Here’s What You May Pay for Healthcare Costs in Retirement

How should you include the price tag of healthcare costs in your retirement plan? Many people underestimate what their healthcare expenses may be. At times, it’s even to a great extent.

In a March 2017 survey by Voya Financial, 69% of baby boomers said they expected to pay “$100,000 or less” for healthcare expenses in retirement. Among retirees, 66% also expected their healthcare costs to be $100,000 or below.

Retirement Healthcare Comes with a Hefty Price Tag

Those cost expectations are insightful, especially considering that even for affluent households, a 3-day stay in an out-of-network hospital can quickly exceed $50,000, as Ryan Costlin writes in a BenefitsPro article for financial advisors.

Even so, their estimates are far below what organizations like Fidelity and the Employee Benefit Research Institute project. According to Fidelity Benefits Consulting, a 65-year-old couple retiring in 2017 would need an average of $275,000 for their medical expenses.

Their $275k price tag is based on a couple with traditional Medicare insurance coverage. And it doesn’t even include the costs of dental care, nursing home care, or even other potential long-term care services.

In its research, the Employee Benefit Research Institute ran simulations that produced 100,000 observations. They accounted for the uncertainty of how long individuals might live and the unknowns of what their rates of return on investments might be.

The institute found that, assuming they had median prescription drug costs, an average couple would need $273,000 in savings to be 90% confident that they could cover healthcare expenses in retirement. This study assumed the healthcare expenses to be covered would be premiums for Medicare Parts B and D, premiums for Medigap Plan F, and out-of-pocket costs for outpatient prescription drugs.