Bold Boomer Series: Innovative Solutions for Tackling Healthcare Expenses in Retirement

A doctor treating an injured piggybank

(Editor’s note: Welcome to the first installment of the Bold Boomer Series, which will delve into various topics affecting the “Baby Boomer” generation.)

It is often said that those who are the true wealthiest are those who have their health. This saying has a great deal of merit, especially when it comes to retirement. It’s not uncommon to hear about someone entering retirement with tremendous anticipation, only to be diagnosed with a health-limiting condition. In these instances, adjustments must be made and a new perspective taken. But if a person has neglected planning for healthcare costs in these situations, options may be quite limited. And even for those who do anticipate such costs, accurate financial guidance may be difficult to find.

For employees at major firms with healthcare benefits, resources may exist to assist with the future planning for healthcare costs. But such supports are often not routinely available for entrepreneurs and those working for small businesses. Similarly, with many people preferring to work at home as contractors, good information may be even more challenging to find. Fortunately, this may soon be changing as innovative technologies could potentially provide a solution to this problem. Rather than guess how much healthcare expenses in retirement may be, data-backed insights could offer a much more precise answer.

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“The [healthcare in retirement] budget begins to incorporate what we anticipate the care needs will be. I compare it to a wedding. There are a thousand little expenses that add up and that Medicare doesn’t cover.” – James Sullivan, Certified Public Accountant, Fairhaven Wealth Management

A Complex and Complicated Situation

In general, it’s not surprising that healthcare expenses in retirement are substantial. Many illnesses become increasingly more common as we age. This is especially true for chronic diseases like Alzheimer’s dementia, Parkinson’s disease, stroke, and heart disease. But effective planning for healthcare costs demands much more than a reasonable understanding of these conditions. Not only do medications and treatments constantly change in type but in price as well. At a minimum, retirees-to-be must somehow predict how these conditions will evolve over time. And this is extremely difficult without access to the right tools and information.

There are additional considerations besides disease progression and changes in treatment when it comes to healthcare expenses in retirement. Older adults are also reimagining what aging means. In the U.S., the retirement age is now averaging closer to 62 years of age. Likewise, Americans are also living longer, which means retirees will need larger savings accounts. Since healthcare costs consume about 15 percent of all retirement expenditures, a few extra years can be noteworthy. Combine this with healthcare price increases that continue to outpace inflation, accurate planning for healthcare costs demands expertise. For most individuals, this type of financial planning guidance doesn’t exist.

“Many people assume Medicare will cover all your health care cost in retirement, but it doesn’t. We estimate that about 15% of the average retiree’s annual expenses will be used for health care-related expenses.” – Steve Feinschreiber, SVP, Financial Solutions Group, Fidelity

Traditional Areas of Financial Planning Support

For most people planning for healthcare costs in retirement, there are several traditional strategies that might be used. Common resources routinely involve financial planners, their medical providers, and even advocacy groups. Some may even seek out geriatric care managers for a more detailed assessment of their retirement planning needs. Based on this type of advice, a savings plan is created and followed with the hopes it will be satisfactory. But more often than not, these projections may fall short. In other words, it’s not a lack of planning for healthcare costs that’s the problem. It’s the lack of solid data and information to determine the right approach.

Recent data suggests a couple retiring at age 65 years will need about $300,000 for healthcare expenses in retirement. Assuming such a couple has Medicare, then the bulk of these goes toward copays and deductibles. Most of the remainder then goes to pay for medications and specialized equipment. But these estimates fail to anticipate other costs such as those related to caregivers and long-term care. Recent projections suggest that more than two-thirds of older adults may require such care. Unfortunately, traditional planning for healthcare costs in older age tends to underestimate these needs. And this can pose serious problems down the road.

“[The healthcare planning] burden unfortunately gets placed on the consumer. Every day we hear about rising healthcare costs and medical bankruptcy, and I’m so excited that we’re empowering consumers to proactively plan for the costs and make smarter decisions using data.” – Christine Simone, Cofounder of Caribou

Technology to the Rescue

Given the current state of affairs, innovative solutions related to retirement planning for healthcare costs are needed. Fortunately, one startup hopes to address this issue by targeting those most involved in the planning process…financial planners. Caribou Wealth, a Miami-based startup, has already raised $3.1 million in venture capital funding. Its SaaS model provides financial planners with healthcare cost predictions through optimization software. Data concerning healthcare utilization, illnesses, medications, treatments and other insights serve as the primary inputs. Then, the software provides detailed projections that better estimate healthcare expenses in retirement.

A bunch of pills and money
Planning for healthcare costs into retirement is a tricky prospect–one that requires innovative solutions.

The software service that Caribou can offer financial advisors and planners could greatly improve the advice they provide. It’s therefore not surprising that the startup already has dozens of clients. Combined, these clients represent tens of thousands of individuals who are planning for healthcare costs in the future. This means the impact Caribou is tremendous despite the company being relatively new. Plus, while their current platform is geared toward financial experts, future versions hope to target consumers directly. Specifically, the cofounders plan to further develop their product as plug-ins for financial planning sites online. This would in essence enable individuals to determine their own healthcare expenses in retirement.

An Important Part of the Healthcare Puzzle

When it comes to the healthcare sector, a variety of solutions are needed to control expenditures. This includes shifting efforts toward health promotion and disease prevention. It also will require new healthcare service models that are more efficient and cost-effective. But without question, technology will play an increasing role in these efforts, and so will healthcare data. Understanding this, it’s not surprising that technology related to planning for healthcare costs might also be a needed pursuit. By better predicant healthcare expenses in retirement, individuals can better prepare for later life. And hopefully, maximize their quality of living during these golden years.


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