Boomers Go Bust: What to Know About Escalating Health Care Costs in Retirement

Happy Mature Senior Man, Happy Senior Man, Writing with a Felt Marker - Health Care Word Cloud. with grunge texture and vignetting added

Individual baby boomers are not alone in worrying if they have set aside enough funds to retire comfortably and afford continual health care. Financial advisors have previously suggested to plan to replace approximately 80 to 85% of pre-retirement income. This range may be ill-advised and not take into account the true cost of necessary, future health care expenses and new health concerns as baby boomers age. Health care costs are on the rise and pre-retirees should be aware of the additional funds required to be set aside to afford adequate coverage in the foreseeable future.

Welcome to retirement. On the upside, retirees save on taxes. Those eligible for social security no longer pay a 7.5% FICA tax as they had as an employee, or 15% FICA tax if self-employed. Retirees also are estimated to spend less in the area of transportation. This is all according to Michael Finke, Texas Tech University’s coordinator of the doctoral program in personal financial planning. These extra funds can be used in other areas, such as inflation in health care costs. On the downside, many employees have contributed only 25% of the amount necessary to cover health care premiums with employers picking up the remaining 75%. Many employees receive a cap on out-of-pocket health care expenses. Retirees will be accountable for close to 100% of health care costs without any cap. Even with Medicare, this is a major jump that was not used during previous return calculations, as these calculations were based on the employee contributions only. Retirees will be responsible for Medicare Part B, Part D and gap coverage. Retirees should anticipate an outlay of triple the amount of money as compared to their period of employment for approximately the same amount of coverage.

In the recent HealthView Insights report, those within the $250,000 income bracket in retirement will need to replace a larger share of their income than previously suggested. The report finds that health care expenditures for this group will take a larger share of income in retirement than when in the workforce. Also, historical medical inflation rates have far exceeded the current health care inflation rate at approximately 6% annually, easily twice that of the average historical CPI (consumer price index) rate. If baby boomers have planned their retirement income using traditional health care expectations, it now appears that they will have to make a substantial adjustment.

Baby boomers will need to adjust their retirement income needs to adapt to these higher anticipated medical cost calculations. Depending upon the amount previously saved, a higher contribution or a lump-sum payment may be necessary to offset the change. Baby boomers need to realize that Medicare looks back at the last two years of income levels and this may make them subject to Medicare surcharges. The report suggests that those that are 55 years old, planning to retire at 65 and living to 86, will have to cover approximately $390,000 in health care costs during retirement. Bottom line, a careful review of retirement savings plans and allocation of funds to health care costs needs to be done to adjust for inflation and the substantially higher Medicare contribution costs.

Contact me at if you have further questions or interests on this subject.





The foregoing content reflects the opinions of The Windsor Group, Ltd. and is subject to change at any time without notice.  Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security.  There is no guarantee that these statements, opinions or forecasts provided herein will prove correct.  Past performance is not a guarantee of future results.  Indices are not available for direct investment.  Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.  All investing involves risk, including the potential for loss of principal.  There is no guarantee that any investment plan or strategy will be successful.