Many expenses decline during retirement, which can put less strain on one’s savings. For example, a U.S. Government Accountability Office (GAO) study estimated that after retiring, the average 65- to 79-year-old's household spending falls to $41,904 a year, only 77 percent of the average annual outlays for adults ages 50 to 64. This decline, according to the GAO researchers, is due to lower overall spending in a wide variety of areas such as housing (mortgage paid off) and transportation (no more commuting to work). However, the one outlay that does tend to rise for retirees is healthcare.
Indeed, medical innovations are allowing people to live longer than ever before but these care advancements are rarely provided for free. Although Medicare can help, retirees will still need to cover a portion of their healthcare expenses, which can be significant. A new report from HealthView Services, for instance, estimates that lifetime healthcare premiums for a healthy 65-year-old couple retiring this year will total $321,994 in today’s dollars. That rises to $404,253 after accounting for deductibles, copays, hearing, vision, and dental cost sharing. What is worse is that the cost of care is rising rapidly.
In fact, the report forecasts that healthcare outlays for retirees will rise at an average annual rate of 5.47 percent during the next decade. That is roughly three times last week’s inflation reading and more than double the annual Social Security cost-of-living adjustments (COLAs) projected to occur over this same time horizon. On the bright side, the report’s authors suggest that the savings required to cover old-age healthcare expenditures may be modest for people utilizing an income replacement ratio of 75-85 percent, adding that “retirees can significantly reduce costs by optimizing [investment] portfolios to address healthcare needs.”
Sources: U.S. GAO, Investor’s Business Daily, HealthView ServicesPost author: Charles Couch