Start saving, and learn to read medical bills.
More than two-thirds of people approaching retirement believe 35 is the best age to start saving for the health care they’ll need later in life. Too bad very few of them actually did it.
That’s according to a new AARP survey of more than 1,000 non-retirees, which found just 28 percent of them heeded their own advice. Meanwhile, in the past 15 years, health care costs have exploded. Oops.
That growth has slowed down in the past couple of years, but hasn’t stopped — and nobody expects it to. Another new study, this one from personal finance site NerdWallet, says out-of-pocket health care spending is expected to keep rising about 5.5 percent every year through 2023.
The people in AARP’s study who didn’t start saving sooner will end up working longer to make up the difference — and even the savers aren’t confident they’ll have enough. Here’s what you need to know to avoid ending up in the same situation…
Dealing with medical debt
More than $1 in $3 paid to debt collectors is for medical debt, adding up to more than $21 billion in 2013, according to NerdWallet.
Is that a lot? Yeah: It’s almost exactly the same amount collected for student loans and credit cards combined. And this year, one in five adults will be contacted by a collection agency about medical debt.
There’s a lot of medical debt that goes unpaid, too. American hospitals are expected to provide more than $50 billion in care that won’t be paid for by insurers, the government, or patients.
Of course, the health care system itself is partially to blame. NerdWallet looked at a government audit of Medicare billing which found “rampant” errors — on nearly half of the claims the government investigated. They may not be representative of all billing at all hospitals, but they were overcharging an average of 26 percent.
Problem is, these errors aren’t easy to catch — you’re literally deciphering codes to figure out the charges. Nearly three-quarters of consumers say they could make better health decisions if the cost of care was clearer, according to NerdWallet.
Start saving sooner
Between 2010 and 2013, the median household income dropped $2,300, AARP says. Meanwhile, health care expenses increased $1,814 — and they’re expected to keep going up.
How do you get ahead when you’re making less and paying more? One option is to work longer, and that’s what many seniors are doing. According to AARP:
- 38 percent of workers over 50 are not currently saving for retirement health care costs, and almost half of those don’t plan to.
- 57 percent plan to work past 65.
- 18 percent say they will never retire.
Unfortunately, your good intentions can be wiped out by the very problem you’re working hard to avoid. Poor health can force you to clock out years early, and leave you with medical debt in retirement. The average retirement age now is between 62 and 64.
Workers over 50 who reported fair or poor health to AARP are also the least likely to be saving, and 60 percent of them make less than $50,000 a year.
To help you get started saving, AARP has a retirement health care calculator. First, you plug in the details of your medical situation — or what you expect your health problems to be, if you want to estimate other scenarios. Then it will give you advice on minimizing or fixing those health problems before they become more expensive, and tell you how much you ultimately need to save.
The numbers are based on the real cost of health claims, but the biggest factors will be the grim ones you type in: when you expect to retire, and how long you expect to live.
Once you have a goal, you have to find the money and a place to put it. One possibility, if you’re relatively young and healthy now, is a health savings account.
This is a little-known retirement saving plan available to people with high-deductible health insurance plans — the kind that usually has cheaper premiums because you’re not getting a lot of coverage if something goes wrong.
You can take the money you’re saving on health insurance and put it in the HSA, where it avoids being taxed, may get a tax deduction, and can be invested to keep up with the growing costs of care. They’re not for everyone, but apparently, neither is saving for retirement expenses.