Lifetime Healthcare Costs Skyrocket

A recent Fidelity Retirement Health Care Cost Estimate found that healthcare costs for retirees have increased 29% in the last 10 years, and went up $25,000 per person in just the last 12 months. Based on these estimates, a couple retiring at age 65 today will need nearly half a million dollars to cover their healthcare expenses alone for the next 20 years.

The estimate is startling considering the state of American savings accounts. Fifty-two percent of households 55 and older haven’t saved a penny for retirement, although half of this figure are relying on a pension to carry them through. Among the 48% that report some retirement savings, the median amount is $104,000 for households age 55-64. In today’s healthcare marketplace, even with standard Medicare, they will blow through their savings in less than 10 years on healthcare alone.

The Fidelity calculation took into account deductibles and coinsurance associated with standard Medicare, and Medicare Part D premiums and out-of-pocket costs for prescription drug coverage, as well as some services excluded by Medicare. The study did not include over-the-counter medications, most dental services or long-term care. Today approximately 40% of Americans rely on Social Security to pay all of their retirement expenses. For those 75 or older, 61% of this age category rely on Social Security as its sole income provider. (Social Security is scheduled to run dry in 2034.)

Lack of savings is not entirely an individual’s fault. In 2011, half of American workers were not offered a retirement savings vehicle from their employer. Unions have shrunk, and pension plans are not economically feasible compared to 401 (k) options. Teresa Ghilarducci, a labor economist at the New School, has said the excuses made, like lack of financial literacy or student loan debt doesn’t hold “a candle to the collapse of the employer-employee retirement system.”

The long term outlook for millennials is especially bleak. Once lauded as penny-pinching savers, millennials under the age of 35 are now living in the red. Their saving rate is negative 2% according to Moody Analytics, which means they are burning through other assets to pay off credit card and student loan debt. The savings rate for 35-44 year olds is 3%. Even with modest savings, healthcare costs experience far greater increases than the national average for inflation.

Experts agree there is no silver lining to retirement savings. Individuals must start planning early, save money from every single paycheck, take advantage of health savings accounts, and not assume employment can continue into the twilight years. Economists encourage people to try to live by the 50/30/20 rule. Fifty percent of income should be spent on essentials, like the mortgage and groceries. Thirty percent should go to lifestyle choices, and 20% should go directly into savings. That way, when a healthcare bill arrives, and they will, there is enough in emergency savings to cover the costs.


NOTE: The views expressed here are those of the author and do not necessarily represent or reflect the views of Healthcare, Inc. and

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Colleen McGuire

About Colleen McGuire

Colleen McGuire is an independent consultant who has spent most of her career writing about healthcare and the health insurance industry. For fun she blogs, travels and takes a lot of pictures along the way.