Overall healthcare spending is projected to rise 5.3% in 2018, reflecting the rising prices of medical goods and services and higher Medicaid costs.1 However, according to the Kaiser Family Foundation, retiree healthcare expenses, as a percentage of household budgets, is more than twice that of working households. The 2018 study found that spending on health insurance premiums, medical services and supplies, and prescription drugs accounted for 14% of household spending for Medicare households versus 6% for non-Medicare households in 2016.2
Costs over a 25-30 year period
So what are the implications for your wallet over a 25 or 30-year period in retirement? According to the Employee Benefit Research Institute (EBRI),3 a 65-year-old man would need savings of about $131,000 if he wants a 90% chance of covering his healthcare cost in retirement, while a woman of the same age would need approximately $147,000, due to women’s longer life expectancies. And a married couple would need about $273,000 to cover about 90% of their healthcare-related costs.3 It’s important to understand that these figures don’t even include potential long-term care or nursing home expenses. What they do include is Medicare and supplemental plan insurance premiums, as well as projected out-of-pocket costs for expenses that aren’t covered by insurance.
To understand what these large dollar amounts mean over the course of your life in retirement, the independent consulting firm, Mercer Health and Benefits, did an analysis to break these costs down annually. Based on their analysis, Mercer suggests that a medium-risk 65-year-old woman living in a median-cost area, using only traditional Medicare with Part D drug coverage, could expect to pay between about $3,200 and $6,600 for premiums and out-of-pocket medical, dental, and vision costs in 2018. On a monthly basis, that breaks down to between $266 and $550 a month. If, however, she was considered high-risk, meaning she suffered from two or more chronic conditions, her costs could range from $3,500 to $21,000 a year, with a median cost of $7,600 annually.4
Healthcare spending doubles in retirement
There’s little question among financial and healthcare experts that as retirees enjoy longer average lifespans, healthcare costs will remain a significant expense in retirement. This is particularly true for women who, on average, tend to live longer than men and will presumably require more savings to pay for healthcare costs for a longer period of time in retirement. That makes a holistic approach to planning critical for evaluating how key retirement risk factors, such as longevity, rising healthcare costs, or the need for long-term care may impact your strategy.
If you have questions about planning for healthcare costs in retirement, call the office today to schedule time to talk about your concerns.