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How much does retirement health care cost?

Today's retirees and soon-to-be retirees feel pretty confident about their next phase. But a major concern keeping them up at night is the idea of paying for health care. In fact, a PwC (PricewaterhouseCoopers) financial wellness study found that 38% of baby boomers said that health care costs are a top fear—higher than those who were most afraid of running out of money!

It doesn't have to be that way! Health care is a line item in your annual retirement budget, just like food, clothing, and shelter. And like those other expenses, you can plan for it.

Our research has revealed 6 factors that can nudge your personal annual health care spending higher or lower.

1. Health status

How healthy are you? Your current level of health risk makes a big impact on how much you might spend.

Median annual spending by health status

Low risk

$3.4k

Nonsmoker, no chronic conditions

Medium risk

$3.9k

High risk

$7.5k

Smoker, 2 or more chronic conditions, and/or visits the doctor frequently

2. Medicare choice

There are lots of Medicare plans available, with different levels of coverage. You'll need to choose based on your health needs.

What do people choose?

32% Medicare Advantage
68% traditional medicare
percentages

3. Amount employer subsidizes

If an employer has been carrying part of the weight of your health care costs, the loss of those subsidies can make your retiree health insurance costs feel much higher.

–$5,300

Amount of subsidies lost at retirement, on average**

4. Retirement age

If you retire before age 65, you'll need to cover your own health insurance until Medicare kicks in.

How your median costs could change when you reach 65

Marketplace coverage***

$12,800 at age 64

Medicare

$5,200 at age 6

5. Location

Depending on where you retire, you'll pay higher or lower than the average cost of health care.

Annual premiums for a Medigap plan

Medigap premiums by stateScale is from highest to lowest

Scale is from highest to lowest

6. Income in retirement

If you have a lot of money coming in, you'll pay higher premiums for Medicare.

$170,000
in combined earnings annually

A married couple whose income is higher than this will pay additional amounts for Medicare††

Things to remember

Your own costs will vary

Your expected health care costs will be different than anyone else's. You'll need to take into account the factors above to get an accurate assessment.

Consider health care options before you retire

Your total retirement spending might be higher than planned once you accurately account for the cost of health care in retirement—especially if your employer has been generously subsidizing your preretirement costs.

As health costs rise, others come down

For most people, increased costs on health care later in life will be somewhat offset by reduced spending on other categories.

Make health care spending part of your budget

You'll find it much more useful to think about health care spending as an annual part of your budget, as opposed to a huge lifetime lump sum.

Long-term care costs are different

You might not need to pay for long-term care at all, but if you do, it can be really expensive. Your retirement plan should separately address the potential for long-term care costs.

Vanguard Personal Advisor Services®

Or talk with an investment professional.

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