Paying for Health Care in Retirement

Here are the latest estimates for retiree health care costs after age 65

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Baby boomers who have lost their health insurance often struggle to find affordable coverage until Medicare kicks in at age 65. But even qualifying for government health insurance won’t completely quell your money worries. While Medicare is far more affordable that buying an individual health insurance policy, the program still has significant premiums and out of pocket costs for retirees.

A man who retires this year at age 65 and has median drug expenditures would need $86,000 in savings to have a 50 percent chance of having enough money to pay for health care expenses throughout his retirement, according to recent calculations by the Employee Benefit Research Institute (EBRI). That number assumes that the man doesn’t have employment-based retiree health benefits, but purchases Medicare Part B medical insurance, Part D prescription drug coverage, and a Medigap policy. Women, because they tend to live longer, need to save even more. A 65-year-old women scheduled to retire this year would need to accumulate $125,000 to have a 50 percent chance of being able to pay all her medical bills. If these individuals want a 90 percent chance of affording all their health expenses, the man would need $177,000 and the women should save $221,000, according to EBRI.

Couples both age 65 in 2009 will need $210,000 to have a 50 percent chance of affording their medical needs, EBRI found. That number is similar to a Fidelity estimate in March that found that a 65-year-old couple retiring in 2009 will need approximately $240,000 to cover medical expenses throughout their retirement. However, EBRI went on to state the couple will need $338,000 to have a 90 percent chance of being able to pay their medical bills.

For someone currently age 55 who plans to retire at age 65 in 2019, the costs are even higher. To cover Medigap premiums, Medicare Part B and D premiums, and out-of-pocket prescription drug expenses in 2019, a man with median drug expenditures would need $144,000 and a woman would need $210,000 in savings to have a 50 percent chance of having enough money to cover health care expenses in retirement, according to EBRI calculations. For a 90 percent chance of having enough savings, a man would need $297,000 and a woman should save $370,000. Couples will need $352,000 for a 50 percent chance and a whopping $567,000 for a 90 percent chance of being able to pay for all their health care needs.

These estimates do not include the savings needed for long-term care or the expenses associated with retiring before becoming eligible for Medicare, both of which could rapidly escalate health care costs. Above average prescription drug costs would also inflate these numbers. However, some workers can get by saving less if they choose to work during retirement and receive health benefits from their company or if they are eligible for subsidized retiree health benefits from a former employer.

For more information, see:

  • 8 Tips for Paying for Health Care in Retirement
  • 7 Ways Laid-Off Baby Boomers Can Find Health Insurance
  • Most Medicare Part D Enrollees Don’t Choose the Lowest Cost Drug Plan