A recent survey of retirees by the Employee Benefit Research Institute and Greenwald & Associates found that half of them had not attempted to calculate their health care expenses in retirement before they retired, and more than 40% said their health care costs are higher than they originally had expected.

Years ago, when we built retirement plans for our clients, we included health care costs as part of their core living expenses. However, as health care costs continued to rise, and to consume an ever-increasing portion of our clients’ living expenses, we began to separate out these costs, so that we could track them more effectively and budget for them more accurately.

More recently we acquired software which allows us to help our clients project their health care costs. We ask our clients to complete a brief assessment of their health, estimate their life expectancy, and project their income need in retirement (the latter helps us determine the cost of Medicare Parts B and D).

Let’s consider an example.

George and Gracie plan to retire this year. George is 65 and expects to live to age 85. He has elevated blood pressure, high cholesterol and some family history of heart disease. Gracie is 63 and fully recovered from breast cancer 10 years ago. She expects to live to age 86. They are non-smokers. They both receive annual physical exams, they exercise for at least two hours per week, and they generally have a healthy well-balanced diet. They expect their income need in retirement to be about $120,000.

Our software projects that George and Gracie’s cumulative lifetime cost for health care will be $453,000 (in today’s dollars).

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