What Can I Expect to Pay for Health Care in Retirement?

If you’ve just retired or are about to retire, you might be wondering about healthcare costs.

Your concern is understandable—and valid. Retirees have faced the reality of healthcare cost growth for years.

Currently, retirees allocate 11% to 14% of average annual expenses to health care, depending on age.

Will these costs prevent you from enjoying retirement? Probably not.

Pre-Medicare

According to a joint study by Mercer Health & Benefits and the Vanguard Group, the median cost of healthcare premiums for a 64-year-old on a Silver plan—a popular “mid-range” plan with moderate premiums and costs for care—is $8,000 a year. Premiums are based on age and increase annually.

Out-of-pocket costs, including dental and vision, can add $4,800 to the healthcare load, bringing the total median cost of health care to $12,800.

Projected annual inflation for pre-Medicare healthcare plans is 4.5%.

Location Factor

Of course, healthcare costs vary by state.

Relative to other states, Oregon is considered “medium cost” for health care. Washington is just a bit higher.

But with about half the carriers in Oregon today than there were just a few years ago, higher costs may be on the horizon.

Medicare

According to the Mercer-Vanguard study, a typical 65-year-old woman on Medicare with an income below $85,000 will pay about $5,200 for health care.

However, Medicare surcharges—premium adjustments created under the Affordable Care Act that apply to Medicare Parts B and D—can greatly increase premiums, particularly for high-income retirees.

Calculated by the Social Security Administration (SSA), these surcharges are based on tax returns filed two years ago. Individuals with incomes over $85,000 and joint filers with incomes over $170,000 are subject to additional premiums.

Projected inflation for Medicare is 5.6%, a bit higher than for pre-Medicare, but it eventually grades down to 4.3%.

The Silver Lining

While increased healthcare consumption and faster-than-inflation growth mean that healthcare costs will increase during retirement, there’s good news.

Post-retirement spending in virtually all other categories—transportation, housing, and entertainment—tends to decline with age, which will more than offset your increased healthcare costs.

And even if healthcare growth rates are materially higher than inflation, they are unlikely to outweigh other spending declines.

Peace of Mind

Pre-Medicare, expect to pay about $13,000 annually in total healthcare costs. With Medicare, expect to pay $5,000 to $10,000 annually, based on income.

The upside is that no matter when you retire, decreased spending overall will likely offset healthcare costs.

The financial plans we build together with clients factor in these healthcare and other costs, with the goal of helping you enjoy many happy and prosperous years of post-retirement living.

 

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