How Much do you Need to Save for Retirement Health Care?


With healthcare being a top 3 concern for retirees, it's nice to be able to put a number on overall costs in order to have enough saved for retirement. Unfortunately, Medicare isn’t free and medical expenses can certainly add up.

While it certainly true that Almost everyone's exact number is going to be different, there are three key factors affecting your costs:

1. Your Prescriptions: If you’re unhealthy, have multiple chronic conditions and are on several brand name prescriptions, be prepared for higher healthcare expenses. The most uncertain cost for individuals on Medicare is prescriptions. Since there is no “supplement” to a prescription plan, almost all prescription plans will have a coverage gap (or a donut hole). What this means is if you have a few expensive brand name medications, you’ll end up paying more for your prescriptions. In 2016, you’ll pay 45% of the negotiated retail costs for your prescriptions once your total prescription costs reach $3,310. This means that a $1,000 a month prescription will cost you $450 to refill. In our experience, most individuals have prescription co­pays that are less than $100 month and less than 10% of individuals are affected by the donut hole. However, we have seen cases where prescription co­pays can skyrocket to over $10,000 a year, especially when it comes to oral chemotherapy prescriptions.

2. Your income and assets: If your income is higher than $85,000 filing single or $170,000 filing joint, you’ll be subject to higher Part B and Part D expenses known as surcharges. For a table of how much you’ll pay, please visit click here. If your income is low and you have very little or no assets, you may qualify for state assistance through Medicaid. With Medicaid, almost everything is paid for. Medicaid will pick up your Part B premiums, your Part D premiums, and most of your co­pays. You will have to pay a small co­pay for generic and brand name prescriptions.

3. Risk tolerance: If you’re in good health and do not live in multiple parts of the country for months at a time, a Medicare Advantage plaay be a good choice for you. Advantage plans typically offer a lower monthly premium in exchanges for higher out of pocket (co­pays) costs for services. If you continue to stay healthy and do not need many services, then you’ll be able to put some money away for a rainy day. In general, if you do not take numerous brand name medications and would like to be prepared for medical bills in retirement, we typically recommend budgeting $500 a month per person (or $6,000 a year) for retirement health care expenses. For most individuals, this will pay for not only the monthly premiums, average co­pays, but also give a little extra cushion just in case.