A recent study from Fidelity shows that a 65-year-old couple retiring this year can expect to spend on average $315,000 for healthcare and medical related expenses in retirement. This is a lot higher than most people who are saving for retirement plan on. In this video, you can find answers to questions like:

How can I plan for rising healthcare costs in retirement?

How can I self-insure my long-term care needs?

How can I make sure that healthcare and medical costs don’t cause me to run out of money in retirement?

How can I make sure I have enough for retirement?

Read The Transcript

The biggest fear that most retirees have is running out of money when they're retired. And one of the biggest costs that retirees are going to face in retirement is the cost of healthcare. Now, there's a big misconception that Medicare will pay for all of your healthcare needs as you get older, and unfortunately that's not the case.

In this video, we're gonna look at whether or not healthcare costs or retirement will cause you to run out of money. Okay. There. I'm Jonathan Rankin, founder and CEO of Theorem Wealth Management, and I'm here to show you how you can set yourself up for a successful retirement. If you're like most people thinking about retiring, you're probably thinking about all the expenses that you have to cover and whether or not your income sources or your portfolio will be enough to cover those expense.

Now for most people, this is housing. This is food entertainment. Hopefully some travel in there, and there's usually a budget for healthcare. However, with healthcare being such a large unknown for most people, a lot of people are left wondering whether or not they've planned enough. As healthcare costs have continued to rise with there being so much confusion around what Medicare will and won't pay for, it doesn't make planning for retirement any.

And Medicare will cover some of the costs that retirees often occur, but definitely not all of them. In fact, according to a estimate by Fidelity, a 65 year old couple retiring this year can expect to spend an average of $315,000 in retirement for healthcare and medical expenses. Now, that's typically a larger line item than a lot of people had initially.

One of the questions that I get quite a bit is, Jonathan, how do I make sure I don't run out of money if healthcare is going to cost me much more than I anticipated? And one of the things that we like to do is plan for a larger than anticipated costs and use that as a separate line item in the retirement plan just to see how it impacts a client's retirement success.

Lemme show you what I mean. This is John and Linda Sample. Obviously they're fictitious clients. Both John and Linda are 61 years old and they wanna retire at 60.  in this scenario, they have a combined 2.5 million in retirement accounts, a little over $200,000 in brokerage and about $120,000 in cash savings.

It's extremely common for the type of clients that we run across. The only income sources that they have during retirement is social security, which they plan on taking at full retire. Now we debate all we want, whether or not they should delay until age 70, but let's assume that I had that fictitious argument with this fictitious client and they decided that full retirement was when they wanted to take Social Security.

In this scenario, John and Linda plan on spending $140,000 per year in retirement, and that is adjusted for inflation. Now, as you can see, based on their savings, their social security and their expected lifestyle, they have a probability of success at a hundred. And the assets last until they're at least 90 years old.

But as I mentioned, one thing we always like to look at is what if we added an additional $25,000 per year just in healthcare related costs? Now, obviously, that is a lot more than the $315,000 that Fidelity says in their estimate. But as you can see, when we add on that additional $25,000 per year, their probability of success goes from a hundred percent down to 99%.

And their portfolio assets are still around when they're 90 years old, but they drop by about 1.7 million. So it does impact their overall retirement and the legacy that they wanna leave. But hopefully this helps alleviate the big concern of whether or not John Melinda are going to run outta money because of healthcare related expense.

in this scenario they are. Okay. Another concern that we always hear about is what about long term care coverage? In this scenario, John and Linda are both 61, and let's just assume that they never thought about long term care when they were younger, when the cost of insurance was a little bit more affordable.

So they decide that they're going to self-fund if they do require any sort of long-term care coverage. And what I did is I looked at the average cost and depending on the type of long-term care that you require, that could range north of a hundred thousand dollars per year. In this scenario, we're looking at $80,000 per year, and I did inflate that at a higher than normal inflation rate.

And this is for John at age 79, requiring long-term care for four. And what we wanna look at is to see if Linda will be able to maintain her lifestyle and how will they be able to afford those two lifestyles. I also did account for this lasting only four years because traditionally people who require long term care aren't in there forever.

They're there for typically a certain period of time. As you can see, it did change their retirement a little bit, but for the most part, they're still successful in retirement and not in any danger of running out of. . This is an important practice that we like to do years before retiring. Now, I know you might be thinking, Okay, Jonathan, well, they've got 2.5 million.

Of course, they really don't have to worry about an additional $25,000 per year. What if they don't have all that money? So let's drop the retirement savings down to about 850,000, a brokerage account of a hundred thousand and about $60,000 in cash. Once again, this is extremely common. We run across these scenarios all the.

Now in this scenario, they still wanna live off that same $140,000 they did before. And as you can see, their probability of success dropped from a hundred percent down to 95%, but they're still successful in their retirement. Now let's add on that additional $25,000 per year for healthcare. As you can see, adding on that $25,000 per year, their probability of success drops down to 47%, and the assets run out at age 80.

Not the most ideal situation. In this scenario, John and Linda have some decisions to make. Obviously we are planning for a very worst case scenario with $25,000 being a much higher amount that we're earmarking for healthcare expenses. So maybe they could say, You know what? We're planning on a worst case scenario.

Let's hope that worst case scenario doesn't come to fruition. Even if it comes in around what Fidelity says, we should be. And we're probably not gonna spend $25,000 a year just in healthcare expenses. So they could do that and they can probably be okay. Uh, but let's say they really worry that healthcare is an expense, that because it's unknown, they don't want anything to come up in retirement where it's going to cause them to have to change their lifestyle or put them in danger, running out of money.

So one of the scenarios they could do is they could delay. And so as we could see, if they delay retirement from age 65 to 67, their probability success goes back to 92%, and the assets last at least until age 90 with about 2.6 million left over. Now let's look at what if they decide, you know, we're gonna be okay.

We're going to cash flow our healthcare expenses. We don't feel like $25,000 a year. Realistic of what we're actually gonna spend, and let's just hope that we can spend a little bit less, We still wanna retire at 65, so we're gonna take that risk. But what if John does require long term care? What does that look like?

So in the same scenario where we're spending $80,000 a year for four years, we're gonna adjust that at a higher than normal inflation. The probability of success goes from 95% down to 80%. You see, they still have well over 1.4 million in assets left over, and the assets last at least until age 90. But this is one way that we can help clients plan for healthcare costs because we believe planning for a worse case scenario now means that hopefully we don't have to live worst case scenarios in retirement.

And the worst case scenario for most retirees is running out of money. If you're worried that healthcare costs might eat into your retire, And might cause you to either adjust your lifestyle or even run out of money. Make sure you check out that link below and let's schedule some time to go through a detailed retirement analysis where we can show you what your retirement looks like and we can go through an exercise just like this, where we look at your specific situation, right?

Looking at a fictitious client. Now we're looking at you, your age, your health, your retirement goals, and we can see what's feasible and running across the worst case scenarios that we can come up. And hey, maybe there are some snares that we haven't even thought of yet that will just help you alleviate the concerns so that you can feel more comfortable about your retirement.

Use that link below, and let's schedule some time to connect. Our firm is here to make sure that you feel comfortable in your retirement and that we plan for as many unknowns as possible. Now, if you found this video useful, hit that subscribe button because we appreciate you supporting the channel and the content that we put out.

Also, be sure you check out our weekly podcast called The Retire One. And with that, I'm Jonathan Rankin. Thank you so much.

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