Future Retirees Are at Risk of a $361,000 Mistake | Personal Finance


(Christy Bieber)

If you haven’t retired yet, you’re hopefully making financial plans for the day you leave the workforce for good. Investing for retirement is a lifelong endeavor, and it’s crucial to ensure you have a clear idea of ​​how much money you’ll require.

Unfortunately, many current workers are making a big mistake when planning for their later years. This costly error could come back to haunt you if it causes your savings to run dry too fast.

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Here’s the big mistake many future retirees are making

One huge error many future retirees make relates to their healthcare savings. Specifically, many seniors anticipate Medicare will cover most or all of their medical needs as they age.

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Sadly, this is simply not true.

While Medicare does kick in at age 65, there are copays and coinsurance costs that seniors are responsible for once they have this coverage. There are also limits on what Medicare will pay for, so seniors end up being responsible for paying privately for things like hearing aids, dental care, and some prescription drugs. Many retirees also opt to buy supplemental coverage in the form of a Medigap policy, or choose to purchase a Medicare Advantage plan instead of sticking with traditional Medicare. This comes with added premiums.

When all is said and done, the extra costs seniors end up covering can be very substantial. In fact, according to Employee Benefit Research Institute, a senior couple turning 65 in 2021 who had drug expenses in the 90th percentile would need a whopping $361,000 to have a 90% chance of being able to cover out-of-pocket medical costs in retirement . This is not including long-term care such as a nursing home. It’s just for their routine healthcare expenses, including the medications they rely on.

Retirement planning needs to include saving for healthcare

If you’re assuming Medicare is going to cover all you need and you end up getting hit with $361,000 in surprise expenses, obviously this is going to have a damaging impact on your retirement readiness. Your money simply is not going to stretch far enough to cover this if you don’t have a plan for it.

To make sure you aren’t caught off guard by huge healthcare costs as a senior, it’s important that you realize the limitations of Medicare and that you save for healthcare throughout your working life. Ideally, this would mean putting money into a health savings account (HSA), as this type of account offers considerable tax benefits for healthcare savings. But if you aren’t eligible for an HSA, then it’s a good idea to invest more in other kinds of retirement accounts such as your 401(k) so you can have the funds available for medical issues.

The bottom line is, overestimating Medicare’s coverage can be a huge mistake that you don’t want to make. Be sure that you are fully prepared for large out-of-pocket medical bills before leaving the workforce. If you aren’t, you may want to work a little longer to save some extra cash for healthcare.

The $18,984 Social Security bonus most retirees completely overlook

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