You Won't Believe This Estimate For Retirement Healthcare Expenses


Gil Weinrich's podcast at Seeking Alpha cited a new whitepaper from Healthview Services with some shockingly high estimates for how much retirees should plan on needing to spend on healthcare. Underlying their work is the conclusion that people who take care of themselves will live longer (ok, I'm with them there) which will result in a much higher, lifetime expenditure. The logic makes some sense but what about the dollars?

They assume a compounded inflation rate of 4.41% so "today’s 40 and 50-year-old couples (retiring at age 65) can expect their lifetime total healthcare costs to rise to $455,866 and $405,241, respectively (present value)." Uh oh. Medicare Part B costs $135/mo if your joint income below $170,000 so that is actually $270 combined and can go up because of inflation. Medicare Part D is free under $170,000 income but there are some gaps when you're spending gets to a certain level. AARP seems to explain this succinctly;

For 2018, the threshold for entering the doughnut hole remains at $3,750 worth of drug costs. Once a Medicare enrollee passes that limit, he or she is in the coverage gap and will have to pay 35 percent of the cost of brand-name drugs and 44 percent of generics. They will continue to pay those costs until their out-of-pocket spending reaches $5,000. Once they hit that limit, they’ll no longer be in the doughnut hole and will pay no more than 5 percent of their drug costs for the rest of the year.

Medicare Part G (as one example of supplemental coverage) starts at $90-$110/mo. Looking at a few generic estimates from the link in that last sentence, assuming $140 per spouse could be prudent for not getting caught off guard in your planning.

Part B will cost $3240 for the year and Part G will cost $3360 which adds up to $6600 before prescriptions and is close to the $7145 estimate in the white paper. If you start Medicare at 65, how many years do you want to assume? Let's go with 30 years. If the first year costs $6600 then the second year costs $6891 assuming 4.41% inflation. The 30th year then costs $23070 and it all adds up to $389,960 of lifetime spending and this paragraph ignores prescriptions. I repeat, uh-oh.

Up to this point we're mostly talking about Medicare costs that are beyond our control. The one aspect of this that could be within our control is prescription costs. Here's a link that says Americans 65 years and older filling an average of 22.9 prescriptions per year. Up above we saw that $5000 out of pocket becomes a relevant number and you're still on the hook for 5% above $5000. As an active EMT one of the things we do is to ask what medications the patient is taking. We encourage people to print up a list and leave on their refrigerator. It is pretty common for people to put all of their prescriptions in some sort of size appropriate, see through plastic bag. Every now and then someone who is of Medicare age will have no prescriptions and other times we get huge bags (or lists) of prescriptions, I mean what looks like dozens of pill bottles. I haven't even gotten to surgeries or cancer treatment which fortunately I know far less about.

If the $6600 estimate is close to right then $5000 on prescriptions represents almost a doubling in health care expenses. What is your income likely to be if you retire? For the vast majority of potential retirees, $5000 in today dollars is a meaningful amount of money. Nerd Wallet says the average annual income for retired households is $48,000. Paying out $5000 against that income seems like a potential dealbreaker. If you're reading an investment related blog then you are more likely to be above that average. There is no visibility for my wife and me to make more than the $170,000 income if I retire that is relevant to medicare planning so I would view maxing out on prescription costs as being very problematic in financial terms not to mention quality of life terms.

Many (most?) prescriptions are for maladies related to metabolic syndrome (blood sugar issues, hypertension and other conditions those cause) and pain. As we get older, everything else being equal, insulin resistance goes up and that is bad, that is what makes us older. In many (even if not all) instances avoiding insulin resistance, metabolic syndrome and pain can be addressed with behavior modification. Where blood sugar problems, hypertension, obesity and cancers contribute to making us older (@mangan150's daily email today talks about this exact issue) then behaviors to halt or reverse (reversing is possible) these conditions contribute to making us younger. The simplest ways to achieve this are to consume less sugar, skip breakfast and resistance train with weight. Read Mangan for the science but today he looked at a study that followed 200 50 year old men for six years that showed "zero disease was seen in men with the lowest insulin resistance."

If you're lucky enough that simple changes in behavior can reverse these conditions (there are studies galore that show this happens frequently) then not only will you be able to do more things because you're healthier, you'll potentially be saving hundreds of thousands of dollars in your retirement. Being healthier would make your retirement easier, it would make all aspects of life easier and it's just a matter of getting started.