Health Care is Not a Six-Figure Word

"Big scary number"? The reality is that most health care costs in retirement can be successfully addressed in a holistic financial plan.

The predominant narrative around health care costs in retirement is that they are overwhelmingly large, which can lead to avoidance.

However, our research has shown that these costs can be effectively planned for and the conversation about health care costs need not be as scary as previously thought.


HEALTH CARE ISN’T THE LARGEST RETIREMENT EXPENSE


Americans age 75+ 

Retirement Expenses Pie Chart

Break down the costs

A good first step toward helping clients understand health care costs in retirement is to break them down into fixed and variable expenses:

76% of expenses go to premium costs

Fixed costs: Primarily Medicare premiums

  • Constitute the bulk (about three-fourths) of health care expenses for the average retiree
  • Are relatively stable, predictable, and less risky
  • Are incurred monthly and can be budgeted for, similar in nature to a cable or utility bill

Variable costs: Modest out-of-pocket costs and unexpected one-off shocks

  • Typically a much smaller share of overall health care expenses for most retirees
  • Frequency and size of shocks can vary widely. Only a small number of people will have a very high health care expense shock in any given year.

Total annual health care costs are lower than you think

To illustrate the health care expenses you could potentially pay each year, imagine a deck of playing cards. You could fall anywhere in this deck in a given year. The biggest takeaway? The average retiree has an annual health care cost of $3,400.1
 

TOTAL ANNUAL RETIREE HEALTH CARE COSTS

Deck of Cards

Annual variable health care costs at different ages

We hear that health care costs go up as people age, yet the reality is that—for most people—their annual variable costs are surprisingly steady. The average person pays just about the same amount each year for variable expenses in their late 90s as they did in their 60s.

It is only when someone is both in their 90s (especially their late 90s) and has out-of-pocket expenses higher than 95% of everyone else at that age that we see higher variable health care costs.

Annual variable health care costs at different ages

Include Realities of Health Care in your practice

Planning options for health care costs in retirement can include a combination of savings vehicles, assembling a wellness team, insurance solutions, and personalized investment strategies. Dig deeper into our Realities of Health Care resources to discover how you can ease clients’ fears about health care costs in retirement and differentiate your practice.

Presentation Handout
 

Financial Professional Program Guide

Planning for Retirement Health Care Costs

Planning for Retirement Health Care Costs: Is There a Cure-All Solution?

Discusses how plan sponsors can integrate health care cost planning into their retirement benefits strategy.

Contact Us

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RIA & Regional Bank

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Variable Annuity

*Median

1 U.S. Bureau of Labor Statistics, Consumer Expenditure Survey, 2018, Table 1300. Age of reference person: Average annual expenditures and characteristics.

T. Rowe Price estimates based on projected 2020 Medicare premiums and data from the Health and Retirement Study (HRS). All costs are rounded to the nearest hundred.

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