Healthcare costs are probably not top-of-mind when thirty, forty and fifty-somethings dream of early retirement.
However, it should be for anyone who has made it his or her goal to achieve financial independence. That is the day work becomes an option. The earlier in life financial independence is reached, the more hurdles one could face in order to maintain financial freedom. Hurdles could include things like healthcare costs, boomerang children, college costs, inflation, longevity or even caring for aging parents.
A recent TD Ameritrade survey highlighted what many Americans are concerned about when it comes to working towards financial freedom. I should note that I hold some of my registered investment advisory (DRM Wealth Management, LLC) assets at TD Ameritrade.
Other research by Fidelity revealed that the average couple retiring at 65 this year will need around $280,000 to cover healthcare expenses in retirement. That staggering amount is more than many households have saved and it will likely be larger for couples who retire earlier than 65. It is important to point out that long-term care expenses are not included in that total. Ouch!
What Worries Americans?
A new TD Ameritrade survey of 1,500 Americans, aged 45 and older with $250,000 or more in investable assets, discovered that Americans are more concerned about healthcare costs (57%) than uncertain stock market conditions (37%) when it comes to early retirement barriers.
“While Americans are enjoying longer lifespans, which may mean covering healthcare expenses and long-term care costs for extended periods of time, they also face the increasing costs of healthcare,” said Matt Sadowsky, director of retirement and annuities at TD Ameritrade. “The good news is that Americans do recognize that health costs should be a top priority when planning for retirement (44%), with 57% showing interest in holistic wellness planning, including financial and physical health.”
Health is a Driver to Financial Freedom
According to the same survey, 72% of those who identified as having achieved financial freedom said health was a motivator to retire early. Also, 76% of financially independent respondents believed retiring early would allow them to live a longer life.
Whether you will be retiring early or late, having money will make it easier to become ageless, or to maintain your health as you age. Of course, no amount of money can guarantee perfect health or alleviate every illness, but it will increase the odds that you get screened early and get the best care possible. I think many of us would love to live forever if we could stay healthy and active. Dreaming of a life of leisure is one thing. Years confined to a nursing home bed is another.
Top Priorities in Retirement
How you will spend time during your golden years is a major part of any comprehensive financial plan. Sixty-four percent of survey respondents said they look to spend time with friends and family. Time spent traveling was a close second at 62%. The third most popular response surprised me. Fifty-seven percent revealed they would spend their time focusing on holistic wellness planning. Realistically, wellness will play a major roll in how enjoyable time will be spent with friends, not to mention making travel more convenient and expanding the adventures in which you could participate.
Will You Be Able to Cover Healthcare Costs in Retirement?
A vast majority of Americans will be relying on Medicare in retirement. Seventy-six percent of respondents identified Medicare as the best way to pay for medical expenses in retirement. Retirees need to be aware that Medicare alone will not cover all or even a majority of your healthcare expenses once you reach the age of 65 and beyond. At the same time, 61% of respondents were not confident that Medicare would cover the bulk of their retirement medical expenses. Those individuals are planning on using other tools to help cover the additional healthcare costs such as supplemental health insurance (51%), health insurance (42%), and Social Security (41%). Just 46% of those who took the survey said they were likely to max out their Health Savings Account (HSA) contributions.
Since we are talking about Medicare and financial freedom, I should point out that you will still need to have your own health insurance until you reach the age of 65. That could easily cost thousands of dollars per year, more if you are a couple, or have children. The Affordable Care Act is essential to the early retirement plans of many of today’s workers. A few of you will be able to use COBRA from your current employer provided health care. Without any type of health insurance, healthcare costs will likely devour most, if not all, of your retirement income at some point.
Whether you plan to retire early or work forever, make sure you have a plan to cover medical expenses as you age. As a financial planner, I have many clients who love what they do and never plan to retire, but things may change down the road. Your priorities may change if you or your spouse experience a health scare. It is always good to have options. That is how I look at achieving financial freedom. The day work becomes and option. You do not have to go full FIRE – Financial Independence Retire Early unless you want to.
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