Insurance

Health Care Costs During Retirement

By Jason Newcomer

March 16, 2020

For those of you gearing up to retire within the next few years, you may be wondering how your health care costs in retirement might look. There are several factors at play. We’re going to dive those to give you a better understanding of your health care costs During retirement.

Medicare for Health Care Costs During Retirement

An individual becomes eligible for Medicare at the age of 65. This is an important fact to remember when you are deciding how long you will work. For example, if you plan to retire before reaching this age, you’ll need to consider how you’ll handle medical insurance for the period between your retirement and your 65th birthday. Taylor Garner, agency sales manager at American Republic Insurance Services, says you have a few options. One option may be to use a short-term major medical plan. These plans are short-term options designed to cover a need while you’re between health insurance plans. Another option is an Affordable Healthcare Act health plan. Your monthly premium on these plans will depend on several factors, including your age, income, and the level of coverage you choose.

The ABCs of Medicare

For those of you retiring at 65 or later, you’ll generally be eligible to file for Medicare insurance plans. There are a lot of different ways to structure your health insurance plans through Medicare. For example, you may determine to enroll in Medicare Part A (hospital insurance), Part B (health insurance), and Part D (prescription drug plan). There is no monthly premium for Part A. For Part B in 2020, the monthly premium in 2020 is $144.60. Premiums for a Part D prescription drug plan will range depending on the plan but expect to see a monthly premium between $25-75 as an estimate. Your cost for parts B and D may be higher, depending on your income.

Medicare Supplement Plans

You may choose to include an additional policy to supplement Medicare parts A, B, and D. We refer, aptly, to these plans as Medicare supplement plans or Medigap plans. They are useful because, without them, you may face high deductible and no maximum out-of-pocket limits. There are several different supplement plans available, and they each have different premiums and benefits, but expect to pay somewhere in the neighborhood of $150 per month.

Medicare By the Numbers

The Employee Benefit Research Institute, a non-profit research group, has released an annual report, estimating future healthcare costs in retirement. Their research details the savings “needed to pay for premiums for Medicare Parts B and D, premiums for Medigap Plan F, and out-of-pocket spending for outpatient prescription drugs.” From their report:

The analysis reveals:

  • In 2019, a 65-year-old man needs $79,000 in savings, and a 65-year-old woman needs $104,000 in savings for a 50% chance of having enough to cover premiums and median prescription drug expenses in retirement. To have a 90% chance of having enough savings, the man needs $144,000, and the woman needs $163,000.
  • For a 50% chance of having enough to cover health care expenses in retirement, a couple with median prescription drug expenses needs $183,000 in savings. For a 90% chance of having enough, the couple needs $301,000 in savings.
  • At the extreme — a couple with drug expenses at the 90th percentile throughout retirement who wants a 90% chance of having enough money for health care expenses in retirement by age 65 — targeted savings are $363,000 in 2019.

Later in life and retirement, your health care costs may increase due to health complications associated with aging. Depending on the circumstances, you may require some form of long-term care. If you plan on aging in place as long as possible, but require nursing care, and choose to have in-home nursing care provided, the costs may be higher than a similar level of care provided in an assisted living facility. According to Genworth, the national average cost of a home health aide is about $52,000. Compare this to the national average cost of an assisted living facility, which is closer to $48,000. If a health condition worsens, you may require a move to a nursing home facility. This is where costs can escalate. Genworth gives a national average cost for a private room in a nursing home facility of more than $100,000 per year.


Want to learn more about Medicare?

Dean Barber and Medicare Expert Tom Allen discuss Medicare in three episodes of our podcast, The Guided Retirement Show. They examine Medicare options, costs, and coverage, and Medicare Supplement Plans. Don’t forget to subscribe so you’re notified when we release new episodes!

Understanding Medicare Options, Costs, and Coverage Pt. 1 Understanding Medicare Options, Costs, and Coverage Pt. 2 Medicare Supplement Plans, A Closer Look


Tips to Estimate Health Care Costs in Retirement

If you’d like to apply this data to your situation, here are a few tips:

Assess Your Health

Are you a relatively healthy individual, who rarely goes to the doctor, save for the annual physical or check-up? You may want to use the EBRI’s estimates for the 50th percentile when estimating your future healthcare costs in retirement (for a male, age 65, you’d need $79,000 in savings, for a female, age 65, you’d need $104,000).

If you’re less healthy, maybe on a handful of prescription drugs, and have some complications, you may be safer using the EBRI’s estimates for the 90th percentile (for a male, age 65, you’d need $144,000 in savings, for a female, age 65, you’d need $163,000).

Long-Term Care Health Care Costs in Retirement

The US Department of Health and Human Services estimates that more than half of Americans turning 65 today will require some form of long-term care. For that reason, I believe it’s essential to take into consideration future costs into your financial plan. Again, this starts with an honest self-assessment of your health. It would be best if you also considered your preferences for how you receive the care. Do you prefer to remain in your home? You should factor in the higher costs of in-home nursing care. If you prefer to move out of your home into an assisted living facility, use those costs in your projections. In either case, plan on between 2-5 years of some form of long-term care at the end of your life.

Talk with Your Family

All too often, people never make their wishes known, not wanting to have difficult conversations with their spouse or family. This can lead to disagreements, confusion, and frustration later on. Especially when it comes time to make decisions about health care costs in retirement. If you’re married, talk with your spouse about your preferences for health care, and if you have children, you’ll want to bring them in the loop.

If you’d like to discuss how to more effectively integrate planning health care costs into your retirement plans, get in touch with us. Like many things in retirement planning, this needs to be custom-tailored to you and your family’s plans.

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Investment advisory services offered through Barber Financial Group, Inc., an SEC Registered Investment Adviser.

The views expressed represent the opinion of Barber Financial Group an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Barber Financial Group does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.