One wildcard that worries most retirees is the cost of health care. That concern is understandable: the National Coalition on Health Care reports that health care spending continues to rise at the fastest rate in U.S. history. In 2007, total national health expenditures were expected to rise 6.9 percent -- two times the rate of inflation--and U.S. health care spending is expected to increase at similar levels for the next decade. Consequently, incorporating estimates for health care expenses is a critical part of a retirement income planning.
But just how much are your clients likely to spend on health insurance and care? The Employee Benefit Research Institute addresses that question in its May 2008 Issue Brief, entitled "Savings Needed to Fund Health Insurance and Health Care Expenses in Retirement: Findings from a Simulation Model" by Paul Fronstin and Dallas Salisbury, EBRI, and Jack VanDerhei, Temple University and EBRI Fellow. Their conclusions:
A male age 65 in 2008 and retiring at age 65 will need anywhere from $64,000 to $159,000 in savings to cover health insurance premiums and out-of-pocket expenses in retirement if he is comfortable with a 50 percent chance of having enough money and $196,000 to $331,000 if he prefers a 90 percent chance.
Women age 65 retiring in 2008 will need anywhere from $86,000 to $184,000 in savings to cover health insurance premiums and out-of-pocket expenses in retirement if they are comfortable with a 50 percent chance of having enough money, and $223,000 to $390,000 if they prefer a 90 percent chance.
Persons currently age 55 will face even higher costs, the authors conclude. The planning implications are obvious: clients and their advisors need to include realistic health care cost estimates in their projections or they risk overlooking a rapidly growing expense.
The EBRI study is available at: www.ebri.org/pdf/EBRI_IB_05-2008.pdf.