2-minute article

5 health care cost factors that can drain retirement savings

From a financial standpoint, health care is one of retirement's biggest "unknowns" with insurance premiums and deductibles, prescription drugs, and nursing care. Because the cost of staying healthy is difficult to predict — especially with projections that health care costs will continue rising 2 to 2.5 times faster than inflation — it's doubly hard to plan for.

Given these rising costs, health care is an expense that's important for people to account for when setting their retirement savings goals. The key is to build a strategy that solves for known expenses, while providing the flexibility to meet their future needs.

Cost factors Americans need to consider…

blue icon clock with number 65

Missing the Medicare sign-up can cause a penalty

Even if people plan to delay receiving benefits because they're working, they
still need to sign up for Medicare three months before turning age 65. If they don't enroll in Medicare medical insurance or prescription drug coverage when first eligible, they may have to pay a late enrollment penalty for as long as they have coverage.

Inflation will increase lifetime health care out-of-pocket costs

The compounding effect of rising health care inflation means total lifetime
out-of-pocket costs for health care in retirement will be higher, projected
to be:

Retiring at age 65  Total Cost Future Value
65-year-old couple retiring now $662,156
55-year-old couple $1,035,980
45-year-old couple $1,718,977


Health care costs include Medicare Parts B and D, Medicare Supplement Insurance Premiums, Dental Premiums and out-of-pocket expenses. Calculations assume that a healthy male and female will have life expectancies of 87 and 89 respectively, and will have a combined future modified adjusted gross income (MAGI) up to $176,000.

Many Americans may retire sooner than they expect

Mainly due to health reasons or job loss, 46 percent of retirees stop working earlier than they planned. That means they'll need to find a way to bridge the "income gap" created by the loss of wages they had planned on earning.

Longer lives, higher costs

About one out of every three 65-year-olds today will live until at least age 90, and one out of seven will live until at least age 95. Those additional years of health care could also mean additional expenses because of health care inflation bumping up the costs.

Long-term care is a reality for many Americans

Considering a traditional, healthy 65-year-old couple, it is 75 percent likely at least one of the individuals will require long-term care as they age — 44 percent likely for a male living to age 87 and 56 percent likely for a female living to age 89. With rising projected costs, paying for long-term care could have a significant impact on a retirement nest egg, especially in the event both people would need it.

Projected long-term care costs for a healthy 65-year-old couple

  Life Expectancy Duration of care Nursing home Weekly home health care
44 hrs/week
Female 89 1 year $205,000 $115,000
Male 87 1 year $193,000 $108,000
Combined     $398,000 $223,000


Planning for the future isn't an exact science, but working with a financial professional is a smart way to identify and close a potential income gap. Creating a holistic retirement savings plan that accounts for higher out-of-pocket health care costs and other variables can prepare you to retire financially secure … your way.

This information is brought to you by Athene -- where innovative annuity solutions and unique interest crediting strategies are powered by unconventional thinking.