The High Cost of Growing Older

How to estimate your retirement medical expenses.


Uncovered expenses. Retirees have some common medical needs that are not covered by Medicare. Dental care, eyeglasses, and hearing aids are among services seniors frequently require that Medicare does not pay for. Retirees need to budget for these expenses or consider a supplemental policy that covers them.

Long-term care. None of the above health expense estimates include the savings needed for long-term care. Medicare pays for a maximum of 100 days of nursing home care before retirees absorb the entire cost themselves. When nursing-home costs are included, the amount needed for a typical couple's medical bills increases from $197,000 to $260,000 with a 5 percent risk of exceeding $570,000, according to Boston College estimates. Long-term-care insurance can help protect retirees from some of these catastrophic costs, but at a hefty price. Fidelity Investments calculates that a couple, both age 65 in 2008, would need $85,000 to pay for long-term-care insurance throughout retirement. "Some people use it to protect their assets, to avoid spending their assets," says Fronstin. "Very low-income people don't need it because they will qualify for Medicaid."

Healthcare inflation. Future retirees are likely to spend far more of their budget on healthcare expenses than current retirees. For a couple planning to retire at age 65 in 2019, the lifetime healthcare cost estimates jump to $352,000 for a 50 percent chance and a whopping $567,000 for a 90 percent chance of being able to pay for Medicare Part B and D premiums, Medigap premiums, and out-of-pocket prescription drug expenses, EBRI found. "The number depends on how long you live, whether or not you get coverage to supplement Medicare, and how much costs and premiums go up," says Fronstin.

Median out-of-pocket costs for the typical senior are expected to rise from about $2,600 in 2010 to $6,200 in 2040 in constant 2008 dollars, according to a recent Urban Institute report. Retiree incomes, especially as traditional pension coverage continues to decline and workers fail to save enough in 401(k)'s, are unlikely to keep up. "Premiums are going to keep increasing for Medicare, Medigap, and employer-provided retiree health benefits and Social Security benefits won't be keeping up," says Richard Johnson, a senior fellow at the Urban Institute and coauthor of the study. "Seniors have to factor those likely cost increases into their budgeting." The Urban Institute estimates that seniors in 2040 will spend a median of 19 percent of their income on healthcare in 2040, up from 10 percent today.