Most retirees are concerned about healthcare costs in retirement. However, many avoid planning for healthcare costs because both media and academic information is overwhelming. Often, though, retirees find that their actual spending on health-related goods and services in retirement differs significantly from projected estimates. So let’s begin with the average annual expenditures actually reported by retirees.

The U.S. Bureau of Labor Statistics completes periodic surveys of American consumers related to actual expenditures – including expenditures on health insurance, out-of-pocket healthcare, and other related expenses in retirement. According to 2014 actual spending data, the average consumer over age 65 reports the following expenditures on health-related services:

Insurance premiums (including Medicare Part B and Medicare Part D) $ 3,951
Prescription drug out-of-pocket expenditures $721
Medical services (including dental and vision out-of-pocket expenses and medical supplies not covered by insurance) $1,181
TOTAL annual expenditures on healthcare $5,853

As you can see from the chart above, insurance premiums account for the largest percentage of health-related expenditures; however, when compared to the average consumption of health services while in retirement, insurance premiums are essential. According to the Urban Institute, the average married couple receives lifetime Medicare benefits of about $427,000. The average single male receives about $197,000 in benefits, while the average single female receives about $230,000.

Costs for health-related services are certainly dependent on a number of factors including your health status, family history, age, employer-provided services, geography, and even your marital status. This report assumes that you fall into the average expenditures listed above. If you believe your actual expenditures will be more, you should plan accordingly. In addition, we’ve assumed that your income in retirement falls below the lowest threshold and you will not be subject to higher Medicare premiums based on income.

Incorporating Long-Term Care into Retirement Planning

The health-related costs we included in this report do not include costs you may incur for long-term care. Not everyone will need long-term care, but the longer you live, the greater your chances of needing some sort of assistance with daily activities. Additionally, specific medical conditions can increase your need for long-term care.

There are four basic types of long-term care:

  • Remaining at home and hiring a service for household or care-related tasks—or asking family and friends to help out.
  • Adult day services facilities that provide respite care for seniors, as well as support services for families.
  • Assisted living facilities which are residential facilities that offer healthcare and personal services.
  • Skilled nursing facilities that provide around the clock medical and personal care to residents.

Many people rely on family for care, most often for short-term care needs. Others are able to combine help from a service, part-time nurse, and/or adult day center to reduce the costs of long-term care or to delay the onset of full-time care.

According to the U.S. Department of Health and Human Services, the average annual expenditures for long-term care across the United States are:

Home Health Care Adult Day ServicesA Assisted Living FacilityC Nursing Home Care
Homemaker ServicesB $41,496 $17,420 $39,516 Private RoomD $83,580
Home Health AideB $45,864 Semi-Private RoomD $74,820

A Based on 5 days per week for 52 weeks.

B Based on 42 hours per week for 52 weeks.

C Based on 12 months in private one bedroom.

D Based on 365 days of residence.

It’s critical to plan for long-term care needs, even if you don’t expect to have them. Of course, your first defense is to remain healthy as long as possible. In addition, you should begin to consider your opportunities for securing care, such as:

  • Family and friends;
  • Self-funding from your savings;
  • Purchasing long-term care insurance;
  • Purchasing a life insurance policy with a long-term care rider;
  • Moving into a continuing care facility where you can transition from independent living into a skilled nursing facility at the appropriate time;
  • Securing a reverse mortgage or home equity loan.

Planning for Healthcare in Retirement

While the numbers related to healthcare in retirement can be shocking, it’s important that you begin to plan as early as possible. Now that you have an idea of the costs you can expect over your retirement horizon, you can begin taking a few steps in preparation:

  • If you haven’t already, commit to a healthy lifestyle. Moderate amounts of exercise and modest changes in eating habits can turn into significant health benefits.
  • Discuss healthcare costs with your financial professional. These costs should be a part of your retirement income and spending plan.
  • Prepare for unexpected expenses by setting aside savings dollars for potential healthcare needs.
  • Do your homework. Learn what Medicare plans cover, as well as available resources in your community that can help you save on costs.