By Guest Blogger, Ross Blair, President and CEO of PlanPrescriber.com, which provides senior-friendly Internet comparison tools and resources for Medicare.

Ross Blair, CEO of PlanPrescriber.com

In planning to meet your future health care needs, does the 4 percent rule hold up for retirement? This article will help future and current retirees to better plan for and modify finances based on the rising cost of health care.

Many Baby Boomers, seniors and their caregivers don’t account for the cost of health care and out-of-pocket expenses assuming Medicare is either free or covers the bulk of the cost.

The standard 4 percent rule (William Bengen’s popular rule of thumb for retirement) shows that it may not hold up any more.

 

The Baby Boomer generation is now aging into Medicare at a time when health care costs are growing and there are questions about the program’s future. This raises concerns for a fast-growing population of seniors who are unsure if they’ll be able to afford health care once they retire.

On average, about 3.5 million Baby Boomers will age into Medicare each year for the next 17 years, which makes it critically important that boomers accurately anticipate their health care costs and choose the right health care coverage for their needs.

For decades now, William Bengen’s popular 4 percent rule has taught retirees that if they spend no more than 4 percent of their nest egg each year, their savings will last 30 years. But, the rule may need some adjustment, in light of today’s economic reality. Depending on when you retire and how long you live, some financial experts are suggesting that a lower withdrawal rate might be necessary.

When it comes specifically to health care costs, here are some startling statistics from The Center for Retirement Research at Boston College:

Medical Costs Image

  • $197,000 – At age 65, a typical married couple free of chronic disease can expect to spend $197,000 on remaining lifetime health care costs excluding nursing home care. However, this couple faces a 5 percent probability that these costs will exceed $311,000.
  • $260,000 – Including nursing home care, the mean cost is $260,000, with a 5 percent probability of costs exceeding $570,000.
  • 15% – Less than 15 percent of households approaching retirement have accumulated that much in total financial assets.

To help manage health care costs in retirement, those 65 and older typically consider benefits like long-term care insurance and Medigap coverage. But, anyone saving for retirement or nearing Medicare eligibility should be aware of the following issues:

Learn the basics of Medicare – trying to understand Medicare can make anyone’s head spin. A recent survey by PlanPrescriber/Opinion Research Corp. found that 55 percent of Baby Boomers believe Medicare functions just like health insurance. However, Medicare differs from traditional health insurance in many ways, and there are some things that it doesn’t cover. Before you get inundated with sales pitches and unsolicited advice, try to understand the basics of how Medicare works.

In our next blog, Blair will continue the discussion about the real cost of retirement in planning to meet your future health care needs, and talk about the three basic ways for coverage: original Medicare; Medicare Advantage; and Medicare Supplements (also called MediGap). Please feel free to share this article and our resources with your own loved ones to help them age gracefully and safely in place.

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