You probably want to live a long, healthy life. After all, the alternative isn’t nearly as appealing.
The problem with living a long life, though, is that it’s expensive. Sure, once you’re retired, you can count on some costs being lower—such as the cost of commuting to work, which you won’t be doing anymore. But there are a whole host of other costs that will crop up as you age that could far exceed the expenses you’ll be able to trim or eliminate in retirement.
It’s important to be aware of the costs associated with aging so you can start preparing for them now or make changes to the way you’re currently living in retirement. Here’s a rundown of those expenses and some solutions for coping with the high cost of getting older.
A long life is expensive
The average life expectancy in the U.S. is 77.8 years, according to the Centers for Disease Control and Prevention. However, more than one in three women and one in five men who are 65 today will live past age 90, according to an analysis by The Hamilton Project, an economic policy initiative by the Brookings Institution. That means some people could spend decades in retirement and will need enough savings to provide income for up to 30 years or more.
How much will that long life possibly cost? Average annual spending for an adult 65 and older is $48,106, according to the Bureau of Labor Statistics 2019-20 Consumer Expenditure Study. Over 30 years, that adds up to $1.4 million. Social Security can help cover some spending in retirement, but be aware that the average monthly benefit is just $1,544. You’ll likely need other sources of retirement income, such as a pension or savings.
Of course, what retirement will cost you depends on your situation. You could find out how long you might live by using the Actuaries Longevity Illustrator tool that will require you to answer a few questions about your health, smoking habits and demographics.
Once you have an idea of what your life expectancy is, you can use a retirement calculator to find out whether you’re saving enough. This calculator from Charles Schwab makes the assumption that you’ll live to 85, but it does give you a pretty good idea of the savings you need and offers tips to get on track.
One of the best ways to reduce the amount of money you’ll need in retirement is to work longer. Nowhere is it written that you have to retire at 65.
Solution: One of the best ways to reduce the amount of money you’ll need in retirement is to work longer. Nowhere is it written that you have to retire at 65. If your health allows it, each year you continue to work (even part-time) will reduce the savings you need to support yourself in retirement—and give you more time to contribute to a retirement savings account. And if you delay collecting Social Security benefits until age 70, your monthly benefit will be higher—76% higher than if you had started collecting benefits early at age 62, according to Boston College’s Center for Retirement Research.
Housing can be expensive
Housing can be by far the biggest household expense for adults 65 and older. The average this age group spends annually is $17,151, according to the Bureau of Labor Statistics. However, the amount can be a lot higher depending on where you live and whether you have a mortgage.
Nearly half of adults ages 60 to 70 enter retirement with a mortgage, according to the “Retirement and Mortgages” survey by American Financing. One-third of those retirees expect it will take more than eight years to pay off their mortgage. And nearly one in five of those surveyed don’t expect to ever pay off their mortgage.
Carrying a mortgage into retirement certainly could take a big bite out of monthly Social Security benefits and will chip away faster at any savings you have. Having a mortgage also could force you to delay retiring. Homeowners with mortgages are more likely to work longer and retire at a later age than those whose mortgages are paid off, according to Boston College’s Center for Retirement Research.
Solution: Downsize sooner rather than later. You don’t have to wait until retirement to ditch the big house with the big mortgage. Moving into a smaller home or apartment before retiring will help free up money in your budget to save more for retirement.
If you’re already in retirement, you may be able to dramatically reduce housing costs by downsizing. You might want to consider a senior independent living community. These communities for adults over a certain age (typically 55) offer independent living in apartments, condominiums or houses without the hassles of homeownership. Plus, many offer a variety of amenities to help you stay active as well as meals, housekeeping and transportation services. Independent senior living costs can vary greatly, but the monthly median cost is $2,552 for rent, services and amenities, according to APlaceforMom.com.
Health care is expensive
Get ready to shell out more—a lot more—for health care as you age. The average retired couple who are age 65 in 2021 will need about $300,000 to cover health expenses in retirement, according to the Fidelity Retiree Health Care Cost Estimate. That’s up 30% from 10 years ago. So you likely can expect health costs to continue to rise as you age.
Medicare won’t cover all of your medical expenses, and, no, it isn’t free. There is no monthly premium for Medicare Part A, but it only provides hospital coverage. Plus, there’s a $1,484 deductible you have to pay for hospital stays before coverage kicks in.
Medicare won’t cover all of your medical expenses, and, no, it isn’t free.
Medicare Part B, which provides coverage for doctor’s visits, outpatient care, medical supplies and preventative services, has a premium that ranges from $148.50 a month to $504.90 a month, depending on your income level. To get prescription drug coverage, you’ll need Medicare Part D or a Medicare Advantage plan that is administered by a private insurance company. The cost for those plans vary.
[Find Out: How Medicare Works]
Solution: Lower-income adults can get help paying Medicare premiums from state Medicare Savings Programs. Some programs even help pay deductibles, coinsurance and copayments. Lower-income adults also might qualify for Extra Help to pay for prescription drugs.
If your income is too high to qualify for assistance, you still might be able to keep down the cost of Medicare by making sure you’re enrolled in the right plan for you. A free service such as Boomer Benefits can help you compare Medicare Advantage plans and Medicare Supplement plans to find the one with the best rate.
If you haven’t retired yet, you may be able to contribute to a health savings account if you have a high-deductible health insurance plan. You can contribute up to $3,600 in 2021 as an individual, plus an extra $1,000 if you’re 55 or older. You can leave the money in the account to grow, then you can use it in retirement to help cover out-of-pocket medical expenses.
Long-term care is really expensive
More than half of Americans age 65 and older will need long-term care at some point, according to the Department of Health and Human Services. Long-term care is a range of services to help people with what are called the activities of daily living (ADLs): bathing, dressing, eating, using the toilet, caring for incontinence, and transferring into and out of bed. This care can be provided at home, in community-based settings and in facilities such as assisted living or nursing homes.
People tend to rely on family to provide this sort of care—but that can put a huge physical, emotional and financial strain on family caregivers. Plus, family and friends aren’t always capable of providing the necessary care. So it’s important to have a plan to pay for professional long-term care.
Unfortunately, long-term care can be incredibly expensive. The median monthly cost of an assisted living facility is $4,300, and the median monthly cost of a home health aide is $4,567, according to Genworth’s 2020 Cost of Care Survey. A private room in a skilled nursing facility can cost almost twice as much -- $8,821 a month.
Medicare doesn’t cover the cost of long-term care. Medicaid will cover long-term care in a skilled nursing facility and at home. However, to qualify for this joint federal and state health care program, you would have to have very limited income and assets.
Solution: If you’re in your 50s or early 60s and relatively healthy, you might be able to get long-term care insurance or a life insurance policy with a long-term care benefit to help cover the cost of care if you need it. Or you could set aside more in savings to cover the cost of care out of pocket.
If you’re older and already have a permanent life insurance policy, you may be able to tap the cash value in the policy to pay for care. You also could sell the policy through what is called a life settlement, which typically pays less than the face value of the policy but more than the cash surrender value.
If you served in the military, you might qualify for benefits through the Veterans Affairs Department’s aid and attendance program or veteran-directed care to help offset the cost of long-term care.
Another option is to tap the equity in your house through a reverse mortgage if you’re 62 or older and own your home outright or have paid off most of the mortgage. Think of this, though, as an option of last resort because a reverse mortgage is a loan that will accrue interest and must be repaid when the home is sold or when the homeowner moves out or dies.
Your best bet is to meet with a financial advisor to help you explore your options and come up with a plan to pay for long-term care. A financial advisor also can help you prepare for the other expenses you’ll face as you age. You can search for fee-only fiduciary advisors near you by using a free service such as Wealthramp, the Garrett Planning Network and the National Association of Personal Financial Advisors.
[Keep Reading: How Can Older Adults Live Independently Longer?]