sunny.png
Monday July 22nd, 2019 5:10PM

Liz Weston: Let's get real about health costs in retirement

By The Associated Press

You won't pay for health care in retirement with one lump sum. That's the way these expenses are often presented, though, and the amounts are terrifying.

Fidelity Investments, for example, says a couple retiring in 2019 at age 65 will need $285,000 for health expenses, not including nursing home or other long-term care. The Employee Benefits Research Institute says some couples could need up to $400,000 — again, not including long-term care. The Center for Retirement Research at Boston College hasn't updated its figures recently, but back in 2010 estimated a typical couple could spend $260,000 for medical and long-term care, with a 5% risk that costs will exceed $570,000.

No wonder 45% of people in their 50s and early 60s have little or no confidence that they'll be able to afford their health care costs once they retire, according to a survey by the University of Michigan.

MEDICAL COSTS MAY BE MORE PREDICTABLE THAN YOU THINK

The approach of presenting people with a huge, perhaps unattainable, figure has long bothered Jean Young, senior research associate with the Vanguard Center for Investor Research.

"The thing is, it's not helpful, it's not actionable, it's not relatable," Young says.

You also may need six figures to cover food, or transportation, or shelter in a typical retirement. But these are costs you pay over time — just like you'll pay for health care.

Young and other Vanguard researchers partnered with actuaries at Mercer Health and Benefits consulting firm to create a proprietary model based on what retired people actually spend on health care. What they found was that medical costs tend to be in certain ranges, based on a handful of factors:

— Where you live

— Your health

— Your parents' health

— Whether you buy supplemental coverage

— Your income

Higher-income people pay larger premiums for certain parts of Medicare. Some premiums also vary by location, as do medical costs in general. How much health care you'll consume is greatly influenced by how healthy you are when entering retirement, and, to some extent, your genes.

"The actuaries know that the health status of your parents tends to pass generationally," Young says.

A TYPICAL RANGE: $4,900 TO $6,000

Here's the number the researchers came up with: $5,200. That's the median amount a typical 65-year-old woman could expect to spend annually for premiums and out-of-pocket medical, dental and vision costs in 2018. (Median is the point where half pay more and half pay less. The study used women because they have slightly higher long-term costs, but the gender difference is about 2%.)

That assumes the woman lives in a medium-cost area, is at medium risk for health care costs (she either smokes or has a chronic medical condition or two) and buys supplemental Plan F, the most popular Medigap policy. Eighty percent of those in similar situations would face costs in the range of $4,900 to $6,000.

The models also include worst-case scenarios. If her health deteriorated to the high-risk category, her costs could exceed $11,000. If she opted to do without a Medigap policy and had a bad year, she could pay over $21,800.

LONG-TERM CARE IS STILL A WILD CARD

Retirement planning involves a lot of educated guesses. How long you'll live, inflation rates, returns on your investments, your expenses — these may not end up being what you expected. Financial planners typically craft their assumptions about what's most likely to happen and may suggest insurance or contingency plans to cover the worst-case scenarios.

Long-term care costs remain the big wild card. Half of people over 65 don't incur any long-term care costs, Young says, and a quarter incur less than $100,000.

"The problem is, 15% are going to spend a quarter of a million or more," Young says.

Those who exhaust their savings may end up on Medicaid, the government program for the indigent that pays for long-term care (Medicare does not). People who have a few million dollars saved may opt to "self-fund," or pay for it without help. Those in between might consider some kind of long-term care insurance, or earmark assets they can tap if necessary, Young says. That could be your home equity or investments that give you income while you're healthy but could be sold to pay for long-term care. The key is to not use up those resources for other costs. Holding something in reserve is particularly important for women, who are twice as likely to require paid care.

"We live longer; we tend to care for our husbands," Young says. "The risk is higher for women."

_________________________________________________

This column was provided to The Associated Press by the personal finance website NerdWallet. Liz Weston is a columnist at NerdWallet, a certified financial planner and author of "Your Credit Score." Email: lweston@nerdwallet.com. Twitter: @lizweston.

RELATED LINK:

What you will spend on health costs in retirement http://bit.ly/nerdwallet-health-care-costs-retirement

  • Associated Categories: Associated Press (AP), AP Health, AP Business, AP Health - Senior Health, AP Business - Personal Finance
© Copyright 2019 AccessWDUN.com
All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without permission.
The Latest: Ukraine prime minister to quit in symbolic move
Ukraine's prime minister says he will resign in a largely symbolic move that comes hours after the newly-sworn president's decision to disband the parliament and call a snap election
11:07AM ( 12 minutes ago )
Alabama police capture suspect; 1 officer slain, 2 wounded
Police in Alabama have captured a man they say opened fire on officers responding to a call about a domestic disturbance in a trailer park. One officer was killed and two others wounded.
11:07AM ( 12 minutes ago )
American distillers welcome end of tariffs in Canada, Mexico
American whiskey producers feeling the pain from the Trump administration's trade disputes have gotten a shot of relief with an agreement that will end retaliatory tariffs that Canada and Mexico slapped on whiskey and other U.S. products
11:03AM ( 16 minutes ago )
Associated Press (AP)
The Latest: US backs reform efforts at UN health agency
The UN health agency spent nearly $192 million on travel last year, with some staffers breaking its own rules by traveling in business class when not warranted
10:03AM ( 1 hour ago )
Trump's EPA shifts more environmental enforcement to states
A small town in Oklahoma is warning communities about the Trump administration's environmental policies
10:03AM ( 1 hour ago )
South Korea vows to send aid to North quickly, may send food
South Korea has vowed to move quickly on plans to provide $8 million worth of medical and nutritional aid for North Korean children and is also considering sending broader food aid to the country, which says it's suffering its worst drought in decades
6:00AM ( 5 hours ago )
AP Health
FCC chairman backs T-Mobile-Sprint deal in key endorsement
FCC Chairman Pai says he plans to recommend the agency approve the $26.5B merger of T-Mobile and Sprint
10:35AM ( 44 minutes ago )
Ford is cutting 7,000 white-collar jobs
Ford is cutting 7,000 white-collar jobs, about 10% of its salaries workforce
9:51AM ( 1 hour ago )
US states' drones inspect bridges, help predict avalanches
A new survey shows that public transportation agencies are using drones in nearly every state
9:36AM ( 1 hour ago )
AP Business
What helps prevent dementia? Try exercise, not vitamin pills
New guidelines for preventing dementia focus on keeping the whole body healthy as a way to prevent mental decline
9:05AM ( 6 days ago )
Washington now 1st state with long-term care program
Washington Gov. Jay Inslee has signed a bill that makes his state the first to create an insurance benefit to help offset the costs of long-term care.
7:31PM ( 6 days ago )
NFL concussion fund pays out $485M, but legal fights resume
A claims administrator for the NFL concussion fund says the fund has paid out $485M, but some retired players' lawyers say there aren't enough approved doctors in the program
4:01PM ( 1 week ago )
AP Health - Senior Health
Speaker stuns Morehouse grads, to pay off $40M student debt
Billionaire technology investor shocks 2019 graduating class at Morehouse College, announcing at their commencement that he will pay off their students loans worth $40 million
4:12PM ( 19 hours ago )
Graduation speaker pledges to pay class of 2019 student debt
A billionaire technology investor and philanthropist says his family is providing grants to wipe out the student debt of the entire 2019 class at Morehouse College
2:23PM ( 20 hours ago )
Bernie Sanders unveils plan to overhaul public education
Democratic presidential hopeful Bernie Sanders wants to suspend taxpayer funding of new charter schools and ban those that are for-profit as part of his plan to overhaul public education that he released on Saturday
11:24AM ( 1 day ago )
AP Business - Personal Finance
The Latest: Ukraine prime minister to quit in symbolic move
Ukraine's prime minister says he will resign in a largely symbolic move that comes hours after the newly-sworn president's decision to disband the parliament and call a snap election
11:07AM ( 12 minutes ago )
Alabama police capture suspect; 1 officer slain, 2 wounded
Police in Alabama have captured a man they say opened fire on officers responding to a call about a domestic disturbance in a trailer park. One officer was killed and two others wounded.
11:07AM ( 12 minutes ago )
American distillers welcome end of tariffs in Canada, Mexico
American whiskey producers feeling the pain from the Trump administration's trade disputes have gotten a shot of relief with an agreement that will end retaliatory tariffs that Canada and Mexico slapped on whiskey and other U.S. products
11:03AM ( 16 minutes ago )
Brexiteer Farage splattered in latest UK milkshake attack
Pro-Brexit British politician Nigel Farage has been hit with a milkshake while campaigning in the European Parliament election
11:00AM ( 19 minutes ago )
Eiffel Tower closed down after intruder tries to climb up
The Eiffel Tower has closed down after a man began trying to scale the Paris monument
10:51AM ( 29 minutes ago )