Health care costs for retiring Americans, including nursing home care, average $260,000 and can exceed $500,000, according to recent research conducted by the Center for Retirement Research at Boston College.
CRR conducted over 300,000 simulations and found that the average remaining uninsured lifetime health care expenditure for a typical married couple age 65 is $197,000. This amount represents the present value of the couple’s premiums for Medicare and private insurance, out-of-pocket payments and home health costs, not including nursing home care.
When nursing home costs are included, the amount for a typical couple jumps to $260,000, with a 5% risk of exceeding $570,000. “Even at the peak of the stock market in 2007, less than 15% of households approaching retirement had accumulated that much in total financial assets, much less financial assets available for health care,” says Alicia Munnell, director of the CRR.
The study highlights the need for employers and employees to be more aware of the need to plan not just for post-retirement living expenses, but also medical and long-term care expenses, says Malcolm Cheung, vice president of long term care with Prudential, which funded the study.
“I don’t know if employers, frankly, realize that post-retirement medical expenses, and in particular post-retirement long-term care expenses, could be as high as this study shows they could be,” he says. “I think if they did, more of them would actually try to focus on these post-retirement health expenses as part of their retirement education and retirement planning activities.”
The study cites the main sources of retired households’ health care cost risk as copayments for Medicare-covered payments and payments for non-covered services, such as nursing home care. About one-third of individuals turning 65 in 2010 will need at least three months of nursing home care, 24% will need more than a year and 9% will need more than five years.
In 2008, the annual cost of a nursing home was about $71,000 for a semi-private room and $79,000 for a private room. Medicare, meanwhile, pays for a maximum of only 100 days of nursing home care.
“The potential nursing home costs are such a large percentage of the total health care post-retirement expenses,” says Cheung. “People are generally aware that post-retirement medical costs might be significant but they might not be aware that potential long-term care costs can be quite significant as well.”
The study also found that although lifetime health care costs decline with age, they remain substantial. At age 85, couples face an average remaining lifetime cost of $140,000 without nursing care, and they face a 5% risk of exceeding $266,000. Including nursing home care, the average cost is $203,000, with a 5% chance of exceeding $477,000.
“There’s significant variability around that average,” says Cheung. “You’ve got to assess whether you’re a better than average risk, a worse than average risk. And how do you manage the fact that you’ve got a 5% chance your total post-retirement costs could be well in excess of half a million dollars for the household?”
