One aspect of retirement planning that’s often overlooked is the rapidly rising cost of healthcare. Commonly known as healthcare inflation, it threatens your financial security over a long retirement. As you age, you’re more likely to have chronic health issues that require costly treatment and expensive prescriptions. Yet recent studies show most pre-retirees are underestimating what healthcare will cost in the coming years.
In a survey conducted by the Nationwide Retirement Institute®, Americans estimated they’ll pay an average of $55,000 for healthcare in retirement. Unfortunately, the actual cost is more than three times that amount: $172,000. This type of miscalculation when planning for retirement can put you at considerable financial risk.
“With healthcare inflation outpacing overall inflation rates, federal employees need to realistically plan for the rising cost of deductibles and copayments over the next 20 to 30 years.”
How Healthcare Inflation Compares To Overall Inflation Rates
According to the Peterson-KFF Health System Tracker, since 2000, the average price of medical care — including provider services, insurance, drugs, and medical equipment — has increased by 114.3%. Yet, over the same time period, prices for all consumer goods and services rose by 80.8%. With healthcare inflation outpacing overall inflation rates, federal employees need to realistically plan for the rising cost of deductibles and copayments over the next 20 to 30 years.
The Top Factors Driving Healthcare Inflation
The skyrocketing cost of prescription drugs is a primary factor. One government study reveals that the average price of prescription drugs increased 30% in 2022 alone. The aging of the U.S. population is another factor. With 10,000 baby boomers turning 65 every day, more retirees are developing age-related chronic health issues that require frequent medical care and additional medications. Administrative costs are also on the rise currently coming in at around 25% of total healthcare spending.
The Cost Of Long-Term Care Is Rising At An Even Faster Rate
According to the latest 2023 statistics published by the World Population Review, the average private room in a nursing home is $10,104 per month while the average cost of a semi-private room is $9,167 per month. Since non-medical, custodial care is not covered by FEHB or Medicare, the cost is 100% out-of pocket unless you’ve purchased a Long-Term Care (LTC) insurance policy.
new government projections indicate that, over the next decade, the cost of LTC services are expected to increase at a faster rate than healthcare overall. Projections indicate consumer out-of-pocket costs will grow from less than $13 billion in 2019 to more than $27 billion in 2030.
Don’t panic. Now that you know your future healthcare costs will be higher than you’ve estimated, you can take steps to mitigate the expense before you retire. Meet with an FRC® trained advisor to learn more.
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