How much money do I need to have saved to cover health care costs in retirement?

Ralph
00:00:00

Have you ever woken up in the middle of the night, your heart's pounding, and you're wondering if you'll have enough money to cover your medical bills in retirement? Maybe you're afraid that one serious illness could wipe you out entirely, completely eliminating your life savings? Well, let me just tell you, you're not alone in that.

And today, I'm covering a topic that keeps many soon to be retirees up at night. And that's this question. How much money do you really need to have saved to cover healthcare costs in retirement? Well, I'm going to encourage you to stick around because I've got some eye-opening stories and some practical advice that could save you from financial disasters down the road.

Narrator
00:00:38

Welcome to the Ask Ralph podcast, where listening to an experienced financial professional with over 30 years of experience can help you make sense of confusing questions, current headlines and industry trends about taxes, small business, financial decision making, investment strategies, and even the art of proper budgeting. Ask Ralph makes the complex simple by sharing his real world knowledge from a Christian perspective with all things financial.

Now here's your host, Ralph Estep Jr.

Ralph
00:01:09

Thank you for joining me today and taking your time to improve your finances while balancing your faith. That's what the Ask Ralph show is all about. Now yesterday, we talked about the Rule of 55 and how you can use it to reduce your taxes. I gave you some ideas if you want to look at retiring early and eliminate those penalties. So if you missed it, I'm going to encourage you to go check it out.

Now, before we move into today's episode, I'd like to share something personal with you. My mother-in-law, Dianne Bethard, is battling the late stages of Alzheimer's disease. And I've assembled a team representing the Ask Ralph show to participate in the upcoming Alzheimer's walk in Wilmington, Delaware. Now for those of you in the area, we'd be honored if you join us. Now, it's tomorrow. So there's not a lot of time, but you can go and join us still. If you're listening to this right now, it's on Saturday, October 19th. And I know that's short notice. So if you're unable to attend but still wish to support the cause, I've set up a donation page. And you'll find a link to that in the show notes and listen, every contribution, I don't care what size it is.

It brings us one step closer to defeating this devastating illness. And it is a terrible thing to watch. So your support means the world to us and to the millions affected by Alzheimer's. And I know working together, if you can give me a donation for that cause, it'll be great. We can truly make a difference.

Today's show question comes from Maggie and Maggie is in Ohio and she writes this, "Ralph, I'm 58 years old and planning to retire in about 7 years. I thought I was doing pretty well with my retirement savings, but recently, I've been hearing horror stories about retirees going bankrupt due to medical expenses. I am terrified that I might not have enough saved for healthcare costs. How much do I really need to set aside? And how can I make sure I don't end up in a financial nightmare because of medical bills? Please help!"

Let me say this, Maggie, thank you for your honest question. It is a tough one. It keeps a lot of people up at night and it's a crucial topic because the truth is, it's always better to plan than to scramble around and try to figure it out later. And if you've got a question just like Maggie's, you can go to justaskralph.com and submit that question.

Well Maggie, I found a perfect Bible verse that fits the importance of planning ahead. It comes to us from the book of Ecclesiastes. And it comes from chapter 11, verse 2, and it tells us, "Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land." What a beautiful verse and the core part of that, if you think about it, is this wisdom of diversification.

It talks about preparation because the truth is, just like you've alluded to Maggie. These healthcare costs in our later years are unpredictable. So the only thing we can do is look and try to prepare for that. And listen, we don't have a crystal ball. But here's the truth. With the right planning, we can prepare ourselves for many of these possible outcomes. And listen, it's not all just about that. We also need to balance that with our faith, because that's a good component of that too.

Let me tell you about my client, John. Now John was a small business owner. This guy was financially savvy. He had built a beautiful nest egg for his retirement. He owned his home outright. He didn't have a mortgage, and John was really feeling confident. But here's the problem. John had truly underestimated his healthcare costs. He just assumed that Medicare would cover it. He didn't understand just how Medicare worked. He hadn't set aside any other money. Well, let's face where we're two years and this is a horrible story. John's wife gets cancer, and a rare form of cancer. And if that wasn't bad enough, it was a devastating diagnosis. And the doctor said, listen, most of this isn't going to be covered by Medicare. And the costs were astronomical.

And in 18 months, think about this for a second. In just 18 months, they had gone completely through their savings. Cause like I said, it wasn't covered. He just assumed that Medicare would cover this stuff. So John and his wife ended up having to sell their house. They just couldn't afford to live there anymore. They moved in with their adult kids. And John actually had to go out and get a part-time job. And listen, that story breaks my heart. He went from being comfortable and truly comfortable.

His bills were paid. His house was paid off. He had a nice nest egg for retirement. And he went from being comfortable to complete financial ruin. And I'd like to tell you his story is unique. But it's not. In my own practice, I've seen it. I've seen more and more clients have to declare bankruptcy in their 70s, that's right. 70s due to these medical bills. I've had clients tell me, Ralph, I've got to choose between paying for their medications or putting food on the table. Think about how devastating that is when you've got a decision to make that you need this prescription. But you got to decide on whether you do that or put food on the table. And the thing is, here is the sad part of it.

It's more common than you might think. Well, let's talk numbers. You know, I'm a numbers guy. I've been doing this since, so truth is I've been an accountant since I was eight. Well you might laugh at that. But I grew up in accounting and I've been doing tax returns and helping out around the family accounting business, since I was 8. I'm 52. So you can do the math.

But let's answer a real simple question. And how much do you really need to have saved for health care costs in retirement? And I want you to brace yourself because let me tell you. These figures are going to shock you. Now, this was a study I found online from Fidelity. It was retiring, just talk about in 2023, and what it said was the average 65-year-old couple who retired in 2023 should expect to spend $315,000 on healthcare and medical expenses throughout their retirement. You heard me right. $315,000. And that's just an average. That's not even considering people have chronic health conditions. Or maybe people who have a family history of certain illnesses. Those would just be more expensive. So many of you are probably saying, but Ralph, I thought Medicare would cover most of my healthcare costs in retirement.

That's what I've always been told. And listen, I'm not going to sit here and poopoo on Medicare. It does provide valuable coverage. But it's not comprehensive. It's just not. It's not going to cover everything. There are premiums to consider. There's deductibles. There's copays. And here's the dirty little secret nobody talks about. There are many services that aren't covered at all. Like most dental coverage. Eye exams, long-term care. None of that's covered by Medicare. And in my client's case, this experimental cancer treatment wasn't covered either.

Let's break down that $315,000 figure because a lot of people say to me, Ralph, but I thought Medicare covered a lot of these things. Well, what goes into that $315,000? Are those Medicare premiums for part B. That's the outpatient care. And those premiums for part D. Those are prescription drugs. Those things come right out of your social security benefits.

If you're not collecting social security yet, you're going to pay for those out of pocket. Which is the second thing it doesn't cover. So in that $315,000, its all those out of pocket expenses. Those are things like copays and deductibles. And not to mention the additional cost for services not covered by Medicare.

Like we talked about. Those dental care things. How about hearing aids? A lot of people get older, they need hearing aids. Think about that, 315,000 is just an average. So if you're sitting there thinking, Ralph, how in the world do I plan for that? What are going to be my actual costs? Well, let me talk you through that a little bit, because it all depends on factors like these, and I've laid out some factors here I want to share with you.

The first factor is your overall health and any chronic conditions you might have. That's just the simple truth. One of the things you can manage to some extent is your own health. So if you've got the opportunity to improve your health, by all means it's the time to do it.

The second factor is your family health history. Unfortunately, we're all based our health is going to be based to some extent on a history of other people that have our parents, our grandparents, you know, when you go to the doctor. I remember going to my doctor, not too recently. My doctor said, “Well, tell me about your mom. Tell me about your dad.” I said, “What do you want to know?”

They said, “Well, honestly, really what we want to know is how long did they live? Did they have any chronic conditions?” And that really does factor into how much you're going to spend in retirement on healthcare costs. I wish I could say it didn't, but it does.

It also comes down to where you live. And I had no idea about this one. In researching this show, I didn't realize it, but healthcare costs can vary significantly by region. You live in California, New York, with those higher cost states. Your healthcare costs are going to cost you more. It also comes down to how long you live. I mean, that's just a simple mathematical equation. If you die at 70, obviously your healthcare costs between 65 and 70 are going to be lower, but let's say you live to be 80. Let's say you live to be 90. Unfortunately, the older you get, the more likely you're going to spend more on those medical expenses.

Now this isn't a funny story, but it's kind of funny. I have an uncle. He just died a couple years ago. And he was about 88 when he passed away. And I said to him just jokingly, one day, I said, “Are you at the point now where you're not buying a gallon of milk anymore, you're buying the court.” Because the truth is as he got older, the likelihood of him living longer was diminished, but here's the truth.

Here's the truth bomb for you. The likelihood of him spending more on medical coverage and medical expenses was much greater. If you want to stick around, he's going to have those, he had chronic conditions. He had things like heart failure, and all those types of things that all added together. Another huge component about this.

And I'm going to cover this on tomorrow's show is whether you purchase additional coverage, like what we call those Medigap or long-term care insurance policies. Because those can really help you get past those expenses. And I know all this might seem overwhelming. You might be saying, Ralph, how on earth am I supposed to save that much on top of everything else I need for retirement?

You said to me, I got to put this much in my retirement plan. I got to put this much in my 401(k). Now, Ralph, you're saying to me, I need to have 315,000 bucks just for medical expenses. And that is scary. It is a daunting thing. Look, I'm 52 years old. And to be honest with you, I've never really considered as much. I thought, eh, that's an old people issue. Clients will come in and be able to tell me about their medical conditions and how much of this cost and how much that costs and the hearing aids that were $5,000 and the dental replacements that were this much and that.

And to be totally honest with you, not that I don't care about my clients, but I was like, look, I'm a young guy. These things shouldn't affect me. But look, as I get older, I'm starting to see where they will affect me. So my message today is don't panic. Here's the truth. With careful planning, working with the right strategies, you could prepare for these costs, which is why I want to share the story of my clients, Tom and Linda. Now Tom and Linda took a different approach. In their early fifties, they came to me.

They asked for advice. They wanted to start planning for this. We developed a comprehensive plan for them. We took a look at their estimated healthcare costs. Well, how do we do that? We looked at their family history. We looked at how long did their mother father live? What were the chronic conditions they have? We looked at their current health.

You know, what chronic conditions did they have right now? Did they have diabetes? Did they have high blood pressure? Did he have any of those things that are going to trigger additional healthcare costs down the road? Now, the next thing we looked at was their overall savings. What was their retirement savings in general?

Could they take money from here and there? And once we did that assessment, we were able to make some adjustments. You might ask, what were those adjustments? Well, here's the thing we did right off the bat. We increased their HSA contributions. And the reason we did that is because the beauty of the HSA is that they are tax free.

When you put the money in, it grows tax-free. And then when you take the money out, it grows tax free as well. You don't pay tax on it when you take it out. And looking at their overall financial situation, we also work with their broker because we recognized that we needed to generate more income. They just didn't have enough saved for retirement. You know, we basically saw that they may be a bit short in their retirement savings. When we looked at their realistic cost and retirement, we basically did that budget. And see the thing you need to understand is it all starts with an accurate assessment and the development of that personalized plan.

You hear me mention that on the show all the time. You need to have a personalized plan that is for your particular situation. And then once you have that plan, you got to put it into practice, because if you listen to me, you know I say this all the time. You can have great ideas. But if you don't put them into practice, they are absolutely useless. And the other thing we did with them was we looked at long-term care insurance.

We helped them find a policy that met their needs and also fit into their budget. And the biggest takeaway from that is they said this to me. They said, Ralph, that will give us peace of mind knowing that we can avoid having our savings wiped out. Well let's fast forward. Now I told you before they were in their 50s, now they're nearly 70. And let me just tell you, these folks are thriving and yes, they've had health challenges.

We've all got them. I don't know all the specifics, but we've had knee replacements. We've had this, we've had that. So we've had those health challenges. But the best part of it was they were able to handle those challenges without stress. And listen, that's the real test of this. The real test of this is can you handle those costs without adding stress.

Look, you got these medical situations. And those are stressful. Those are, those are where they're wear on your soul. But think about the financial impact because that'll make problems even worse. And now they're traveling. They're spending time with their grandkids. And the coolest part, they actually started a small ministry at their church. What's the key takeaway? They planned ahead. They had a comprehensive plan that was specialized for them.

So I'm going to say this, well done, Tom and Linda. So you might be asking, “Ralph, what can I do to be more like Tom and Linda and less like John and Mary?” That was the first couple we talked about. The ones who got wiped out. So I put together some practical steps you can take. The first step and this one goes a long way, and that is start saving early. Because the truth is the sooner you start it, the more likely you're going to be better off. As I always say, it's all about creating that habit of saving. Once you create that habit and then working to increase that over time, it's going to help you. The second thing. We did this with my client.

We maximize your HSA contribution. Listen, if you're eligible for those health savings accounts, you need to do it. Contribute the maximum amount allowed. And why do I do that? Why do I say that? It's because that money grows tax free. And as long as you use it for medical expenses in retirement, you pay zero taxes. Now, I'm going to tell you, I did a show on this back on April 26th, 2024.

And I'm going to put a link in the show notes. All about HSA zone. I encourage you to go listen to that. Another thing we did. Another thing I'm going to encourage you to do is consider long-term care insurance. That long-term care insurance can be that peace of mind to protect your assets if you find yourself in extended care.

Listen, my mother-in-law, I talked about at the beginning of the show. In dementia right now, she has Alzheimer's. Her care is costing $10,000 a month. Now, she doesn't have long-term care insurance, which is unfortunate, but she does have assets, so she's able to pay, but we're watching her savings get depleted. Think about that $10,000 a month.

That's $120,000 a year. Now I also did a show about these long-term care insurances. And I did that back on May 10th, 2024. And I'll also put a link in the show notes. And see that's one of the coolest things about doing this daily show. I cover a ton of ground. So I mentioned, now look, if you go to my website, you'll see a little, I guess you call it like an eyeglass. You click on that. And basically what it is, it gives you a search to search all of our episodes. If you've got a financial question, go right there and check it out. The fourth thing, I'm going to tell everybody to do. Stay healthy. I mentioned this earlier. You can't control everything. You just can't. I try to act.

I was a controlling dude, right? But your lifestyle can potentially reduce your healthcare costs in retirement. It is just so true. See, the thing is your ability to manage your healthcare costs is tied directly to your health. And here's the thing again, it's never too late to start making those positive changes to your lifestyle. You have the capacity, most people do at least to improve your health, even if it's just by starting walking or doing something to make yourself, get outside, do more. Another thing. You got to understand your Medicare options and I'm going to be doing a show tomorrow.

So here's a quick preview. I'm going to be covering Medicare and Medigap options on tomorrow's show. Be sure to catch it because you don't want to get caught off guard at a lot of people don't understand what Medicare doesn't cover. And those are the things that kick, they add up to that $315,000. And last but not least. Work with a financial advisor. You got to have help in this.

You got to assemble that dream team. Work with somebody like me that can create a personalized plan that takes into account. Not only your specific health needs, but also your overall financial situation because everybody's situation is different. This is not a place for that cookie cutter approach and check this box and here's a list.

And I'm going to share with you in just a bit how you can book a call with me to assist you. But remember this. Planning for healthcare costs in retirement isn't just about money. I wish it was. I wish it was that simple. But it's truly about the peace of mind. It's a time when you can focus on what truly matters in your golden years. And do you want to spend those worrying or do you want to spend those just living and enjoying your life?

I know me. I'd rather, I'd rather be prepared than worry. Now I know I've covered a lot of ground today. You might be feeling overwhelmed and guess what? That's okay. Because here's the best part of this whole thing. You don't have to figure this all out on your own. That's why I'm here. That's why I do this show. If you're lying awake at night, worried about whether you'll have enough saved for healthcare costs in retirement, let me start by telling you there is hope. You can take control of your financial future. And I can help you create a plan to give you peace of mind. And that's why I encourage you to schedule a consultation with me.

You go right to askralph.com. When you get there, you'll see a banner at the top. It says, "book a call with Ralph." Just click on it. That's the first step towards securing that financial future. And we'll do a call. We'll do a consultation. We're going to dive into your specific situation. We'll look at your current savings.

We're going to look at your health history, and we're going to look at those retirement goals. And then here's the best part. I'm going to create a personalized plan to help you prepare for healthcare costs and achieve all your financial goals. Maybe you're not even ready for retirement. We can talk about the goals you have today. So here's I want to tell you.

Don't let another day go by feeling overwhelmed and unprepared. Schedule that consultation today. Let's work together to bring peace of mind to your retirement planning. Now look, on tomorrow's show, I'm going to be discussing, we talked about this a couple of times already. What are the 7 insurance options to consider to protect your retirement? I'm going to be going deep into supplemental insurance.

We're going to talk about those things that Medicare doesn't cover. I didn't plan on this, but it's kind of become the Medicare retirement week. And all of these things can help save you from financial disaster and trust me. It's a show you don't want to miss. Remember this folks, my passion is to help you achieve financial success. That's why I do the daily show.

I sit in front of this camera. I sit in front of this screen talking to you. I've played out these episodes. This is my mission field. I want to see you live out your dreams. I want to see you grow in faith because I know together, we can master your finances from that Christian perspective. You don't have to do it alone. I can make it easy for you. You just have to take the first step. So book that call with me. And as I always say at the end here, stay financially savvy, and God bless you.

Narrator
00:21:45

Thank you for joining us on the Ask Ralph podcast. And with a simple click to subscribe, we'll invite you back to our next episode. And remember, financial issues don't have to be complicated, just ask Ralph. The information contained in this episode of Ask Ralph is based on data available as of the date of its release.

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