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Learn About Medical Expenses in Retirement

Retirees spend about 20% of their income on health care.  

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Retirees on Average Spend $315 a Month

And Costs Are Rising About 3% Faster Than Inflation

The average American retiree uses three times as much health care as the average American worker.  While Medicare picks up much of the difference, the average retiree in 2007 spent $3,800 on out-of-pocket medical expenses – less at the beginning of retirement, much more at the end. 

Couples now retiring need an estimated $200,000 to pay for medical care.*

Fixed and Variable Costs

A third of out-of-pocket costs consist of Medicare part B (general insurance) and part D (prescription drug insurance) premiums. These costs are predictable, and are roughly the same regardless of one’s health.

But two-thirds of out-of-pocket costs go towards paying copayments and deductibles, which will be higher or lower depending on the amount of medical care and prescription drugs you need.

Out-of-pocket costs

Medical ExpensesAnnual Cost
Part B (Medical Insurance) and Part D (Prescription Drug) premium and deductible$1,400
Copays for medical care$970
Copays for prescription drugs$1,150
Cost-sharing$ 290
Annual Total$3,800

* In ten years, the estimated $200,000 couples now retiring need for medical care is projected to rise to $280,000 (in today’s dollars). Center for Retirement Research at Boston College.

A Cash Reserve or Private Insurance

How Much Risk Should You Bear?

If you have enough in savings and are comfortable with the possibility of paying considerably more than average on health care, self-insurance could be right for you.

But if you want to limit potential health care expenses, or make your expenses predictable, private insurance is right for you.

Your private insurance options

  • Medigap plans cover your Medicare copayments and deductibles and often offer additional benefits. The cost of Medigap plans varies from state-to-state and from one provider to another.  The older you are, the higher the premiums, and these premiums each year can be expected to rise about 3% above inflation.
  • Medicare Advantage plans replace Medicare A and B, and can be bought with a range of copayments, deductibles, annual limits, and additional coverages.

#$% Happens

Medicaid and Other Programs

If you’ve used up your savings and can no longer afford health-care, you might be eligible for Medicaid.  Medicaid can  cover the cost of deductibles, copayments, and nursing-home care not covered by Medicare.

Medicaid is run by states and designed as a safety net.  So you need to  earn less than a specified amount and have used up most of your retirement savings to qualify.

Other programs that could help pay for retirement health expenses include Veterans Health Benefits, Military Health Benefits (TRICARE), Indian Health Services for Native Americans, and local or community health programs offered where you live.

For More on Medical Expenses in Retirement

Comprehensive, Trustworthy Information

CLICK HERE to download a comprehensive guide to your Medicare & Medigap options, courtesy of government’s Center for Medicare and Medicaid Services.

CLICK HERE for a web-based interactive guide to your Medicare & Medigap options, courtesy of the non-profit National Council on Aging.

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