The cost of health care in retirement is substantial, and many boomers feel they aren’t prepared to meet those costs, a report released Tuesday by the Insured Retirement Institute found. Almost two-thirds of boomers aren’t confident they have enough saved to cover the cost of health care after they retire. Younger boomers are especially concerned; 72% of those between 50 and 54 say they are worried about being able to cover costs.
Those costs can be considerable. The report, “Health Care Expenses and Retirement Income How Escalating Costs Impact Retirement Savings,” found that a healthy 65-year-old man can expect to pay $350,000 for health care expenses, including premiums, for the remainder of his life. A 65-year-old woman can expect to pay 13% more at $417,000. Health care expenses increased 5.75% in the 12-month period ending September 2011.
IRI also found that the average person on Medicare can expect to have out-of-pocket medical expenses of over $4,300 per year. Further, the 2012 Social Security cost-of-living adjustment of 3.6% represents an average $42 per month or $500 per year. In 2012, Medicare Part B premiums will account for over 8% of the average Social Security benefit, IRI found.
“Future health costs–and, therefore, the amount to invest to ensure they are covered–require various assumptions for inflation, health status, and other variables,” IRI wrote in the report. “Although there are various estimates for the present value of the costs of future health care for retirees, the dollar amounts are staggering.”
IRI suggests purchasing an immediate or deferred annuity with a guaranteed minimum withdrawal benefit to supplement Social Security income. Another strategy for boomers who already have an annuity or plan to purchase several years ahead of their retirement is to use income from that annuity to supplement a separate investment.
“Boomers are already concerned about their ability to cover their lifelong medical expenses during retirement–therefore, they will likely be open to discussing ways in which to fund the large outlay that will be required,” the report concluded.