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How much should you save for future care costs?

Plan ahead to cover your bases — and lower stress should the need for care arise

It probably comes as no surprise to learn the cost of health care is on the rise. It is estimated that overall health care costs will increase by an average of 5.5% per year during the next 10 years. While the rising costs may be unavoidable, the ability to plan ahead is something that can help you prepare.

If you have yet to adjust your retirement-savings strategy to account for this shift (not to mention a likely overall increase in health care costs during retirement years due to aging-related medical challenges), you might want to consider adjustments to your retirement planning efforts.

At present, fewer than four in 10 aging Americans (38%) say they’re very confident or extremely confident in their ability to cover all the costs associated with medical care and ongoing or long-term care as they age, according to a 2021 research study from American Enterprise Group.* And even fewer respondents believe they’re prepared to cover most of the ongoing health care costs and long-term care costs.
As part of their total retirement planning strategy, most Americans don’t consider the fact that Medicare isn’t quite as comprehensive as most employer-provided health insurance plans. (Original Medicare doesn’t cover home health care or ongoing skilled nursing home care, for example.)

Just as with your overall retirement savings portfolio and investments, if you start young in terms of saving for potential future health care costs, this will be a much less daunting prospect. There’s no one right way to do this, as health care costs vary widely based on the treatment (say, home health, assisted living, nursing home, or in-home care) and the state or region where you live. That being said, this handy cost of care estimator tool can give you a rough idea of what certain health care costs might add up to so you can adjust your retirement savings accordingly.

Short-Term Care insurance is another excellent option to consider to potentially fill in any gaps. This can assist with out-of-pocket costs by helping cover expenses related to receiving care outside of a doctor’s office or hospital setting.

The sooner you start planning, the better. Setting aside funds to cover your bases now may help ensure you have the cost of care covered when you need it in the future.
* The 2021 Short-Term Care Insurance Foundational Research Study was an online survey of 500 U.S. consumers age 50-79. All participants confirmed having primary or shared responsibility for their households’ health care coverage decisions. American Enterprise Group was not identified as the survey sponsor. The survey was conducted during the month of February 2021. The study was conducted in partnership with Directions Research, an independent insights firm in Cincinnati, Ohio.

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