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How to Combat Healthcare Cost Inflation in Retirement

| September 19, 2022
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You have spent years and years working and saving for retirement and you are finally ready to relax and worry less about your finances and then, inflation comes knocking. Although you have already planned for inflation the jumps it has made this year may have you feeling more concerned than before. While everyone is affected by inflation it may affect retirees more in terms of healthcare costs.

Even with Medicare, healthcare costs can be a significant expense in a retiree’s budget. According to the 2021 Retirement Healthcare Costs Data Report, lifetime health costs for couples retiring in 2021 can vary widely from $156,208 to $1,022,997. Some of the main factors that impact the level of these expenditures include coverage, health, longevity, income, and state of residence.

Historically, healthcare costs rise 2 to 2.5 times faster than overall U.S. inflation and, unfortunately, this trend is expected to continue. This, however, is not to make you panic as you have already planned for this.

There is nothing we can do to stop inflation, but we can plan to deal with its potential implications. Knowing that unpredictable healthcare costs may be coming, and they will likely be higher than they are today it is smart to examine your situation with your advisor to help set yourself up for the retirement lifestyle you envisioned. Here are some do’s and don’ts when it comes to planning for healthcare cost inflation.


…Optimize your Social Security strategy. Before you decide to retire at 62 and begin taking your Social Security benefit as early as possible, consider strategically planning so your household can get the most from Social Security. This strategy may depend on many factors such as your ability to continue working, how much you have saved, health, life expectancy, and other things.

Not everyone will be able to wait until the latest delay credit for Social Security at age 70, but if you can live without the income until then, you will ensure the maximum benefit for yourself and lock in the maximum spousal benefit. To delay until age 70, you will need to be sure that you have enough income to keep you going until then and that you are in good enough health to benefit from the delay.

…Consider a line of credit for health emergencies. If you are concerned about unplanned medical expenses a line of credit is an option that would give you peace of mind. A line of credit allows your invested funds to keep growing while an open line of credit with securities as collateral can be leveraged in case an emergency arises. Homes are typically a retirees’ largest asset; therefore, a home equity loan may be another option to consider.


…Expect Medicare to take care of all of it. Even with Medicare various out-of-pocket costs still exist such as dental, vision, and long-term care. Understanding how the system works and what can be done to minimize costs can certainly help you plan better. There are different parts of Medicare. For example, you may consider a Medicare Advantage Plan (or Part C) or a Medicare supplement to ensure you’re covered. You should also determine if your doctor and preferred facilities accept Part A and Part B and ongoing medication costs (Part D) should all be calculated and considered when comparing plans. Also, Medicare does not cover long-term care costs, so you would need to determine if that is an expense that you can self-insure against or if you should purchase separate coverage.

…Forget about your health savings account (HSA). While you are still working, consider maxing out contributions to an HSA. In 2022, the annual limit is $3,650 for self-coverage only and $7,300 for a family plan. For those 55 and older, there is a catch-up contribution of an additional $1,000 per years. Starting to contribute to an HSA can help lessen the blow of medical expenses later in life.

…Take on additional risk to make income. Choosing riskier investments to make up for the gap inflation is causing may be an idea that has crossed your mind; however, you have been planning and investing wisely for so long, now is not the time to make hasty decisions. Consult with an advisor to determine if an investments risk is aligned with your risk tolerance, goals, and inflation. Selecting riskier investments is not necessarily going to be the best strategy to combat inflation.

The fear of inflation can weigh heavily on investors, but one of the best things to do before making decisions is to have a discussion with your advisor expressing your concerns so that you and your team can make discuss the considerations and trade-offs that you need to think through. Putting the proper precautions in place will bring you one step closer to achieving your dream retirement.

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