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The Average American Couple Retiring Today Faces This Harsh Reality

By Todd Campbell – Mar 12, 2016 at 7:01AM

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Retirees will pay an increasingly greater share of their Social Security income on soaring healthcare costs.


Most Americans are falling short in terms of retirement savings, but even those who are doing a great job socking money away may still stagger a bit after learning the results from a study recently conducted by HealthView Services. Specifically, HealthView Services finds that the average healthcare costs for a 65-year-old healthy couple retiring this year will be roughly $395,000 during retirement (and that doesn't include long-term care).


Unfortunately, the news is even worse for couples who are 10 years away from the retirement finish line. They're going to be on the hook for a whopping $463,849 in lifetime healthcare costs when they retire.

Digging deeper
First, let's break down how HealthView Services calculates these numbers.

To get its estimate, HealthView Services assumes that seniors will qualify for Medicare and that retirees will sign up for Medicare Parts A, B, D, and a supplemental policy that fills in Medicare's coverage gaps.

Given those assumptions, a couple would pay healthcare insurance premiums of roughly $6,999 at age 65, and then those premiums would climb steadily to $14,530 at age 85. Assuming a 87-year life expectancy for men and a 89-year life expectancy for women, total spending on healthcare premiums will be $266,589 for that couple in retirement. High-income couples will spend even more. When income exceeds $170,000, Medicare surcharges kick in. For example, a 65-year-old couple that is in Medicare's highest income bracket will be on the hook for an additional $279,377 in expenses due to surcharges.

However, healthcare insurance premiums aren't the only healthcare expenses facing retirees. Seniors also have to pay out-of-pocket costs, or cost-sharing, that include co-pays and co-insurance. Furthermore, Medicare coverage for hearing and vision is limited and therefore retirees face expenses for hearing and vision loss, too. Overall, cost-sharing represents more than a quarter of the projected lifetime healthcare costs for a 65-year-old couple.

The problem at hand
Over a 20-year retirement, lifetime costs may appear more manageable, however, they could still eat away at a substantial chunk of annual retirement income, especially if retirees rely heavily on Social Security.

This year, the average retired worker will collect $1,341 in monthly Social Security benefits and because Medicare premiums are deducted directly from Social Security checks, retirees will pocket even less than that amount.

Assuming a couple begins receiving Social Security at full retirement age and therefore receives 100% of their monthly Social Security benefit, HealthView Services estimates that at age 70, that couple will pay 43% of their Social Security income on healthcare costs. And, because healthcare inflation is expected to grow faster than Social Security's annual increases, healthcare costs will represent 89% of that couple's Social Security income at age 87. Given nearly a quarter of retired married couples count on Social Security for 90% or more of their retirement income, that's a scary revelation.

Looking forward
Couples who are looking ahead to retirement should begin planning now for their future healthcare expenses. In 2016, the contribution limit for IRAs is $5,500 and people over 50 can add an additional $1,000 as a catch-up contribution. Even more money can be contributed to employer-sponsored plans, such as a 401(k) plan. This year, $18,000 can be saved in these plans, plus an additional $6,000 catch-up contribution for people age 50 and up.

Couples with a high-deductible health insurance plan may also want to see if they qualify to contribute to a health savings account (HSA). In 2016, HSAs allow families to contribute $6,750 in pretax dollars that can be used for healthcare expenses. If the money stashed away in a HSAs isn't used in a given year, then it rolls over to future years. Therefore, it may be a valuable savings tool that couples can use to pay for healthcare expenses in retirement.  

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