How Will Your Healthcare Costs Change with Retirement?

May 3, 2017


Present Landscape

A recent Merrill Lynch retirement study found that paying for future health care expense is the biggest financial concern for many retirees.  Half of retirees are concerned they won’t have enough money to cover out-of-pocket health-related expenses.  43% erroneously believe that Medicare will cover almost all their health care costs in retirement.

Fewer than 15% of pre-retirees have ever attempted to estimate how much money they might need for health care and long term care in retirement.  Few correctly anticipate their total potential health care costs.  Many pre and post retirees struggle to get a handle on these numbers because information on costs and insurance can be complex and confusing.

Hold on to your hat

Each year Fidelity projects how much the “average” 65 year old couple will spend on medical-related expenses throughout retirement.  Fidelity’s projection as of March 2016 was $260,000 per couple, not including any long term care expense that may be incurred.  Many people will find that number jaw-dropping.  Where, they may wonder, will they find an additional quarter of a million dollars, after retiring, to cover health care costs?  Perhaps a closer look at what comprises this number will help reduce anxiety levels.

Three Cost Factors

The three factors that impact an individual’s retirement health care costs include personal health care experience, longevity, and inflation.

Your Personal Health Care Experience

Actively practicing a healthy lifestyle will most likely have a positive impact on retiree health care costs.  86% of retirees agree that maintaining or improving their health could minimize out-of-pocket related expenses.  Nevertheless, there are no guarantees.  As the years go by the odds of contracting a serious illness or chronic condition increase.    Medicare costs can generally be categorized as either:

  • Premiums (Part B, supplemental coverage and prescription drugs)
  • Utilization (out of pocket costs for actual services rendered).

The Kaiser Family Foundation found that combined premium and utilization costs for people ages 65-74 averaged $4020 annually, increasing to $5245 for 75-84 year olds and to $8191 for the 85+ crowd.  Again, these are broad averages, but the trend is unmistakable.


The mere possibility of a long life span results in higher-than-average health care expenditure.  Considering just premiums alone (Part B, Medigap, and Part D), assuming a 5% medical inflation rate, a 65 year old who lives to 100 would pay over $400,000 in premiums even if they never visited a doctor’s office during that time.  The issue of longevity creates an unfortunate paradox.  We should prioritize our health and strive to live well while at the same time understanding that doing so will not necessarily save us money.


Since 1960, the annual inflation rate for health care costs has averaged just under 10%.  This unsustainable rate has dropped during more recent years.  The Medicare trustees, who each year report on the sustainability of the Medicare program, projected that health care expenditures will increase at an average annual rate of 5.8% from 2015 – 2025.  Notably, this is still two to two and one half times the target consumer rate of inflation.  A significant portion of Fidelity’s projected retirement health care cost can be attributed to anticipated inflation over a retiree’s life expectancy.

Where to go for help

The purpose of this article was to raise awareness of what the future may hold; it was not intended to offer a gloom and doom outlook.  That said, holistic retirement planning should include anticipating and preparing for potential health care costs.

The Merrill Lynch study stated that fewer than 15% of retirees felt they had a trusted resource to help them understand, prepare for, or manage retirement health-related expenses.  That’s where Mike Curtiss and Vrabec Insurance can assist.  We are the experts in Medicare insurance, because that is all we do.  We’re independent, objective, and client focused.  Call or email to set up a time to discuss your specific situation.

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