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Projecting the real cost of health care in retirement

Feb 14, 2020 | RBC Wealth Management


With seniors more active than ever – and with lifespans steadily increasing – maintaining good health as you age is a top priority. Yet, as the cost of care continues to rise, growing expenses may be a significant risk to other retirement goals.

closeup medical hospital bill prescription medicine

Know the cost

Increases to the cost of care have led to some staggering numbers across a full retirement period, creating a price tag of over $400,000 for the future cost of care for an average 65-year-old couple in retirement.1

This increase in cost is largely due to greater demand driven by longevity and advances in treatment and technology. For example, so-called maintenance procedures like joint replacement and cataract surgery are increasingly common, but carry significant price tags as they impact greater numbers of Baby Boomers.

Expenses like these are directly impacting Medicare and private insurance, which share the burden with individuals through escalating premiums, copays and deductibles.

These cost increases are particularly challenging for women, who face higher lifetime care costs due to a life expectancy that is two-plus years longer than men. These additional years are significant, resulting in costs that are typically one third higher than for men overall.

Wage and Social Security cost of living adjustments (COLAs) have consistently lagged behind the rise in health care costs, creating a need to plan and fund health care as a separate goal. With the cost of premiums growing at three and four times faster than wage and COLA increases, it is important that the rate of inflation used for your health care goal properly reflects expected health care inflation of at least 5 percent.

Increases that matter

Since 1999, wage growth has been moderate while premiums have skyrocketed.2


Your share of the cost

The burden of paying for health care is falling increasingly on the individual through cost sharing. Not only have premiums skyrocketed, but deductibles, copays and out-of-pocket costs are also on the rise.

Even factoring in Medicare coverage, experts estimate that by age 75 it is likely your health care expenditures will amount to 15 percent of your overall spending—nearly double what you spent during your working life.3

medicare cost gap 01medicare cost gap 02

Far from a comprehensive solution, Medicare has significant gaps, limits, and increasingly higher premiums and copays. This requires supplemental insurance to help fill the void and provide coverage for additional items like dental care, hearing aids and vision.

These factors combine to make health care likely your second highest expense category in retirement, trailing only housing. This sobering reality makes planning ahead and properly projecting the cost of care using a higher growth rate a crucial part of your overall wealth plan.

Take action
  • Discuss the impact of health expenses with your financial advisor, and model cost into your wealth plan
  • Ask to include health care expenses as a separate category in your plan, with an inflation rate of at least 5 percent
  • Monitor and review your plan over time, reviewing it at least annually


Wealth planning