Financial Planning, Retirement, Economy

Retirees’ Healthcare Costs Continue To Rise Rapidly

10/19/18 8:00 AM

iStock-626627280.jpgYesterday we learned that millions of Social Security recipients would likely be able to benefit from the government using an alternative measure of inflation in its annual cost of living adjustment (COLA) calculation. Older Americans’ relatively high sensitivity to medical expenses is one of the main reasons for this, especially since so many people underestimate how much they will have to spend on healthcare in old age. Indeed, scientific breakthroughs and innovations are allowing people to live longer than ever before but these care advancements are rarely provided for free. Although Medicare will offer a lot of financial assistance, retirees will still need to cover a portion of their healthcare expenses, which can be significant.


An updated report from HealthView Services, for instance, estimates that lifetime insurance premiums for a healthy 65-year-old couple retiring this year will total $281,847. That jumps to $363,946 after accounting for the deductibles, copays, and other out-of-pocket expenses that will result from common healthcare needs such as doctor consultations and tests, hospitalizations, and prescription drugs. An alarming way to visualize what these projections mean, according to the report, is that a typical 66-year-old couple can expect 48 percent of their Social Security income to go directly to covering medical bills. 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 4.22 percent during the next decade.


Although that is down from 5.47 percent in the 2017 report (due to a welcome slowdown in the growth rate of prescription drug costs), the 2018 projection is still well above the 2.6 percent annual Social Security COLAs projected to occur over this same time horizon. Further, the report’s authors estimate these price increases would cause a couple’s annual healthcare expenses at age 85 to be 170 percent higher than in their first year of retirement, and living just two years beyond their projected life expectancy could add $37,423 to their total costs. On the bright side, the report’s authors believe that it is possible to prepare for such outlays by “improving one’s health, investing savings, and combining the earnings with a lump-sum investment or regular contributions to a 401(k) plan.”



Sources: U.S. GAO, IBD, HealthView Services

Post author: Charles Couch