What would you and your spouse do with $351,000 when you retire?
That may sound like a nice nest egg, but you may need every penny just to cover health care costs in retirement, including Medicare premiums and drugs after insurance pays its part, according to recent research.
And that figure is conservative, the research notes.
Americans already lack retirement savings. A New York Life survey of 2,202 adults last month showed only 4 in 10 have a nest egg, even though 74% expect to retire at 64. That shortfall means many retirees may find their golden years tarnished by financial stress.
“People have so many different financial goals pulling them in a million different directions that they don’t always realize how high health care costs can be,” said Jake Spiegel, an associate at the nonpartisan, nonprofit Employee Benefit Research Institute and co-author of the health care savings report.
How much should you save for health care in retirement?
Assuming retirees have Medicare Part A (hospital), B (medical), D (drugs) and G (expenses not covered by Part A and B such as coinsurance and copays), the report says the amounts below are what people need for a 90% chance of meeting their health care expenses, including premiums and out-of-pocket costs:
◾ A 65-year-old man with average premiums will need $184,000 in savings and a woman will need $217,000.
◾ Couples will need $351,000.
◾ Representing an extreme case, a couple with particularly expensive prescription drugs will need $413,000 (accounts for out-of-pocket drug caps from the Inflation Reduction Act).
It's important to note these estimates don’t include services not covered by Medicare such as dental, vision, or hearing.
They also don’t include long-term care, such as community, residential or home-based care costs, which are “enormous” Spiegel said.
A survey by senior-living finder Seniorly shows monthly assisted living costs can reach $8,248, and in-home care can total $3,861.
Using today's earnings and savings rates, it would take the average American 17.2 years to save for a year of assisted living, it said.
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Why are health care costs so high for retirees?
Medicare premium increases, the program's precarious financial footing, which casts uncertainty on how much can be fully covered by Medicare in years ahead, and cutbacks in employment-based retiree health programs all contribute, Spiegel said.
Over the past two decades, health care costs have far outpaced inflation.