The High Cost of a Healthy Life

In retirement, good health is a very costly condition. That's the conclusion of a new study comparing total health care costs for retirees with various health conditions. While healthy retirees have much lower monthly medical expenses than those with serious conditions such as diabetes or cancer, their longer life expectancies mean that they actually need to save much more to pay health care costs in retirement.

"It's definitely counterintuitive," since healthy people generally assume they won't have the heftiest medical bills in retirement, says Van Harlow, the study's author and director of research at the Empower Institute. Empower is a retirement research organization supported by Great-West Financial.

The study underscores the importance of incorporating realistic life-expectancy and health care cost projections into retirement planning. Many financial plans simply make projections out to age 95 or 100, no matter what the retiree's health status, says Ron Mastrogiovanni, chief executive officer at HealthView Services, which helps financial advisers estimate health care costs. But if you have a serious health condition, "you're not living to 100," he says. "Why aren't we planning to a more realistic age?"

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Looking at monthly costs, the Empower study's results are predictable: Sick people pay more. Monthly costs -- including premiums for Medicare and supplemental insurance, and out-of-pocket costs for tests, drugs, dental, hearing and vision -- are about $450 for a healthy 65-year-old female who is not subject to Medicare's income-related surcharges, the study found. If she has cancer, her monthly costs exceed $600.

But by factoring in health care inflation and life-expectancy data for each health condition, the study finds wide variations in the savings required to fund total health care costs over the course of retirement. The healthy 65-year-old female is expected to live to age 89, and she needs to set aside $156,000 to have a 90% chance of covering her total health costs in retirement, the study finds. If a woman has cancer, her life expectancy is cut by 8 years, and she needs about $138,000. Men require lower savings levels. A healthy 65-year-old male needs to set aside $144,000, the study notes, while a male with diabetes needs only $88,000.

HealthView offers a calculator that breaks down annual health care costs based on age, gender and health condition. Go to http://apps.hvsfinancial.com/hvadvisor.