In retirement, an Australian couple needs from $4,700 to $9,400 a year to pay for health care , according to the Association of Superannuation Funds of Australia, and the average cost of private health insurance rose 4.8 per cent in 2017, far outpacing inflation.
This high and ever-increasing cost of health care, combined with longer life spans, has elevated the need to plan for paying for doctor visits, prescriptions and other medical costs in retirement.
Vanguard’s Roadmap to Financial Security identifies health risk as one of five risks that you need to understand and evaluate when you plan for retirement. The others are:
Vanguard defines health risk as both the risk of needing care because of deteriorating health and the risk of not being able to afford it because of a lack of insurance coverage, government benefits, or financial resources.
Accounting for health risk is complicated because it encompasses so many uncertainties. Retirement may be many years in the future, outlays vary wildly depending on the length and type of care, and few people can predict how aging will affect their health.
In addition, health risk is intertwined with other risks. Women, for example, face greater longevity risk, but that makes them more likely to require more expensive care in later years. Australia’s aging population may put pressure on government budgets, potentially changing health-care and other funding.
If you are approaching or in retirement, start by calculating your risk in three areas:
Written by Robin Bowerman, Head of Corporate Affairs at Vanguard.
18 March 2019