If you can afford average health care costs as you get older, you’re half-solving one of the most vexing problems in retirement planning. When it comes to bills, medical costs aren’t cheap. Unfortunately, as we get older, our bodies become more and more strange. That means more trips to the doctor, more prescriptions filled, and more money spent on treatment.
Average monthly medical expenses exceed $1,000 by age 60. So it’s no wonder that 80% of respondents answered health insurance. RBC Wealth Management Survey They said they were concerned about funding for medical expenses after retirement. And planning for health care costs will become even more important given that Medicare will be underfunded over the next decade.
So, how much does medical care cost at different ages and stages of life? To find out, we investigated medical spending data by age provided by the following sites: Peterson-KFF Health System Tracker and analysis by smart financean online insurance marketplace.
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Average medical costs rise over time
In the big picture, here’s what the numbers tell us.
If you’re over 55, you can expect to pay more than you would in your 20s, 30s, or 40s. Additionally, if you are 65 or older, you can expect to pay even more. In fact, a small segment of the population accounts for a disproportionate share of total health care spending each year. That’s the key takeaway from the Peterson-KFF health spending analysis.
In fact, people 55 and older account for more than half (55%) of total health care spending in the United States, even though they make up only 31% of the population. According to Analysis of KFF of Agency for Healthcare Research and Quality’s 2021 Medical Expenditure Panel Survey (MEPS). “Health care spending often increases with age because we generally become healthier and require more care as we age,” study co-authors noted.
Health care costs are much higher for adults diagnosed with chronic conditions such as emphysema, diabetes, heart disease, and high blood pressure. People who have received a mental health diagnosis such as the following: anxiety and depression Self-pay for treatment costs will also increase.
Younger people are generally healthier, have fewer chronic health conditions, and therefore pay less for health insurance. Here’s a cost breakdown by age that shows how medical costs increase with age.
| year | Average monthly premium |
|---|---|
| 20 | $377.92 |
| twenty five | $390.44 |
| 30 | $441.39 |
| 35 | $475.22 |
| 40 | $497.00 |
| 45 | $561.56 |
| 50 | $694.56 |
| 55 | $867.22 |
| 60 | $1,055.44 |
| Over 64 years old | $1,166.67 |
*Affordable Care Act (ACA) Marketplace “benchmark” plan costs for silver tier coverage. Moderate monthly insurance premiums and moderate co-payments are required.
sauce: smart finance
Components of medical expenses
year: “Age is one of several factors that insurance companies use when calculating health insurance premiums,” said Dan Martisio, author of the SmartFinancial Health Insurance Premium Study.
For marketplace insurance plans, health insurance companies also consider these other factors when calculating premiums, according to SmartFinancial.
position: Premiums can vary by state and city based on differences in medical products, prescription drugs, and costs of care.
Tobacco use: Smokers can pay up to 50% more than non-smokers.
Number of insured persons: Adding dependents, such as children or a spouse, can increase the cost of health insurance.
Plan category. There are 5 Marketplace healthcare plan coverage levelsranging from low-end bronze to high-end platinum. There is also catastrophic plan. Bronze plans have the lowest monthly premiums, but the highest deductibles and copays. In contrast, platinum plans have the highest premiums but the lowest out-of-pocket costs.
How to deal with medical expenses after retirement
Admittedly, the high cost of medical care in retirement can be daunting. In fact, a 65-year-old retiring in 2024 can expect to spend $165,000 on health care throughout their retirement. Fidelity Investments’ Latest Retirement Medical Cost Estimate Report. “Healthcare costs are some of the most unpredictable expenses, especially when it comes to retirement planning,” he said. robert kennedySVP of Workplace Consulting at Fidelity. Uncertainty surrounding one’s health status, rising insurance premiums, and unpredictability of out-of-pocket costs are major reasons why many people feel stressed about health care and costs.
But T. Rowe Price’s research suggests it’s a mistake to think of retirement health care costs as a huge lump sum. Despite these so-called big and scary numbers, no one pays for their medical bills all at once. It makes more sense to view health care costs as an ongoing budget.
“(Medical costs) are spread out over many years.” stuart ritterVice President of Insight Director at T. Rowe Price, writes in an article for financial advisors titled:What customers need to know about medical expenses after retirement. ”
“(Our study) shows that health care is much more financially manageable than imagined,” Ritter said. T. Rowe Price says insurance premiums, which make up 73% of health care costs, are a predictable, fixed cost that makes planning a little easier for retirees because they can plan and pay from their monthly income. Unpredictable expenses that are more difficult to plan for, such as out-of-pocket costs, account for only 27% of total health care costs.
Moreover, despite widespread concerns that so-called health care “shocks,” that is, large unexpected costs incurred due to illness, will cause economic ruin, such devastating Only a small percentage of retirees are experiencing financial damage. According to , only 10.9% of retirees experienced an increase in medical costs of $2,000 to $5,000 over a two-year period. T. Rowe Price Investigations. And only 2% experienced an increase of $25,000 or more over a 24-month period.
How to plan for future medical expenses
Like any other financial goal, paying for medical bills requires a plan. RBC Wealth Management advises young savers with time to develop long-term investment plans to cover future expenses.
Workers should take advantage of workplace wellness programs that can reduce health care costs as they age. It is also wise to choose the right medical plan that offers the best combination of coverage and cost.
Investing in a Roth 401(k) is another savings vehicle to consider because it allows you to withdraw your retirement savings tax-free and set aside additional funds for retirement health care. Consider converting your traditional 401(k) to a Roth 401(k). You can convert all or part of your traditional 401(k), and you can also stagger the conversion to lower your taxable income in the year you convert.
Tax-friendly Health Savings Accounts (HSAs) offer pre-tax contributions, tax-free investment growth, and tax-free withdrawals for qualified medical care, giving you an advantage and helping you avoid costly medical expenses. year. You can also use your HSA to pay your Medicare premiums. Keep in mind that HSA contribution limits have been steadily increasing. And before you get too excited about an HSA, keep an eye out for hidden costs like fees and yield.
Finally, consider how you will pay for long-term care. You may think you don’t need it, but government data shows that around 70% of older adults require long-term care. In addition to some of the strategies listed above, long-term care insurance and pensions can help fund your long-term care needs. Both of these options have drawbacks, so research them carefully.
