Retirement calculators focus on withdrawal rates and interest on investments but fail to identify one of the biggest costs of retirement—the cost of health care.
Retirees should be more concerned about how much money they have saved for health insurance premiums and out-of-pocket costs in retirement, an Employee Benefits Research Institute report said.
A couple with 90th percentile drug expenses could need up to $349,000 in savings in order to have a 90 percent chance of covering their retirement health care expenses, EBRI said.
In contrast, a couple with median prescription drug expenses could need up to $165,000 in savings in order to have a 50 percent chance of covering their retirement health care expenses.
How much an individual needs to cover health care costs in retirement can depend on factors such as: when they retire; how long they live after retirement; supplemental health insurance coverage; health status and out-of-pocket expenses; the rate at which health care costs increase and interest rates and other rates of return on investment.
EBRI estimates a man with median drug expenses who wanted a 50 percent chance of being able to cover retirement health expenses would need $72,000 in savings. However, a woman with median drug expenses would need $93,000 in savings if she wanted a 50 percent chance of being able to cover her retirement health expenses.
Because women generally have longer life expectancies than men, their retirement health care savings estimates are higher.
Medicare, which wasn’t designed to fully cover health care expenses, generally only covers 62 percent of a beneficiaries’ costs, EBRI said. Additionally, the availability of private and public retiree health benefit plans is decreasing.
The EBRI report’s estimates don’t include long-term care expenses, expenses not covered by Medicare or individuals that retiree before they are eligible for Medicare.
Retirement health care spending is expected to grow a great deal as more baby boomers retire.
The number of people between 70 and 84 years of age will spike by 50 percent between 2015 and 2025, a report by The Conference Board said.
Long-term care enrollment in particular is projected to grow between 20-25 percent over the next decade, Gad Levanon, a chief economist at The Conference Board, said in a press release.
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