Mark W. Vandenburg, Jr., is a senior financial advisor with Vanguard Personal Advisor®. He began his career in financial services in 2013 and has been advising Vanguard clients since 2017. Mark is a Certified Financial Planner™ (CFP®) professional and a Certified Trust and Fiduciary Advisor (CTFA). He holds a bachelor's degree in finance from Coastal Carolina University and a master's degree in finance from St. Joseph's University.
How to predict and prepare
Have you included your expected health care expenses in your retirement plan?
Average health care costs, even with Medicare, could surpass $5,000 per year, according to a model we developed in partnership with Mercer Health & Benefits. 1 And although costs vary substantially from person to person, it's possible to estimate what yours might be—and then plan for them.
As an advisor, I collaborate with my clients and educate them as they move closer to and through retirement. The more we plan, the more they feel at ease when it comes time to retire.
Source: Vanguard, Quantifying the Investor's View on the Value of Human and Robo-Advice (Paulo Costa, Ph.D., and Jane E. Henshaw, 2022). Advised investors were asked about their level of peace of mind with their advisor as well as how much peace of mind they imagined having on their own. They could rate peace of mind from 0 ("No peace of mind at all") to 10 ("A great deal of peace of mind") and were considered to have peace of mind if their rating was between 8 and 10.
How much money you'll need for health care may be the biggest unknown expense you'll have in retirement—and how you prepare could determine how long your savings last.
So what comprises the model that drives our personalized estimates? Many factors affect health care expenses, but according to our research, these are the 6 most important.
When it's time for you to enroll in Medicare (at age 65), carefully review the available plans and choose one that's right for you based on your individual needs.
Costs vary based on coverage. When considering your options, think about whether you'd prefer to pay higher premiums (and additional premiums for extra policies) to increase the predictability of your out-of-pocket costs. You'll reenroll each year around the same time, so you'll be able to reevaluate your plan and choose a different option to address your evolving needs.
If you need guidance around your Medicare decision, getting in touch with our advisors is a great start. They have several resources that can help you narrow your plan selection based on your priorities.
How healthy you are when you enter retirement and your family health history largely determine the Medicare coverage you'll need and how much you can expect to spend on health care.
A few questions to consider:
If you answered "yes" to at least 1 question, you should plan to spend more of your retirement income on health care. Keep in mind, however, that a higher health risk can also increase the likelihood you'll need long-term care. Fortunately, many retirees don't end up needing it, but if you do, it can be expensive. You may want to build long-term care into your plan as a separate cost.
An advisor can help you determine when to start planning for long-term care. There are risks to planning too late—but also too early. We can help you set an ideal time frame based on your personal circumstances. My goal for my clients is for them to feel confident and in control of their financial destiny. For some, this may include a long-term care insurance plan. For others, a separate investment account may make sense.
Some of my clients have a goal to retire early. With unpredictable economic factors such as inflation and market volatility, knowing how much to save can be difficult. As an advisor, I use financial planning tools to examine considerations related to my clients' retirement options, such as Social Security, tax-efficient withdrawals, and health care saving contributions. This helps ensure they're saving enough to cover their health care expenses during those gap years before they're eligible for Medicare.
To determine how much they should save, we discuss their health care coverage plans.
One possibility is to stay on your spouse's employer-sponsored plan if your spouse is still working. You could also remain on your employer's plan through the Consolidated Omnibus Budget Reconciliation Act (COBRA), which allows workers and their families to continue health benefits under their group plan. 2 However, COBRA costs more than what most employees pay for health care before they retire. Additionally, COBRA usually only lasts for 18 months, so if you retire before you're eligible for Medicare, you may have to use a combination of different health care sources.
If an employer-sponsored plan isn't a possibility, you can buy insurance through the federal marketplace or purchase private insurance. All these options have their own requirements, and their costs vary, so you'll want to research to see what makes sense for you.
And since asset location and tax-loss harvesting can help lower a person's modified adjusted gross income, you might qualify for cost-lowering health care subsidies like those under the Affordable Care Act.
My goal for my clients is for them to feel confident and in control of their financial destiny. For some, this may include a long-term care insurance plan. For others, a separate investment account may make sense.
—Mark Vandenburg, CFP®, Senior Financial Advisor
