According to the study, “What is the Distribution of Lifetime Health Care Costs from Age 65,” in over 300,000 simulations the average remaining uninsured lifetime health care expenditure for a typical married couple age 65 is $197,000. However, this amount represents the average present value of the couple’s premiums for Medicare and private insurance, out-of-pocket payments, and home health costs, and a typical household has a 5% risk that the present value of its lifetime uninsured health care costs will exceed $311,000.
When nursing home costs are included, the amount a typical couple will need for health care expenses increases to $260,000, with a 5% risk of exceeding $570,000.
The report noted that less than 15% of households approaching retirement have accumulated that much in total financial assets.
The CRR undertook the study to better determine the risk American households face of incurring exceptionally large health care expenses in retirement. “The objective of the analysis was not to calculate how much households spend on health care in practice, or even how much households should optimally choose to set aside to cover health care costs – but to quantify the magnitude and distribution of potential lifetime expenditure,” said Anthony Webb, associate director of research for the CRR, in a news release.
The report concluded: “When deciding how much to save for retirement, and how rapidly to draw down their wealth during retirement, households need to consider what risk they are prepared to accept of having their assets substantially depleted by health care costs, whether they are above or below the average risk of incurring exceptionally high costs, and whether they should insure against health care costs by purchasing long-term care insurance.”
The report can be accessed here.