Retirement and Health Care Budgeting

When you estimate a budget for retirement income, remember that health care expenses are likely to be higher in the future than they are before you retire. According to recent analysis by the Henry J. Kaiser Family Foundation, Medicare beneficiaries must devote a substantial portion of their household income to cover expenses not covered by Medicare, such as premiums, copays, medical supplies, expensive prescription drugs and gaps in coverage.1

In 2016, the average health care spending by Medicare beneficiaries was $5,355 (not including nursing homes and other long-term care facilities). In most households, this amount represented about 14 percent of total household spending, which is more than twice what the average non-Medicare household spent on health care.2

The following are some factors to remember when budgeting for health care expenses during retirement:3

  • 20% allocation – Nearly 3 in 10 Medicare households spend 20 percent or more of their household budget on health-related expenses.
  • Middle-income Medicare households spend a higher percentage of their budget on health-related expenses than the lowest- or highest-income Medicare households.
  • While higher-income households may spend a lower percentage of their income on health care, that spend is generally higher ($8,247 vs. $5,355 total average per year).
  • Increase allocation as you age – Older Medicare households (75 and older) spend a larger share of their budget (16%) on health care than younger Medicare households (age 65 to 74 — 13%).
  • In retirement, you can allocate less money toward other items such as education, entertainment and clothes, so it may be a matter of reallocating those line-item expenses toward health care.

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This content is provided for informational purposes only. It is provided by third parties and has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation.We are not affiliated with any government agency including the Social Security Administration.

1 Juliette Cubanski, Kendal Orgera, Anthony Damico and Tricia Neuman. Kaiser Family Foundation. March 1, 2018. “The Financial Burden of Health Care Spending: Larger for Medicare Households than for Non-Medicare Households.” Accessed March 11, 2018.

2 Ibid.

3 Ibid.

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