The Completely Unpredictable Retirement Expense You Somehow Must Prepare For

If you’ve read any personal finance content online, you know about the need to predict your retirement expenses. Some of these are easy — you can guess how much you’ll spend on food based on your current budgeting. The same goes for clothes, diversions, and a host of other things.

Some expenses are more difficult to gauge — like how much you’ll travel when you’re no longer limited by accrued vacation days. Or how much you’ll spend spoiling your grandkids.

Some are downright impossible to predict, like how much healthcare in retirement will cost you. The only thing we know for certain: It’ll be a lot.

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How much will healthcare cost?

This question actually has two components:

  • How much treatment will you need — or put differently, how healthy will you be?
  • How much will that treatment cost?

Maybe you’re in your 40s right now and trying to predict how healthy you’ll be when you’re 70. That’s 30 years away. And your parents aren’t a good barometer since they grew up in a fundamentally different treatment paradigm.

Which brings us to door No. 2: How much will treatment cost? Well, that depends on what new medical advancements are made in the next 30 years and how much drug companies decide to charge — which, if you watch the news, you know isn’t necessarily predictable or fair.

No one’s really doing the math on what someone aged 40 today would be paying for healthcare in retirement because there are far too many question marks, including Medicare’s solvency. Fidelity estimates that healthcare in retirement will cost a couple turning 65 this year $280,000 in today’s dollars, up from $260,000 just two years ago, but even that number excludes (substantial) long-term care costs.

Without a precise number to hit, your best option is to…

Overprepare, if possible

Money can’t buy happiness or health, but it can help you access the care you’ll need in retirement. If you’ve ever tried to figure out your retirement number, adjust the line item for healthcare a little higher. I can’t tell you by how much, but I’m personally budgeting $500,000 in today’s dollars for my wife and myself (we’re both 29).

If you have access to a Health Savings Account (HSA), it’s a great way to save toward retirement health expenses. That’s because it has a triple tax advantage: Your contributions aren’t taxed, your gains in the account grow tax-free, and as long as you use the money for healthcare expenses, your withdrawals aren’t taxed either.

While you can’t predict your future health, you do have a measure of control over it. Exercising regularly and working to control your weight can help avoid (or at least delay) expensive chronic conditions that become much more common as we age, like diabetes. According to Johns Hopkins staff, obese people who lose 5% to 10% of their body weight reduce their chances of developing diabetes — which carries direct annual medical costs averaging $7,900 — by 58%.

A big margin of safety

It’s important to be ahead of the game on healthcare costs in retirement because they can swiftly stack up. After all, medical debt is one of the biggest causes of bankruptcy in the United States. Building in a big margin of safety both financially and in terms of your personal health will leave you with safety and security so you can enjoy your golden years.

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