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Managing Health Care Costs in Retirement

Posted by Seton McAndrews | CFP®, Vice President Investments
March 28, 2018

Managing Health Care Costs in RetirementIt’s the retirement planning topic that, candidly, cannot be overstated or discussed enough: planning for healthcare costs.

Crucial as this subject is, it arguably does not receive a proportionate amount of attention in retirement planning conversations around the country – which is ironic, given that retirees over the age of 65 are likely to spend a sizable percentage (~13% according to J.P. Morgan) of their total retirement income on healthcare.

Let’s jump right into the numbers.

AARP has created a useful calculator for estimating healthcare costs in retirement, which you can access here: Estimate Your Healthcare Costs in Retirement.

To obtain some estimates from the calculator, we entered a married couple, each age 60, who have not yet retired. The calculator assumes a retirement age of 66 with a life expectancy of 84. The end result may surprise you: the total estimated cost of healthcare in retirement came to $244,423, of which $142,034 would be covered by Medicare. The $244,423 total cost factors-in estimates for payments made to doctors, hospitals and pharmacies – but does not factor-in the couple having any existing health issues and does not take into account potential long-term care needs (discussed below).

According to this calculator, a healthy couple with no need for long-term care can still expect to pay over $102,000 out of pocket for healthcare.

For some readers, $102,389 may seem reasonably within expectations. But for many, this number probably feels like a bit of sticker shock. Our goal at WrapManager would be to replace the feeling of sticker shock with a call to action for planning and preparing. If healthcare costs are not a prominent feature of your retirement or investment plan, perhaps they should be – and we have the resources to help.

Start with Annual Costs

J.P. Morgan has a helpful graphic that can help investors and retirees think about healthcare costs on an annual basis, broken down by Medicare Parts, vision, dental, hearing, and uncertainties. For a 65-year old, the annual cost starts at $5,210, and J.P. Morgan recommends growing that number at an inflation rate of 6.5% per year. You can see how the annual cost is much higher for an 85-year old, given that healthcare costs tend to rise over time:

30 JPM Traditional medicare estimated .png

Contain Healthcare Costs…the Old-Fashioned Way

Planning for healthcare costs can be a frustrating – and perhaps even nerve-racking – undertaking. Annual costs for retirees are high and keep rising, and stories of prescription drug prices skyrocketing seem like a daily occurrence. These costs and uncertainties underscore the importance of having a plan that you review and update regularly.

Some of those costs may be inevitable, but some may be preventable. By most estimates, only about 10% of people over the age of 65 exercise regularly. This number is too low! Study after study underscores the benefits of regular exercise, and a recent study of British cyclists showed that older cyclists are healthier and biologically ‘younger’ than people who don’t exercise regularly. Cyclists had healthier muscles and high levels of other immune cells that help to prevent autoimmune reactions. Plus, they probably have a lot of fun doing it.1

In summary, perhaps the best way to approach the onerous topic of healthcare spending in retirement can be accomplished in two relatively simple ways:

  • Work with an advisor to build a comprehensive plan that factors annual health care costs plus emergency expenses, and figure out what needs to be done to address and pay for these costs. You can reach us today at 1-800-541-7774 or start a conversation over email at wealth@wrapmanager.com.
  • And, consider finding opportunities to incorporate more exercise into your lifestyle. Walking, jogging, biking, dancing, and yoga are all easy ways to move more – and can even be a fun social event to add to your schedule.


  1. New York Times

Retirement Planning Healthcare in Retirement Saving for Retirement