Near Retirees Can Expect $400K in Health Care Costs

Average expected retirement health care costs for Medicare B, D and Supplemental insurance for a healthy couple retiring this year at age 65 will be $266,589 in today’s dollars, according to HealthView Services’ “2015 Retirement Health Care Cost Data Report.”

For a couple retiring in 10 years at 65, expected costs will rise to $320,996. However, retirement health care costs are even higher when expected dental, vision, hearing, co-pays and all other out-of-pocket costs are included. With these additional components, total projected retirement health care costs rise to $394,954 for a couple retiring this year at age 65. For a 55-year-old couple retiring in 10 years, total lifetime health care costs are expected to be $463,849.

The 2015 report reveals an increase in total year-over-year projected lifetime retirement health care costs of approximately 6.5%, not including the cost of long-term care services. “The report demonstrates that health care costs will account for a very significant and growing portion of retirees’ budgets,” says Ron Mastrogiovanni, founder and CEO of HealthView Services. “The data also shows that Medicare-related costs are only part of the story. Retirees need to plan for health-related expenses not covered by Medicare, and the potential impact of income-based Medicare surcharges.”

With Social Security being the most significant source of retirement income for many, the report shows health care will account for a rising percentage of Social Security benefits. Drawing upon year-end 2014 data, for the average 66-year-old couple retiring this year, who are eligible for full Social Security Benefits, HealthView Services’ Retirement Health Care Cost Index reveals total health care costs will consume 67% of their lifetime Social Security benefits. For a couple retiring in 10 years at 65, approximately 90% of their lifetime Social Security benefits will be required for health care expenses. The index is calculated based on average Social Security benefits of $25,332 in 2014, and assumes annual 2% cost of living adjustments (COLA). The data also assumes that a couple optimizes Social Security payments by only starting to draw benefits at their full retirement age.

“The report shows retirement health care costs are on track to exceed the Social Security benefits many retirees are relying on,” adds Mastrogiovanni. “While wealthier Americans have other sources of income to draw upon, middle class Americans with more modest savings are likely to face difficult choices unless they have planned ahead.”

While most would expect healthy Americans to have lower lifetime health care costs, the reverse is true. HealthView’s data shows that total retirement health care costs are expected to be lower on average for someone suffering from diabetes, because of shorter life expectancy. For example, it reveals that total retirement health care costs for an average 55-year-old male with Type II diabetes living in Illinois will be approximately $118,000 compared to $223,000 for his healthy counterpart, primarily reflecting expected longevity from age 76 to age 86.

The report highlights the impact of a range of factors—including health, gender, location, income and time to retirement—on individual costs.

According to the report, by saving $429 a month for 10 years at 55, an average couple will be able to accumulate sufficient savings to cover lifetime Medicare part D costs, reducing the burden of health care costs in retirement. By saving $1,206 a month at the same age, they will have sufficient savings to cover Medicare D and supplemental insurance, dramatically reducing the impact of health care costs in retirement. These savings rates assume an average 6% return on investment.

The report draws upon HealthView Services’ actuarial and physician reviewed retirement health care cost calculation methodology, year-end 2014 health care cost data from 50 million cases, and a range of additional data sources. HealthView Services is a provider of retirement health care cost data and Medicare, Social Security, and long-term care retirement planning tools for financial advisers and individuals.