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.
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
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?
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**
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
Depending on where you retire, you'll pay higher or lower than the average cost of health care.
Annual premiums for a Medigap plan†
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††
in combined earnings annually
A married couple whose income is higher than this will pay additional amounts for Medicare††
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.
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.
For most people, increased costs on health care later in life will be somewhat offset by reduced spending on other categories.
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.
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.
FIND OUT WHAT YOU MIGHT SPEND ON HEALTH CARE
When it comes to retirement planning, knowing the "average" only gets you so far. We can help! As part of our advice service, you'll receive a retirement plan that includes a personalized health care estimate for every year you're in retirement, taking into account your health status, coverage choices, retirement location, and more.
*For a 65-year-old woman in 2018.
**Average amount spent per worker for employee-only coverage, among employers who offer health care benefits.
***Silver plan.
†Plan F.
††Source: medicare.gov.
Unless otherwise noted, figures are sourced using the Mercer-Vanguard health care cost model, 2018. For more information on the data, see Planning for health care costs in retirement (PDF)
Vanguard's advice services are provided by Vanguard Advisers, Inc. ("VAI"), a registered investment advisor, or by Vanguard National Trust Company ("VNTC"), a federally chartered, limited-purpose trust company.
The services provided to clients will vary based upon the service selected, including management, fees, eligibility, and access to an advisor. Find VAI's Form CRS and each program's advisory brochure here for an overview.
VAI and VNTC are subsidiaries of The Vanguard Group, Inc., and affiliates of Vanguard Marketing Corporation. Neither VAI, VNTC, nor its affiliates guarantee profits or protection from losses.
