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Here's What You'll Pay for Health Care In Retirement

May 19, 2016

Forget about retiring on Social Security. Health care costs alone will devour the entire lifetime benefits—and then some—of a 45-year-old couple when they retire, according to projections released Wednesday by HealthView Services, a Danvers, Mass.- based company that provides retirement health care cost data and tools to financial advisers.

Social Security payments will stretch farther for current retirees, but the numbers are still stark: In 2016, the average 66-year-old couple will require 57% of their lifetime, pre-tax Social Security benefits to pay for health care costs, according to HealthView Services. The average 45-year-old couple, by contrast, will need 116% of lifetime Social Security payments to cover health care costs.

Blame it on inflation. Health care costs typically rise around 5% to 7% a year, while the annual Social Security cost-of-living adjustment is typically around 2% or 3% a year. This gap adds up over the decades.

Total retirement health care expenses for that 45-year-old couple planning to retire at age 65 will come to $592,275 in today’s dollars and $1.6 million in future dollars, HealthView Services projects. The projection assumes the male member of the couple will live to 87 and the female to 89.

The total tab includes premiums for Medicare Part B, which covers doctors’ visits, Part D, which covers drugs, and Part F, which is the most comprehensive supplemental insurance. It also includes expenses not covered by Medicare, such as dental work and hearing aids. Notably, it does not include long-term care costs. Medicare does not pay for long-term stays in nursing homes, or for assisted living facilities.

Of course, these averages won’t reflect everyone’s experience. People’s individual health status will influence how much they pay. What’s more, not everyone will choose to buy a Part F Medigap policy. It’s a popular but expensive choice, with monthly premiums that vary widely by region but average around $200.

While expensive, Part F plans eliminate a lot of the uncertainty of medical expenses. Premiums are predictable and cover most of beneficiaries’ out-of-pocket expenses. Without a supplemental plan, beneficiaries could be on the hook for even more if they have a big medical episode, such as a stroke, or a serious diagnosis like cancer.

On Plan F, “if you never have a problem and drop dead at 110, you’ll have wasted a lot of money,” said Ron Mastrogiovanni, founder and CEO of HealthView Services. A more likely scenario, he said, is that, “We’re not going to stay healthy throughout retirement.”

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