Health care costs in retirement: They could exceed $300K for women, $264K for men
Someone who retires at age 70 can expect to pay between 28% and 29% less in health care costs than if they retired at age 65.
A healthy 65-year-old man can expect to incur up to $264,000 in health care expenses during retirement, while a woman retiring at age 65 may spend up to $300,000, according to a projection by consulting and actuarial firm Milliman Inc.
The 2022 Retiree Health Cost Index projects total premiums and out-of-pocket expenses for medical and prescription drug costs in retirement and looks at cost variations across sex, geography and the two most common coverage options for Medicare-eligible retirees.
According to Milliman, a healthy 65-year-old man with a Medicare Advantage plus Part D (MAPD) plan will spend $137,000 in health care expenses, while the same retiree with Original Medicare with Medigap (Plan G) and Part D is projected to spend $264,000. A corresponding woman on MAPD will spend $158,000 and on Original Medicare will spend $300,000. That equates to savings needed of between $92,000 and $177,000 for a man and $103,000 and $194,000 for a woman. Higher health care costs for women are largely the result of longer life expectancy when compared to men.
Related: How prepared are your employees for health care expenses in retirement?
“There are a wide variety of reasons that health care expenses for retirees can differ – geography, coverage type, and age at retirement are just a few of the variables,” said Robert Schmidt, a principal at Milliman and co-author of the Retiree Health Cost Index. “Health care costs are an important, and sometimes overlooked, component of overall retirement planning, and it’s important for retirees to understand the options available to them and make the best decisions for both their health and finances.”
While health care costs can be influenced by factors out of a retiree’s control, such as health status and longevity, factors that are under a retiree’s control include where they choose to live during retirement or which benefit plan they choose.
The study noted that retiring before age 65 generally will increase health care costs about 53% for Original Medicare enrollees and 77% for MAPD enrollees who retire at age 60. Conversely, delaying retirement allows retirees to boost retirement savings and continue earning income and employer-sponsored benefits, including health care, the report said. This can also mean significant health care cost savings. For example, someone who retires at age 70 can expect to pay between 28% and 29% less in health care costs than if they retired at age 65, depending on which Medicare plan they choose.
In addition, healthier retirees can expect to spend between 12% and 28% less on health care costs, while retirees with below average health can expect to spend between 18% and 45% more on health care costs. Finally, the report found living five years longer increases health care spending by approximately 40%, while living five years less reduces health care spending by approximately 32%.
Kristen Beckman is a freelance writer based in Colorado. She previously was a writer and editor for ALM’s Retirement Advisor magazine and LifeHealthPro online channel.