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How does inflation affect health care for retirees?

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There are a lot of risks for retirees—and those risks may be exacerbated by the higher cost of health care in retirement.

While the cost of Medicare has come down recently, it’s still about 30% higher than it was a decade ago, according to data from the US Bureau of Labor Statistics. Typically, drug prices grow faster than other consumer costs.

There is also a greater likelihood that retirees will need medical attention as they get older. According to Fidelity Investments, a 65-year-old couple who retires in 2022 will spend an average of $315,000 in healthcare costs over the course of retirement, excluding long-term care.

Furthermore, retirees face a higher chance of “spending shocks” due to unexpected costs, such as medical expenses, according to JP Morgan Asset Management’s 2023 Retirement Guide.

Of course, each retiree’s costs will be different, said certified financial planner Anthony Watson, founder and president of Thrive Retirement Specialists in Dearborn, Michigan. “There is no silver bullet for this,” he said, noting the difficulty in predicting health care expenditures.

Beware of “Risk Chain Returns”

Periods of stock market volatility can further complicate financial problems because of the so-called risk-return cascade, resulting from exploiting your portfolio when asset values ​​decline. Research shows that wrong timing of withdrawals can damage the nest egg over time.

Watson said retirees may experience a risky cascade of returns through a “sudden spending event,” such as expensive health care, or simply higher living expenses over time.

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One strategy to reduce that risk, he said, is to increase income by waiting to claim Social Security. For 2023, the average retirement benefit is $1,827 per month, but the maximum payment jumps to $3,627 at full retirement age, which is currently $66 to $67.

Watson also suggests a “cash cushion” to help cover living expenses during a prolonged stock market downturn. “We should always have a plan B to fund our living expenses,” he said.

Although experts might suggest one to three years’ worth of cash, you can cut expenses or keep less cash by completing a home equity line of credit or an encumbered asset line of credit that uses your investment account as collateral.

Learn to be an ’empowering patient’

Caroline McClanahan, CFP and founder of Life Planning Partners in Jacksonville, Florida, urges retirees to become “empowering patients” when it comes to healthcare spending.

“The best way to plan for health care costs is to learn how to be a good consumer of health care,” McClanahan, who is also a physician and a member of CNBC’s board of advisors, told CNBC.

For example, retirees may reduce unexpected medical costs and sudden portfolio withdrawals with some healthy moves. You can also ask questions about tests or prescriptions before an expense is incurred.

“With health care being fee-driven, doctors have very little incentive to help you make better decisions about what you can do to reduce costs,” she said.

McClanahan also reaps the financial, physical, and emotional benefits of working in retirement, at least a part-time job. She added that “work is one of the big ways people engage socially,” which may provide a cognitive boost.



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