New Study Shows Why Retirees Can't Rely on Medicare and Medicare Advantage for Healthcare Expenses

For many Americans, healthcare costs in retirement could easily surpass the money they’ve saved for their golden years. A recent study from the Employee Benefit Research Institute (EBRI) highlights just how critical it is to plan ahead for healthcare expenses, despite Medicare coverage. The study shows that, even with supplemental insurance, retirees will need a significant portion of their savings for healthcare, putting a major financial burden on older Americans.

Key Facts:

– EBRI found that men need an average of $166,000 in savings to cover healthcare in retirement; for women, the figure is $197,000.
– For couples, healthcare costs could total around $318,000 during retirement.
– The median household at retirement age only has around $87,725 saved, far short of what is needed for healthcare alone.
– Medicare, often viewed as a comprehensive solution, covers only limited services, and retirees typically need supplemental insurance.
– Medicare Advantage, a more comprehensive plan, lowers the required savings to $96,000 for men and $113,000 for women, though it limits provider options.

The Rest of The Story:

Healthcare costs are the most pressing financial concern for retirees, according to the latest study from EBRI. The institute found that retirees will need to save anywhere from $96,000 to nearly $200,000 to cover healthcare alone, depending on gender and their chosen Medicare plan. For couples, that number jumps to $318,000. These estimates include insurance premiums, deductibles, and prescription drugs, all of which Medicare doesn’t fully cover.

The problem is that many retirees don’t have this kind of savings. The median retirement savings for households aged 65 and older is just under $88,000, which is less than half of what they’ll need for healthcare expenses. Even with Social Security benefits, this shortfall is alarming. Medicare, which most Americans rely on for healthcare in retirement, has long been misunderstood. It doesn’t provide complete coverage, leaving retirees to shoulder significant out-of-pocket costs.

The choice between Traditional Medicare and Medicare Advantage plans can make a big difference in retirement costs. Traditional Medicare is widely accepted but offers limited coverage and higher out-of-pocket costs. Medicare Advantage offers more comprehensive coverage, but with fewer provider options. For those who opt for Medicare Advantage, the cost savings can be substantial, with men needing around $96,000 and women needing $113,000 in retirement for healthcare, as opposed to the higher costs associated with Traditional Medicare.

Even with Medicare Advantage, healthcare will consume a significant portion of most retirees’ savings. That’s why supplemental insurance, like Medigap plans, is essential for most. However, these supplemental plans come with their own premiums, adding to the financial burden. The rising costs of healthcare, coupled with longer lifespans, will only increase the strain on retirees in the future.

Commentary:

This issue presents a very real challenge for Americans who are already retired or approaching retirement. The cost of healthcare will likely surpass what many have saved, putting older adults in a precarious financial situation.

This problem is compounded by the fact that many people mistakenly believe Medicare will cover all their health expenses.

For those nearing retirement, it’s essential to consult with financial advisors to plan for these costs.

Advisors can help create a strategy that ensures adequate savings for healthcare expenses and find the right combination of Medicare and supplemental insurance plans. Proper planning can make all the difference in ensuring retirees don’t outlive their savings.

The Bottom Line:

Healthcare costs in retirement will far exceed what most Americans have saved, according to the EBRI study. Medicare, though helpful, does not cover all necessary expenses, leaving retirees with significant out-of-pocket costs.

Planning for these expenses by working with a financial advisor and choosing the right insurance options is crucial for anyone approaching retirement.