Expect Health Care To Be 33% of Your Income in Retirement

Day in & Day out we are bombarded by forms of media that are always advertising about the correct way to retire. The typical advice touches on planning for taxes, food, vacations, travel, upgrading or downsizing your house, helping your kids out, and other things of that nature.

But what is missing?

Health Care.

Recently there was an article from Life Inc. about a study Credit Suisse performed on expenditures by age group and the chart below sums up the study best:

In light purple it can be seen that US Citizens who happen to be 60 + years old spend 33% of their income on health goods and services.

That is one-third of their income!

There are no other expenses listed in this report that even come close to Health Care and the next highest expense after Health Care is Leisure at 22% which can be easily adjusted from year to year.

This report highlights the fact that Health Care is the #1 expense for those in retirement over every possible day to day expense by at least 11%.

There are others who may say that taxes are a larger percentage, but how many people pay 33% of their total assets to the government on an annual basis?

Not many. How many people will spend roughly 33% on their own health?

Just about everybody.

Let’s dive into this 33% further by looking at an example provided by HealthView Services and its own RetireMark Calculator:

If we take a 55 year old male who:

• plans on retiring at age 65
• plans to live to age 90
• is healthy throughout retirement
• wants to be fully insured = Medicare Part A, B, D and a MediGap Plan
• earns $85,000 or less per year throughout retirement
• lives in Ohio

He can expect to pay roughly $476,500 throughout the course of retirement for health care.

Please note that where you reside & how much you earn are just as important as your overall health conditions when it comes to future costs.

Now, if we use simple math to see what is going to be needed throughout retirement to cover Health Care we can take the $476,500 and divide by 33% which is the figure from Credit Suisse we can conclude that this person will need roughly $1.44 million over the 25-year retirement period which will average out to needing an income of $57,757.57 per year.

That $476,500 averages out to roughly $1,600 per month or $19,060 per year for Medicare and Health Care alone while leaving $38,697 of income remaining for all other expenses annually.

From our example male who happens to be 55 today we now know what he will need for housing costs, food, taxes, and other expenses throughout retirement.

Please keep in mind that earning or making more income throughout retirement can be a double edged sword. There are income limits that Medicare has imposed on the premiums and if you earn to much income you can expect to see your costs increase anywhere from 25% to 300%

To put it simply, the more money you make, the more you may have to pay for Health Care. (See MAGI brackets)

Planning for Health Care while in retirement is one of the surest ways to know if you’ll have enough money saved to live the kind of retirement you always wanted and as a reminder, your health in the end will be the most important thing that you will have.

But please keep in mind that with the rising inflation rates and changes that do come with Medicare this is never an exact science. These are the reasons why people are encouraged to see their Financial Advisor at least on an annual basis