The True Cost of Being Healthy

Photo from Unsplash by Jamie Street

I often asks my healthy clients what they spend on healthcare. Not many of them realize it’s a quarter-million dollar answer.

A 65-year old couple retiring in 2019 can expect to spend $285,000 in health care and medical expenses throughout retirement, compared with $280,000 a year ago, according to a report by Fidelity Investments.


The report, conducted annually and titled Retiree Health Care Cost Estimate, also said for single retirees, the health care cost estimate is $150,000 for women and $135,000 for men.


For the average 65-year-old couple, the $285,000 will be needed just to cover their health care costs in retirement, between Medicare Part B and Part D premiums, and additional out-of-pocket costs (or the Medigap supplemental insurance plan to mitigate them). Not including the potential cost of long-term care needs as well. As a result, one recent study of prospective retirees found that more Baby Boomers are actually less afraid of running out of money in retirement than they are specifically fearful of handling health care costs in retirement.


Yet the reality is that health care costs in retirement aren’t needed as a “lump sum” on the day of retirement, and the Medicare system actually makes health care costs a remarkably stable annual cost that can be planned for. And in fact, looking at health care expenses in retirement as a lump sum masks a number of more direct and substantive planning issues, from the fact that unhealthy retirees may face fewer years of costs but much higher annual costs, to the challenges (and additional costs) of navigating health insurance as an early retiree via state health insurance exchanges.


Accordingly, a recent joint study by Vanguard and Mercer Health and Benefits analyzed the typical (and potentially unexpected) costs of health care in retirement, and showed that the “scary” lump sum cost of retiree health care is actually little more than spending a few hundred dollars per month, per person… for the better part of 2-3 decades in retirement, with the average female spending just $5,200/year throughout her retirement years including all health care related costs (albeit excluding long-term care needs).


Of course, individual health care costs may still vary… but it turns out they vary in rather predictable and plannable ways, from the increase in health care costs for those entering retirement with one or several chronic health conditions, to those who must plan for the additional costs of health insurance via state marketplaces for early retirement, and the additional layer of costs for high-income individuals due to the Medicare income-related surcharges.


Which means in the end, while health care costs may cumulatively add up to a lot over a multi-decade time horizon, they do so in ways that can be largely planned for in advance, saved for with both retirement savings itself or using Health Savings Accounts (HSAs) as a supplemental retirement savings vehicle, managed by making good Medicare enrollment choices, and adjusted for (typically-known-by-retirement) chronic health conditions. Or simply funded by Social Security payments, which for a married 65-year-old couple earning merely “average” benefits, amounts to a lump sum equivalent of more than $600,000 anyway, if converted to present value.


Fidelity offered these tips for pre-retirees who don’t have 30 more years to save:


  • Get up to speed with Medicare: Many Americans assume Medicare is free and covers all their retirement health care expenses. That’s not true, and could be a harsh wake-up call.
  • Maximize tax-advantaged savings accounts: Most pre-retirees are already familiar with a 401(k) or 403(b), and this year’s contribution limit for both accounts is $19,000. Those age 50 or older can contribute another $6,000 in catch-up contributions.
  • Consider deferring Social Security benefits: Generally speaking, the closer to age 70 an individual can wait to take Social Security benefits, the more they can collect, assuming they live a long life.
  • Meet with your employer’s human resource department: While still employed, pre-retirees should find out what health-care benefits, if any, their employer may offer in retirement. Even having access to group coverage or professional support in choosing a Medicare product can be valuable benefits.


If The Gardner Group can help you or your friends with any cash management issues in relation to your retirement, please give us a call. Let’s find some time to talk about your own long-term care needs. These costs can be difficult to predict and are not included in Fidelity’s retirement health care cost estimate, so it’s recommended that pre-retirees  discuss potential long-term care needs based on their current health, family history and other personal factors.





Michael Kitces, Getting Real About (Annual) Health Care Costs In Retirement: October 17, 2018

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