Hidden cost in retirement: Healthcare

According to HealthView Services’ 2015 Retirement Health Care Cost Data Report, an average healthy couple retiring this year at 65 will require on average approximately $266,000 to cover Medicare Parts B and D and
supplemental insurance When expected vision, hearing, dental, and co-pays are added, their total lifetime health care costs will be $395,000. Ultimately, almost 70% of the couple’s expected Social Security benefits will be consumed by health care costs.  

The failure to plan for these costs will lead more Americans to draw down and potentially exhaust their retirement savings much earlier than anticipated.

Health Care Costs are unexpected and shocking to many retirees’. In the USA, the issue of increasing costs for health care and lack of government funding is highlighted in a report 2017 Retirement Health Care Costs Data Report written by HealthView Services.

Here is some interesting information from the report:

1)             Total projected lifetime health care premiums (Medicare Parts B and D, supplemental insurance, and dental insurance) for a healthy 65-year-old couple retiring this year are expected to be $321,994 in today’s dollars ($485,246 in future dollars). Adding deductibles, copays, hearing, vision, and dental cost sharing, that number grows to $404,253 in today’s dollars ($607,662 in future dollars).

2)             Medicare Part B premiums grew by 16% in 2016. The Medicare Board of Trustees originally projected a 24% Part-B decrease for 2017;3 instead, premiums increased 10%. The Trustees estimate a 1.3% decrease in 2018.

3)             Retirement health care cost inflation is projected to rise by 5.47% annually for the next decade, more than twice the amount of estimated Social Security COLAs. The average cost of supplemental insurance will rise at 7.12%, driven by annual projected premium inflation of 3.80% and an additional annual age-based increase of 3.32%.

4)            HealthView’s Retirement Health Care Cost Index® shows that a 66-year-old couple retiring this year will require 59% of their Social Security benefits to cover total retirement health care costs. A 55-year-old couple will need 92% of benefits, and 45-year-old couple, 122%.

5)            Women will face higher lifetime health care costs because they will live, on average, two years longer than men. Expected health care costs (for Medicare Parts B and D, a supplemental insurance policy, and all out-of pockets) for a healthy 63-year-old woman retiring this year (living to age 89) are projected to be $362,607 (in future dollars) – 29.9% more than a 65-year-old male ($279,176).

6)           Health care will be one of the most significant retirement expenditures; however, the savings required to cover this expense may be modest - especially if one has been utilizing an income replacement ratio (IRR) of 75% to 85%. Retirees can also significantly reduce costs by optimizing retirement portfolios to address health care needs.

7)           A 50-year-old male with type II diabetes can save (an average of) $5,000 per year in pre-retirement health expenses by shifting from Poorly Managed to Well Managed care. The difference in projected life expectancy is eight years.

8)           In addition to basic Medicare premiums, supplemental insurance, and projected average out-of-pocket costs, today’s 55-year-olds will need an extra $7,123 (male) and $7,681* (female) for copays and other expenses in their final two years of life. These figures do not include long-term care (LTC) costs.

9)           Health Care Costs and the Average American Couple Retiring Today

10)          The following analysis (Table A) reviews future health care costs for a 65-year-old couple retiring this year, as well as a 55-year-old and 45-year-old couple retiring at age 65. All calculations assume that a healthy male and female will have life expectancies of 87 and 89 respectively, and will have a combined future modified adjusted gross income (MAGI) of under $170,000.

Table A – Cost Projections for Medicare Parts B and D, Supplemental

Insurance Premiums, Dental Premiums, and Out-of-Pocket Expenses

Premiums		Out-of-Pocket	Total Costs (Present Value)	Total Costs (Future Value)
65-year-old couple	$321,994	$82,258	$404,253	$607,662
55-year-old couple	$410,002	$88,961	$498,962	$1,010,223
45-year-old couple	$537,480	$97,662	$635,142	$1,730,774

The information in the report is from 70-million health care cases, actuarial, and government data to project retirement health care costs.

The final calculations draw upon and are consistent with, government health care inflation forecasts.

Retirement health care cost projections include Medicare Parts B and D,* supplemental insurance premiums, and dental premiums. It is assumed that most Americans paid Medicare taxes while employed and will not be responsible for Medicare Part A. National averages are used for supplemental insurance premiums, which vary by state. Total lifetime projections comprise all out-of-pocket (OOP) expenses related to hospitalization, doctors and tests, prescription drugs, vision, dental hearing services, and hearing aids.

Calculations assume actuarial longevity for different health conditions and ages.