Interesting way of looking at health care costs. I can help you save for this! Pat
A retiree in good health can be expected to live longer than a smoker or someone with diabetes
The healthier you are, the more money you need to save for health care in retirement.
That’s the counterintuitive finding of new research by the Empower Institute, which is sponsored by Empower Retirement, a division of Great-West Financial that administers $440 billion in retirement plans.
“Excellent health, ironically, can actually raise an individual’s lifetime health spending” simply because healthier people can generally expect to live longer, says the report, released Wednesday.
For example, Empower calculates that, a 65-year-old man with Type 2 diabetes should have about $88,300 accumulated for medical costs, versus $114,900 for a tobacco user and $143,800 for someone in good health. The reason: With diabetes, his life expectancy is 78, versus 81 for a tobacco user and 87 for a 65-year-old man in good health. These figures are in today’s dollars and are estimates of the amounts required to provide a 90% probability of being able to cover lifetime medical expenses.
Empower is among a growing number of financial-services companies that are publishing data to help people assess whether they’re on track to cover these costs. Health care comprises about one-third of spending for Americans 60 years old and up, according to analysts at Credit Suisse Group AG .
While a healthy 65-year-old man needs to have saved about $144,000, a healthy woman of the same age should have put away $156,000 to have a 90% chance of having enough, Empower says. The savings goal for women is higher because they live longer on average.
None of the projections include the potential costs of long-term care. And they don’t include the surcharges that people with high incomes pay for Medicare coverage. Those surcharges inflate the projected monthly cost of health care to $703 for a healthy 65-year-old woman with an income above $214,000.
For those who have time to save more before retirement, the good news is that it’s possible to plan for these costs. Paul Fronstin, director of health research at EBRI, recommends taking the amount you are projected to need at age 65 and inflating it by 5% for every year that will elapse until you retire.
For example, a 50-year-old man who expects to retire in 15 years will need about $250,000—or the $124,000 EBRI calculates a 65-year-old male retiree would need today, inflated by 5% a year for 15 years.
The tax advantages of health savings accounts, or HSAs, can make them a particularly attractive vehicle to save for health costs in retirement.