Americans Underestimate Retirement Health Care Costs

March 8, 2013 ( – Many Americans seriously underestimate the amount of savings they need to cover health care expenses in retirement, according to a study.

The analysis by Allison Hoffman at the UCLA School of Law and Howell Jackson at the Harvard Law School found both men and women estimating their lump sum health care cost in retirement beneath the benchmark median (65.2% below the benchmark for men and 79.5% for women). The study used estimates from the Employee Benefit Research Institute (EBRI) as benchmarks (see “Projected Savings Needed for Retiree Health Care Lower”).  

Women’s estimates were a little more off—whereas the men’s median response of $60,000 is more than 50% of the benchmark median for men of $109,000, the women’s median response of $30,000 is less than one-fifth of the benchmark median of $156,000 for women. The median responses of all age cohorts in the study were at or close to $50,000, and younger respondents did not estimate materially higher savings needs than older cohorts.  

In addition, only one-fifth of all respondents estimated that adverse individual health experience could lead to a more than 50% increase in out-of-pocket costs, although expert opinion suggests those who end up in the seventy-fifth or ninetieth percentile of out-of-pocket costs are likely to spend double to triple that of someone at the median. Similarly, less than one-third of respondents reported they would need at least 50% more in financial resources to compensate for adverse changes in government policy, even though expert views are that some current reform proposals for Medicare could have a much larger effect.  

The study report, “Retiree Out-of-Pocket Healthcare Spending: A Study of Consumer Expectations and Policy Implications,” can be downloaded from here.