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Paying for a healthy retirement

By Jennie L. Phipps · Bankrate.com
Tuesday, November 30, 2010
Posted: 3 pm ET

Estimates of retirement health care costs are daunting. Better factor them into your retirement planning.

No matter who is doing the estimating, the bottom line is similar -- about $250,000 for a couple retiring at age 65 and relying on Medicare, plus Medigap insurance. I broke the specifics down earlier this year, but here's an overview of the major health care expenses retired households face:

  • Premiums for Medicare Part B, which covers physician and outpatient services. This will be deducted automatically from your Social Security
  • Medicare Part D, which covers drug-related expenses.
  • Medigap or retiree health insurance  premiums
  • Copayments related to Medicare-covered services for expenditures are not covered by Medigap or retiree health insurance
  • Health care services that not covered by Medicare or other insurance, including home health care and nursing home costs.

A study by the Center for Retirement Research at Boston College reported an average price of $197,000 for these basic costs, not including nursing home care. With nursing home care, the average rises to $260,000, with a 5 percent risk of costs reaching $570,000.

The study shows that being healthy and living a long time is more expensive than suffering at a relatively young age from such life-shortening diseases as diabetes, cancer, lung disease, heart disease and stroke. If both halves of the couple suffer from one of these chronic diseases at 65, then their lifetime health care cost estimates drop to $220,000, with 5 percent expected to spend more than $465,000. The estimates are lower because the unhealthy can expect to die about 30 percent sooner than their healthier cohorts -- a depressing finding.

Another study released today by the Employee Benefit Research Institute, a nonprofit think tank whose membership includes pension funds, insurers, banks and mutual fund companies, says that retiree health costs are going down slightly because of changes in the Patient Protection and Affordable Care Act of 2010. The study looks at single people and concludes:

  • Single men retiring at age 65 in 2010 will need between $65,000 and  $109,000 in savings to cover health insurance premiums and out-of-pocket expenses, if they want a 50-50 chance of having enough money. If they want a 90 percent chance of having enough to cover these expenses, they'll need between $124,000 and $211,000.
  • Single women retiring at age 65 in 2010 will need anywhere from $88,000 to $146,000 for a 50-50 chance of having enough money, and $143,000 to $242,000 if they prefer a 90 percent chance.

The bottom line is that we all better start socking away more money to pay docs and hospitals. The Center for Retirement Research recommends against scrimping on Medigap or long-term care insurance. If you delay buying it when you are younger and don't need it, by the time you reach the inevitable point where you do need it, the center says you may not be able to buy it -- or if you can, you'll pay through the nose.

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