The takeaway. Health care expenses could be your biggest budget item in retirement. Estimates vary, but over the course of a 20-year retirement, a couple could spend in the $200,000 range–excluding long-term care costs. This post offers action steps to handle these expenses and protect against Medicare cuts.
Last month, Mr. Boomer-Money-and-More got into a big fight with a salad.
(You can’t make this stuff up.)
I myself have never been on the losing end of a salad fight. As such, I can’t say exactly how it went down. Or more accurately, how it didn’t.
His pugilistic picnic shows the problem of budgeting for health care expenses during retirement.
He spent a night at the hospital, had two x-rays, and was discharged with a prescription in the morning. Other than the prescription, we still don’t know how much the salad shenanigans are going to ultimately cost. But here’s what we do know.
Even with Medicare, your out-of-pocket health care expenses could be a bundle.
(I’m about to be sick) 😐
Even though you hit 65, and Uncle Sam pays a portion of your health care via Medicare, you’ll still have plenty of out-of-pocket costs. These include deductibles, coinsurance, and general costs for:
- Medicare Part A (inpatient insurance),
- Medicare Part B (outpatient insurance),
- Medicare Part D (prescription drug coverage); and—last but not least-
- Costs not covered by Medicare, like most dental procedures, routine eye exams, hearing aids, and copays.
Estimates of retirement health care expenses.
(I definitely feel sick.) 😥
Three organizations have offered estimates. These are for a 65 year-old couple’s out-of-pocket costs over a 20-year retirement. (If you’re single, divide these numbers in half.) All three estimates exclude any long-term care costs.
- In 2010,, Boston College estimated $197,000;
- In 2018, Fidelity Investments estimated $280,000;
- In 2019, yours truly estimates $213,000. (My methodology is explained in the note at the end of the article.)
You get the drift. You’re looking in the $200,000 range.
A couple’s out-of-pocket medical expenses will likely be north of $200,000.”
So how do you plan for these expenses?
Here are some action steps to meet health care expenses
If these expenses seem high to you, you might want to revise your plans.
- If you’re still working, continue working a little longer.
- If you’ve stopped working, consider taking a part-time job.
- Consider delaying Social Security. You’ll get a larger monthly check if you do.
- Finally, pull out your copy of Seven Simple Steps to Not Outlive Your Money. (It’s available to subscribers; you can unsubscribe at any time.) Look at the sections on how Boomers are increasing their incomes and reducing their expenses.
But don’t forget the biggest step of all.
The biggest step of all: vigilance protecting Boomer health care.
Boomer, pay attention when you hear the words “proposed Medicare cuts.” You might even consider plugging those words into Google every now and then.
If you hear language like, “we’re not cutting benefits to Boomers, only how much we pay the providers (aka doctors and hospitals)“–take no comfort. Rather than accept below market fees, providers will simply quit taking Medicare patients altogether..
As a big government program, Medicare will always be a target for trimming.
So stay vigilant.
Boomerhood is powerful!
And lastly, remember the Boomerhood power that’s in our DNA. Recall that barely out of our teens we got the national voting-age changed from 21 to 18. Slogan: “old enough to fight a war, old enough to vote.”
How extraordinary was that?!!!!
We’re not now, nor have we ever been, a generation to be trifled with. We’ve got the numbers to marshal big votes and we show up at the polls.
Power on, Boomer.
We got this.
Notes: Methodology for projecting Boomer health care costs over a 20-year retirement.
I used the Department of Labor’s Consumer Expenditure Survey data to assess out-of-pocket health care expenses for those 65 and older. As discussed in a previous post, similar to the US Census Survey, the Department of Labor’s Consumer Expenditure Survey samples a variety of Americans on:
The survey showed that out-of-pocket health care costs for 2017 (the most current data available) were $6,620 for those 65 and over. Moreover, since 1988, these out-of-pocket expenses had been increasing by 4% a year.
To see how much a couple’s out-of-pocket expenses would be over a 20-year retirement, I took the current out-of-pocket costs of $6,620 and increased this amount by a compound interest rate of 4% a year for 20 years.
Results showed that a couple would spend approximately $213,000 on out-of-pocket health care costs during a 20-year retirement.
These data provide a ballpark of what retiree health care expenses might be. Similar to the results of both Fidelity and the Boston College Center for Retirement Research, these results provide further confirmation that retiree out-of-pocket health care costs will be somewhere north of $200,000.