Health Care Costs in Retirement

After years of planning and saving for retirement, the last thing you want is for unexpected medical bills to undo your hard work. Estimating your potential health care costs during retirement can help you plan properly for your future.

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Answer some key questions

Estimating your health care costs in retirement depends on several key variables:

  • How much health care will you need?
  • How long will you need it?
  • Will your savings and investments provide you with enough return to pay for it?

Having enough savings to cover your health care in retirement could be a challenge; you might prefer to pay your health care premiums using your retirement cash flows or investment returns. But keep in mind that investment returns fluctuate, so it’s a good idea to have cash reserves or liquid assets to cover costs.

Example: Covering costs through retirement

We estimate that health care costs will have an inflation rate of 8% (roughly triple the projected Consumer Price Index). However, if your money is invested in a moderate portfolio, you might expect your portfolio to grow at around 6.3% per year on average over the long term.

The three scenarios below assume varying rates of return and lengths of retirement; the lump sums are what you'd want to have saved at the start of your retirement.

Health Care cost example

Health Care costs example
Scenario 1 Scenario 2 Scenario 3
First year costs $10,000 $10,000 $10,000
Assumed health care inflation rate 8% 8% 8%
Assumed rate of return 5% 5% 4.2%
Time horizon 30 years 25 years 30 years
Lump sum required1 $465,000 $358,000 $570,000