Americans Way Off on Estimating Health Costs in Retirement

According to a press release, the July survey of the First Command Financial Behaviors Index reveals that 72% of Americans are at least somewhat concerned about health care costs in retirement, with those closest to retirement expressing the most concern. Respondents predict that they will need about $33,000 above traditional retirement savings to cover health care costs during retirement – only a fraction of the $166,000 in out-of-pocket expenses estimated for someone retiring today and living to age 100.

Despite their concerns, less than one-third of respondents include health care costs as part of their retirement planning. Among those, half save less than $100, 36% save between $100 and $300, and 14% save more than $300. Among non-retired Americans with a written financial plan from a financial adviser, 41% include health care costs as part of their retirement planning, nearly double the percentage of those without a financial plan.

The announcement explained that current premiums for Medicare Part B, the average for Medicare Part D, and the maximum out-of-pocket drug costs before Medicare Part D begins paying 95% of drug costs total $5,842 per year. Assuming a 5% return on savings and an average premium increase of 3.7% (the Part B increase rate through 2016), an individual retiring at age 65 today and living to age 100 would need an estimated $166,000 to meet these expenses. For a couple, the figure doubles to $332,000.

The latest annual estimate from Fidelity is that an average couple retiring in 2009 would need $240,000 set aside by age 65 in order to pay for health-care expenses in retirement (see IMHO: The Mean-ing of Average ).

More information is at www.firstcommand.com/research .