When you consider retirement planning, you’re probably most concerned about ensuring your 401(k) is well-funded or that you’ve maxed out your traditional and Roth IRAs every year. You’re likely diversifying your investments and keeping an eye on your life insurance policies. But have you factored in healthcare expenses?
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If your answer is no, then Suze Orman thinks you’ve made a massive mistake. The author and financial expert believes that no retirement plan is complete without addressing the significant burden of healthcare costs. As Americans live longer, they’re more likely to need medical services, potentially including in-home care or long-term care.
Orman wants you to start thinking about healthcare costs whenever you think about retirement planning — because if you don’t, the consequences could be dire.
Not Factoring in Healthcare Means Not Understanding Your Financial Risks
Orman has compared retirement planning to a juggling act, where you’re balancing multiple risks at the same time. Many of the balls in the air relate to your health and longevity. Ask yourself: How long do you think you’ll live? Will you need in-home care or even a long-term care facility? Could a market downturn early in your retirement put pressure on your finances just as your healthcare costs increase?
According to Fidelity Investments, the average 65-year-old couple can expect to spend at least $12,800 on healthcare within their first year of retirement. That’s a significant amount of money — one that could derail your retirement if you’re unprepared.
Many people view market fluctuations as their biggest financial risk during retirement years. Instead, Orman wants them to consider their longevity and healthcare expenses as the greatest threat, even before the market itself.
“If you enter your 60s in good health, your retirement plan needs to be based on the assumption you will live at least until 90. Honestly, 95 is better. That’s because there is a not-small probability you will in fact live that long,” she wrote. “And the last thing you want for yourself — and for loved ones who may someday step in and care for you — is to run out of money.”
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Medicare Is Not a Perfect Solution
A big part of Orman’s concern is that many soon-to-be retirees assume Medicare will fully cover their healthcare costs. However, Medicare is far from a catch-all approach to healthcare. It comes with significant gaps and out-of-pocket expenses. While enrollees can choose Medicare Advantage plans or Part D coverage, these options don’t cover everything, often prompting people to purchase supplemental insurance, known as Medigap.
According to The Street, Social Security enrollees will see their Medicare Part B premium of $185 deducted automatically from their monthly benefits. Higher earners pay even more due to income-related monthly adjustment amounts, or IRMAAs, which could drive up Part B costs by as much as $443.90 in 2025.
Your retirement savings should account for these premiums, as well as potential increases over time.
Orman warns, “If you’re enrolled in Medicare Advantage, when you need care, you will typically run into copays that can add up.” The best time to start saving for Medicare costs was yesterday, but the next best time is now. If you have a family history of chronic health conditions, planning for these expenses is even more critical.
How To Protect Yourself Financially
To safeguard your retirement savings from unexpected healthcare costs, Orman offers a few key strategies. She wants you to delay taking Social Security for as long as you possibly can, ideally until age 70, to maximize your monthly benefit.
“Working longer — part-time is likely all it will take — can make it possible,” she said. “And it can make sense to start drawing down your retirement accounts in your 60s, as a way to avoid having to start collecting Social Security.”
Orman also wants you to consider long-term care insurance. “Yes, it is expensive,” she said. “But the annual premium is likely no more than the current cost of one or two months of needing care at home, or in a managed care facility.”
Beyond protecting what you already have, Orman urges those planning for retirement to think about how to keep growing their wealth. Investing in dividend-paying stocks, income-producing real estate, or income annuities now can help generate additional funds that could prove crucial in covering healthcare costs later in life.
Finally, Orman stresses the importance of proactive health management. Eating well and staying active can help reduce long-term medical expenses, improving both your quality of life and your financial security.
This article is part of GOBankingRates’ Top 100 Money Experts series, where we spotlight expert answers to the biggest financial questions Americans are asking. Got a question of your own? You could win $500 just for asking — learn more at GOBankingRates.com.
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This article originally appeared on GOBankingRates.com: Suze Orman: The No. 1 Retirement Mistake That Could Cost You Everything
