Will Health Care After Retirement Really Cost More Than $200,000?

photo illustration of prescription pills and money - retirement health careThe cost of retirement health care looks daunting, especially when you add it all up and get a huge number, which is what the Employee Benefit Research Institute (EBRI) did this week.

EBRI, a think tank funded by pension funds, insurers, banks and mutual fund companies, frequently releases scary numbers, apparently designed to motivate people to save more. It must work -- certainly calculations like this get a lot of media attention. This time EBRI calculated that:
  • A single man retiring at age 65 in 2010 will need anywhere from $65,000 to $109,000 to cover health insurance premiums and out-of-pocket expenses for a 50% chance of paying health care expenses until he dies, which actuaries say is likely to be at 83. If he wants a 90% chance of having enough to cover his health care expenses, he'll need $124,000 to $211,000.
  • A single woman retiring at age 65 in 2010 will need between $88,000 and $146,000 to have a 50% chance of having enough money to pay these costs. She'll need between $143,000 and $242,000 for a 90% chance.
That sounds like a lot of money -- and it is -- but if you calculate it as a monthly expense, it doesn't sound like quite so much. A man currently aged 65 can expect to live, on average, until age 83 and the average 65-year-old women will live until 85, according to Social Security Administrationdata.

For sake of simplicity, if we assume that both of these people will live another 20 years, then the single man will need between $270 and $450 per month to pay his health care bills. The woman will need between $366 and $608 per month to pay hers. Of that amount, about $275 will be spent each month on Medicare Part B, a Medigap policy, and Medicare Part D, the prescription drug plan. For slightly less, a Medicare recipient can enroll in a Medicare Advantage Plan, which combines Part B and Part D with the features of Medigap plans plus vision and dental insurance. (For a good explanation of what to choose, go to Caring.com.)

Social Security is indexed for inflation, so if these people are getting $1,000 a month from Social Security -- about the average in 2010 -- their health care bill will cost them somewhere between 25% and 60% of what they receive from Social Security for the rest of their lives.

That could be pricey if these folks live only on Social Security, but if that's the case, they'll almost certainly qualify for assistance from various government agencies. To find out how much, use this Benefits CheckUp from the National Council on Aging. As a general rule, their income must be less than $16,245 if single and $21,855 if married to qualify.

Anyway, if all these numbers make your head spin, you're not alone. And certainly, no matter how you calculate it, health care isn't cheap. But adding everything up and putting it out there as a daunting number doesn't do anybody any favors.
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