Saving for Retirement: One Substantial Expense You Probably Didn’t Expect

​When it comes to planning for retirement it should be no surprise that the earlier you start saving and investing the better off you'll be, thanks to the power of compounding interest. 

​However, if you have yet to start putting away money for retirement or your contributions have been minimal, you’re not alone. According to a Northwestern Mutual study, a third of adult Americans have less than $5,000 in retirement savings and 21 percent of adults having nothing saved at all for retirement.  When it comes to saving for retirement though, it’s never too late to start and its easier now than ever. Most Americans have a 401(k) or IRA through their employer as their main retirement source but in this day and age of technology there’s a number of financial apps such as Stash, Acorns, and Robinhood that can help anyone save for the golden years, either in addition to their employer sponsored plan or in lieu of one. 

​While an increasing number of Americans seem to be counting on Social Security to cover them during retirement and Medicare to handle their medical expenses, those two social safety nets might not be enough, especially the latter. What few Americans actually are aware of, is just how much money is going to be required for healthcare expenses post retirement.  According to an annual report from Fidelity Investments, an average couple at the age of 65 set to retire this year would need $285,000 saved up for healthcare expenses alone. For single retirees, the report estimates that women retiring at 65 will need $150,000 and men will need $135,000, based off the fact that the average life expectance for women as four and half years longer. So, what does that mean for Americans who are further out from retirement? Well if you took a 35-year-old couple now, they would be 30 years away from reaching age 65, and at a 2% inflation rate, that $285,000 needed for heath care expenses will equate to $516,238. That’s just the equated amount based off inflation, it doesn’t even factor in the ever-rising costs of healthcare. 

​Needless to say, the majority of Americans are completely in dark about these staggering medical expense numbers in retirement. There’s a misconception with the general public that Medicare will cover most expenses and leave very little need for out-of-pocket healthcare savings, which is simply not the case. The Fidelity report states that of the $285,000 - 42% goes towards copays, coinsurance and deductibles. Premiums for Medicare parts B and D and prescription medications make up 39% and 19%, respectively. What’s even more alarming is that those figures don’t even include long-term care costs. Long term care services would be any type of service that supports daily living tasks, such as bathing, getting dressed, using the restroom, etc. If such assisted living costs are factored in, the estimates in the Fidelity report get substantially heftier.

To come full circle, presenting this data isn’t intended to cause anxiety about the future but rather to illustrate the importance in saving for retirement as soon as possible and contributing as much as possible, as there will certainly be expenses in retirement that you never even considered. Along those lines, it should be mentioned that a lesser known vehicle for retirement savings is a Health Savings Account. For anyone who currently has, or gets a High Deductible Health Plan (HDHP), it might be in your best interest to consider using an HSA as a supplemental retirement savings fund. Either way, the time to start saving is now.