year in out-of-pocket costs for health care in retirement, but RBC says the real cost is $5,700 per person and $11,400 for a married couple.
“Health care is one of the largest expenses we will face in retirement,” says Michael Armstrong, chief executive officer of RBC Wealth Management—U.S. “If not properly accounted for, these costs can derail even the most solid retirement plan.”
RBC’s report says that the first thing people should do is realize the cost of health care in retirement, which is more than $400,000 for a 65-year-old couple retiring this year. In addition, health care expenses increase with age, according to RBC. For a couple between the ages of 65 and 74, they average $13,000 a year. For those ages 75 to 84, they average $24,000, and for those 85 and older, the cost is $39,000 a year.
RBC recommends that people take advantage of the retirement savings and medical benefits that their employers offer, including accident and critical illness coverage, life insurance, group legal plans, Roth 401(k)s and health savings accounts (HSAs). People also need to consider how long they may live, RBC says. Current life expectancy is 76 for men and 81 for women.
RBC also says that 70% of 65-year-olds will need some form of long-term care and that a private room in a nursing home costs an average of $92,376 a year. Thus, RBC says that some possible financing options include purchasing long-term care insurance or an insurance policy with an annuity rider.
RBC notes that there are limits to the scope of traditional Medicare, so people need supplemental health care insurance. The RBC report notes that aerobic exercise and adequate sleep may delay the onset of dementia or improve your ability to manage a decline.
RBC’s report, Taking Control of Health Care in Retirement, can be downloaded here.