Retirement planning is not just putting numbers in an excel sheet and coming up with answers. There is much more to it. And this includes even if one is hoping for financial independence & early retirement. Behind those numbers lie various assumptions and variables – many of which you can’t predict. Arguably the biggest unknown in this is rising medical costs!
You can, to a reasonable extent predict what the cost of child’s education will be. Or what the cost of housing be. But medical costs? Maybe not, as medical issues often come unannounced. You may be able to predict cost of a medical procedure in future but not what medical interventions you may need!
As humans strive to live for longer, the probability of need for medical interventions is also increasing. Since a significant chunk of this enhanced lifespan may be spent in retirement, one needs to be adequately prepared for paying for such interventions!
If recent history is anything to go by, medical expenses grow at a much higher rate than inflation. A week long hospitalization in a good hospital in India can cost few lacs. While some countries (e.g. several European countries) cost of medical treatment may not be too prohibitive, in some countries (e.g. USA) they are extremely expensive.
The inflation in medical inflation is more than what government agencies suggest. It may be in many cases, even more than lifestyle inflation which most people experience!
Rising medical costs in retirement – Here are some scenarios
(This is not an exhaustive list, but covers most of the scenarios I think. The idea is to highlight that rising medical costs can possibly form a significant part of your post-retirement expenses & any retirement planning should keep this in mind)
You live an overall healthy life,(maybe with minor illness here and there)
This is probably the best thing that can happen. You may live a healthy overall life. Occasional ailments may come, but they may not be threatening, nor too expensive. This can also have a positive impact on your post-retirement finances too.
But, it may not always be so straightforward. Especially if one lives for long!
Chronic conditions (Diabetes, hypertension etc.)
Some of these chronic conditions may be known devil – and you may anyway have been managing it since some time. This typically involves regular medications and checkups.
However, some of these may have associated complications, which may require medical interventions. Or these conditions may make some medical conditions worse.
For instance, if you have eyesight issues, diabetes may be a factor that can complicate it. And so will the cost of treating it!
Major Illness/ medical procedure
As the age increases, so does likelihood of need of a major medical procedure. It is fairly common to hear of bypass surgery in 60s or 70s. Or knee replacement surgeries. And many more. All this costs money. While major part of this may be covered under insurance it may not be true for all. And there may be lot of additional care that may be needed (e.g. attendants to take care of them in recovery period)
With age, likelihood of something going wrong in the body increases. So does likelihood of diseases like cancer. Some of them may not be curable. However, irrespective of whether they are curable or not, they do usually cost lot of money to treat.
One such major medical expense can throw finances out of gear for the unprepared.
Elderly care & its costs
As you age, especially as you hit 80s and 90s, your body may not be capable of doing several things (including thinking or judging things clearly). You may have to depend upon others for few or several things – often even the basic chores.
And this this where elderly care comes into picture. Imagine the cost of needing this service day in and day out for several years, and the costs it may have.
Good if you don’t need it, but who can predict!?
Unfortunately, it is not uncommon to ignore this aspect in financial planning!
How can one prepare for rising medical costs in retirement?
While you cannot predict what kinds of medical expenses you may have to face while in retirement, it is always good to be prepared as far as possible.
A health insurance can be a good starting point. Get a good health insurance – as early as you can. Delaying the purchase of health insurance not only increases the premium but also puts you at a risk of getting medical issues (E.g. diabetes, hypertension) excluded from your cover.
At the same time, keep in mind that medical insurance may not cover all expenses (good if they do, but there may be some limits/ exclusions), or not provide cashless facility (which may thus require you to pay upfront). Or in worst case, they may not pay for your treatment (less likelihood if no conditions are violated, but it can happen).
Hence it is always better to be prepared financially. Have some emergency fund which can help. Provision for your medical costs in your planning. So if you are assuming that your current monthly expenses (Say Rs. 1 lac a month or $5000 a month) will be applicable in future (or its inflation adjusted value), then you may be wrong. There can be lot of unexpected expenses – typically medical in nature. You need to account for that and build a sufficient cushion. It can be handy in times of need.