Estimating Retirement Medical Expenses

A 6-figure sum may be necessary to cover out-of-pocket health costs in retirement, studies say

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A typical 65-year-old married couple will need $197,000 to pay for medical costs throughout retirement including insurance premiums, out-of-pocket costs, and home health care expenses, according to new calculations by the Center for Retirement Research at Boston College. That figure doesn’t even include nursing home care. When potential long-term care costs are factored in, the figure a typical couple may be responsible for increases to $260,000, with a 5 percent chance of exceeding $570,000, according to the study, which was underwritten by Prudential.

[See Retiree Health Care Costs Expected to Double by 2040.]

Other researchers have calculated similarly alarming numbers. The Employee Benefit Research Institute determined that a couple, both age 65 in 2009, will need $210,000 to have a 50 percent chance of affording their retiree medical expenses and $338,000 to have a 90 percent chance of being able to pay all their health care bills throughout retirement. And Fidelity Investments estimates that a 65-year-old couple who retired in 2009 will need approximately $240,000 to cover out-of-pocket health care costs in retirement.

[See 8 Tips for Paying for Health Care in Retirement.]

Future retirees could face even higher costs. A recent Urban Institute report projected that median out-of-pocket costs for the typical senior could rise from about $2,600 in 2010 to $6,200 in 2040 in constant 2008 dollars. I asked researchers from each of these organizations how we should go about budgeting for health care costs in retirement. Check out The High Cost of Growing Older.