One of the top questions that we get asked all the time is, “How much can we anticipate healthcare costing in retirement?” I think this is really very significant, because I think this obviously could be one of our largest expenses that we have in retirement.
J.P. Morgan actually came out with a really nice paper on this. It’s called Healthcare Costs in Retirement. And if you search the internet, you should be able to find this. It’s about 12 to 15 pages long. But what I wanted to do here today is just share with you a couple of highlights from this.
So probably not a big surprise to most people, but healthcare continues to be one of the top concerns for many people as they go into retirement. It’s also one of the fastest growing expenses as well. According to the J.P. Morgan report, from 1982 to 2014, healthcare grew at an average rate of 5% per year. So that’s faster than every other spending category except for the cost of education. And as we get older, the cost of healthcare becomes more significant as well. They go on to say that Americans over the age of 75 consume almost twice as much healthcare as they did between the ages of 65 and 74. So obviously, as we get older, not only is healthcare going to go up, but our need for healthcare is gonna go up as well.
So how much do we estimate for healthcare costs? Well, it gets kinda broken down into two parts. One is if you’re talking about healthcare after age 65, after you become eligible for Medicare, and then how much does healthcare cost if you retire prior to age 65 and you’ve gotta go out into the Exchanges. So first of all, let’s talk about Medicare. So according to this J.P. Morgan report, they said a traditional Medicare plan with prescription drug coverage, comprehensive Medigap policy, plus dental and vision would cost an average 65 year old about $4660 per year. They go on to say, too, though, that the costs may triple between the ages of 65 and 85.
As we get older, as healthcare costs go up, that’s going to get a lot more expensive. And of course, if you’re married, if you’ve got a partner, you’re gonna double those figures because $4660 covers just one of you under the Medicare plan according to this report. Now what about if you retire prior to age 65 before you’re eligible for Medicare? Well according to the online Kaiser Family Foundation calculator as of April 2016, premiums for a 64 year old non-smoker going out into the Exchanges under the Affordable Care Act, a silver plan with no subsidies will average about $8420 per year, or about $701 per month is what that works out to be. And that’s a policy that has some pretty high potential out of pocket expenses, as well. $6660 to be exact, is the maximum out of pocket for that policy. So that’s not even necessarily a policy that covers a whole bunch of things. And again, if you’re married, you’ve got a significant other, you’re gonna basically double those numbers. So if you retire prior to age 65 and your employer doesn’t cover any healthcare, you’re going to have to go out into the Exchanges, you’re going to have to get healthcare on your own, and it’s going to be pretty expensive.
If you think your employer offers any kind of healthcare in retirement, definitely look into that. Talk with your employer, talk with your HR department, and find out exactly how those policies would work. And also find out if those policies can also cover your spouse or your partner as well. Because those expenses, obviously, can be very expensive.
What I Do
I help individuals make the transition from working to retirement.
As you approach retirement you will be making some of the most important financial decisions of your life. Most of these decisions don’t get a do-over, once you’ve made them your stuck.
My goal is to help you get the most out of your retirement resources. I do this by coordinating and optimizing what I call the 7 Core Elements of Retirement Planning.
It all starts with a plan!
We use advanced financial planning software to help you understand your retirement cash flow so you know where the gaps are.
Understanding your retirement gap is the foundation to getting the most out out of your retirement resources and avoiding costly mistakes.