Retirement Health Costs

Hopefully we all make it to retirement, which lets say is 65, the age where Medicare coverage currently kicks in.  Guess what, even barring further changes to Part B premiums, other cost-sharing and benefit design, you are still likely to incur substantial out-of-pocket health-related expenses. And if you retire earlier, say at 55, you have ten years to go before you even can access Medicare.  A HealthView Services report details what those might be.  (HVS Report)   Total remaining life expectancy premium costs for a couple retiring at age 65 will be $266,589.  That includes Part B premium, Part D premium and a supplemental insurance policy, since most people buy one.  Including all health costs, such as dental, vision, and Medicare copays, the cost rises to $394,849.  If the couple retires at 55, the cost rises to $463,849.  Note that all these figures are current dollar amounts; think there might be some inflation?  Health care inflation is muted now, but has often been above 5% in recent decades. And health care inflation has always risen faster than general inflation.  Since social security payments are tied to general inflation, more of that income will be used for health care over time.  For someone retiring now, by the time they are 80 health care would be eating up 70% of their social security income. The expected monthly health care costs rise steeply with age, from around $583 at age 65 to $1,028 at age 80.  Living beyond the average life expectancy obviously means more health costs.  Being relatively well-off means paying Medicare surcharges.  The income levels for the surcharges aren’t adjusted for inflation, so by 2036 a quarter of all retirees are likely to be subject to these surcharges.  And these costs don’t include long-term care, i.e. if you end up living in a nursing home.  About 25% of expected total health costs in retirement are attributable to hospital and doctor use; about 33% to insurance premiums, around 17% to drugs and 16% to hearing and vision needs.  Want to get prepared for all these costs?  Just for the premiums, if you are 45 you need to start saving $736 a month now and keep doing it even after you retire.  Think Americans are prepared for the health costs in their retirement, think again.