Healthcare In Retirement…For Real

For our retired and pre-retirees, I wanted to share some insights to the cost of healthcare in the retired years. What I am sharing is from a webinar I listened to, provided by T. Rowe Price.  Years for retirement are expected to range 20 to 30 years.  Published articles estimate the cost of healthcare in retirement at $413,000, a few years ago the number I read was $250,000+.  Wow, that is something to think about. Well, how about this cost estimate in retirement…$90,000 for cable and internet.  I would suggest none of us give that a thought.

To give this some perspective, the $413,000 number is not a lump sum, much like the cable and internet number. The costs are incurred along the way. It is also not a “typical” number, but more of a highest cost/extreme estimate and it is for a household, not an individual.

When averages are discussed, one needs to recognize typical vs. extreme. Typical averages would mean 50% experience minimum costs while 50% experience maximum costs. In the extreme…90% experience minimum costs, while 10% experience maximum costs. Traditional annual Medicare costs for the typical average is $3,500 and for the extreme is $8,300.  For medicines, the typical would be $6,500 and the extreme would be $11,300.

So, why the big differential you may ask? Healthcare has fixed costs and then there are variable costs. Fixed costs are where $3 of $4 are for premiums. Variable costs are for emergencies and let’s say medical shocks, the extreme. It was estimated that 2% will experience a variable cost greater than $25,000.

To conclude, the $413,000 estimate, is not an immediate lump sum, it is incurred over the retirement years and only a small percentage of retirees may expect to hit the extreme healthcare costs in the estimate.

So should you read about the costs of healthcare in retirement, hopefully this will give you some perspective to keep in mind on what to expect.    I must add that custodial, assisted living and nursing home costs are not included in the estimate, and Medicare does not cover these expenses.

My firm does recommend, that should you be eligible, you consider health savings accounts (they have a triple tax benefit) and long-term care protection for potential custodial, assisted living and nursing home care.  It seems we are going to be living longer, but at an expense.