Steve Coker, CFP
The Cost of Healthcare in Retirement
One of the most daunting challenges facing retirees is the cost of healthcare. Without some type of employer-provided retiree healthcare, the typical retiree sees a 3-fold increase in health insurance premiums after leaving the job, leading many workers to stay longer on the job simply for the health insurance benefits. However, despite the high cost, the healthcare ‘problem’ is not insurmountable. With proper planning, and appropriate health insurance and Medicare decisions, retirees can enjoy retirement without worry. When we develop retirement plans, we often use a separate budget for healthcare to make sure we are adequately planning for this expense. If you are wondering what the typical retiree spends on healthcare, here is a quick primer to put these costs into perspective.
Based on research recently published by Mercer Health and Benefits, the median healthcare costs for a 65-year-old woman on Medicare with medium risk health issues is $3,900 per year ($325 per month). Healthcare costs for men are slightly lower, but we can assume that a typical 65-year-old married couple will spend about $7,800 per year ($650 per month) on healthcare. Of course, it is important to understand that these costs can vary widely, as those with existing conditions in high-risk areas can spend twice as much, and extreme cases for those with significant health issues can run in the tens of thousands depending on health insurance coverage.
For those considering retirement before 65, healthcare costs prior to Medicare can be expensive. Once again, costs can vary dramatically since there are many plans available, but the average annual premiums for a ‘Silver’ plan in 2018 was $8,000 per year ($667 per month). Therefore, a married couple could spend $16,000 per year on health care until age 65 when Medicare is available. Of course, retiree medical benefits, if offered, can provide an important bridge to age 65 and lower these costs dramatically, so it is important to do the appropriate research with your current employer.
I hope that these numbers give you some hope for retirement. Yes, it is true that healthcare costs are significant, but when placed next to other costs such as housing, travel, and even auto expenses, they become simply another part of the budget. It is important to plan for healthcare costs, but with appropriate saving, it is possible to retire, even before age 65 and still cover these expenses. If you would like to learn more, or if you would like some help developing a detailed retirement plan, please give us a call. We would be glad to help.
Weber, Stephen. “Planning for Health Care Costs in Retirement” Vanguard Research. June 2018. https://advisors.vanguard.com/iwe/pdf/ISGPLHC.pdf?cbdForceDomain=true