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What Does The Average Retiree Spend On Health Care?

Oct 10, 2016

What Does The Average Retiree Spend On Health Care?

A recent article at USA Today took a look at a Fidelity report that had some potentially expensive news for retirees and their spouses. The report found that, as of 2016, expecting to pay in the neighborhood of $260,000 for health care after retirement is a very realistic possibility for many.


Costs Of Health Care After Retirement

Since 1966, health care costs have grown year over year by a steady rate of 6%. Of course, inflation has some involvement in the increase, but the troubling reality is that other factors are driving that cost up steadily as well. Experts expect that 6% figure to continue for at least another decade, which has left policymakers, elected officials, and retirees themselves nervously wondering what can be done to stem the tide of exorbitant costs seemingly headed their way.


Keep in mind that the average Social Security benefit paid out to retirees is $1,351 per month. That all adds up to $32,400 per year for a married, retired couple. If we extrapolate the annualized cost of health care based on the findings at Fidelity, we arrive at a figure suggesting that nearly one quarter of a retiree couple’s income is likely to be consumed by health care costs. You might think that since Social Security benefits rise to help combat inflation, we may be able to drive that number down — however, the report also concludes that health care costs are rising at a rate that outpaces Social Security benefit increases by quite a bit.


What’s Driving Costs? What Can Be Done?

Aside from inflation, there are several critical factors that are driving the increase in costs for retirees’ health care. First of all, Americans are living significantly longer. This means more years of treatment, more years of prescriptions, and more years of medical attention. Secondly, prescription drug costs in many areas are spiraling out of control, causing massive amounts of capital to be spent to acquire pills that are necessary for many retirees to live a healthy life. And finally, medical service utilization levels are at a high watermark, causing big dollars to be spent on services across the nation.


Still, things can be done to manage the costs if the right steps are taken. Step one is certainly to commit to planning ahead, and investigating all available options such as Medicare, Medigap insurance plans, and health savings accounts (HSAs). An HSA is a particularly good place to invest retirement savings, as there are tax breaks and other benefits that make it a very attractive option for a retiree. Perhaps the best part is the fact that HSA funds don’t necessarily need to be used on health related costs, either — so you’re not committing to spending on health care with those funds you drop in your HSA piggy bank each month.


Finally, the most important thing you can do to avoid those monumental costs is to stay healthy yourself. The old adage that an ounce of prevention is worth a pound of cure rings especially true in this situation. And given the rising cost of health care for retirees, it might just save you a pound of money, as well.