Top 5 Factors that Can Derail a Baby Boomer’s Retirement – Factor #4: Failing to Prepare for Spiraling Health Care Costs


Talk to a typical Baby Boomer and ask them about their retirement plan. Most of the time, they will describe what I refer to as the “A” plan. This is the ideal American dream. Work hard, enjoy life, save/invest your money, retire at age 65 (at the latest), and enjoy retirement. 

But, often the “A” plan gets derailed. From my experience, there are typically 5 major factors that materially affect each individual or couple’s ability to successfully retire. This article, which is the 4th in the series on factors that can derail retirement, will focus on making sure to plan for the soaring cost of healthcare. 
In his article, “Medical Costs Derail Comfortable Retirements”, Philip Moeller discusses how managing healthcare costs can be a critical challenge for retirees. With longer life spans, medical costs outpacing inflation, declining retiree medical coverage by private employers, and potential shortfalls in funding for Medicare and Medicaid, the stage is being set for possible trouble for retirees.

Nationwide Financial sponsored a poll of households with $250,000 or more in assets. Half of the group ranged in age between 55 and 65, and the other half were over 65. “In many respects, members of this group are poster children for successful retirements,” states Moeller. “They have saved and looked ahead to their later years in nearly all respects but one: healthcare expenses.”

The results of the poll found that the younger group surveyed had not planned for their future health expenses. More daunting was that many of them lacked a basic understanding of Medicare, and the potential for significant health care expenses later in life. Not surprisingly, the younger group had a larger gap in their understanding of Medicare than the older group.

“What we think is so important in getting out from a message standpoint is the specific word that people used in terms of their plans for retirement, and that word was ‘terrified,'” says John Carter, president of Nationwide Financial Distributors. “They do have plans and they do have assets, but what they haven’t done is incorporate out-of-control healthcare costs into these plans. And they haven’t talked about this with their financial advisors.”

It was interesting to note that while both age groups have major concerns about their retirement years, the group still planning for retirement was more pessimistic about healthcare expenses as retirees. In fact, nearly half expressed being terrified about the possible impact of those costs on their retirement.

“Soon to be retired Americans who plan to enroll in Medicare estimated that Medicare will pay for 68 percent of their healthcare

costs in retirement,” Nationwide said. “When asked how they arrived at that percentage, nearly three in four [said they] guessed or didn’t know.” Unfortunately, based on the research conducted by Nationwide, Medicare only covers an average of 51 percent of the healthcare costs incurred by retiree.

Moeller outlined three other misconceptions found in the survey:

“Average annual healthcare expenses during retirement were estimated at $5,621 per person. The actual average is projected to be nearly twice that amount.”

  • “There is a widespread belief that Medicare covers long-term care expenses, but it does not.”
  • “Long-term care will be needed by most older Americans. But the survey found such expenses were not included in people’s efforts to calculate their retirement healthcare costs.”

It is important to understand and accept these findings. Hoping that “it’s not going to happen to me” is not a plan. According to AARP, “70% of Americans age 65 and older will likely need some form of long-term care.” What form, how long, and how much it will cost are all unknown, but you should plan based on knowing that there is a 70% chance you may need long-term care.

Of course the challenge is deciding when to make the purchase. If you choose to wait, then you might be diagnosed before you purchase the coverage – and by then you may be out of luck. If you buy it when you are 50 years old, you might be paying premiums for twenty years or more before you actually use it. Everyone has their own unique situation. But not unlike with car and homeowners insurance, which most of us pay, we plan for the unexpected and are always hopeful that we never need to use it.

If you don’t have a financial plan or one that takes into consideration healthcare expenses, especially those for long-term care, let’s have a conversation. The sooner you prepare, the less likely healthcare expenses can derail your retirement goals.


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