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A survey found that 42 percent of adults between ages 50 and 64 think they’ll need less than $100,000 for out-of-pocket health costs during retirement.

James Estrin • New York Times,

AARP releases free health cost calculator

  • Article by: Ann Carrns
  • New York Times
  • November 25, 2013 - 3:02 PM

William Martin, a financial adviser with Aequus Wealth Management in Chicago, counsels clients to plan for health costs in retirement. “There’s a high probability I’ll live into my 90s,” said Martin, 52, noting that he’s in good health and his grandparents lived into their 90s. “So I need to plan for that.”

But if you’re like most people in their 50s and early 60s, you haven’t started saving for the medical care you’ll need after you stop working.

Only about a third of such Americans have tried to estimate how much money they’ll need and have set aside money for those expenses, according to a recent survey by the retiree advocacy group AARP.

“Most people either have not thought about that, or they have significantly underestimated what they’re going to need to pay,” said Laura Bos, a manager of financial security for AARP.

The telephone survey of 1,000 nonretired adults aged 50 to 64 was conducted for AARP by the research firm SSRS between Sept. 18 and Oct. 19.

The survey found that more than four in 10 adults between ages 50 and 64 (42 percent) think they’ll need less than $100,000 to cover out-of-pocket health expenses during their retirement. Sixteen percent think they’ll need less than $50,000.

That suggests many people are in for a rude awakening. An average couple retiring at age 65 this year is estimated to need $220,000 for out-of-pocket health care costs in retirement, according to Fidelity Investments.

The catch with such estimates, of course, is that your personal situation can differ. AARP is introducing a new online health costs calculator to help people obtain a more customized estimate.

The new tool, created with OptumHealth, a unit of Minnetonka-based UnitedHealth Group, has been in the works for several years and is based on a proprietary database of more than $136 billion in insurance claims. The tool is available free on the AARP website.

Privacy is promised

You don’t have to register or give your name or address to use the tool, but you will need to enter your age, gender, height, weight and life expectancy, as well as where you expect to live in retirement. (The site says it doesn’t collect any personal information on users.)

Then, you click on a list of 82 medical conditions — like diabetes, arthritis, heart disease or anxiety — to build a health profile. The tool assumes that users have (or will have) coverage under Medicare, the federal health insurance program for people 65 and older.

The tool shows an estimated total tab; what portion Medicare is expected to cover; and what your out-of-pocket costs may be. It also offers suggestions for improving your health to help lower your costs.

To test the tool, I entered information for a 55-year-old man retiring in Florida at age 67, who expects to live 18 years to age 85. (I gave him “mild” arthritis in the knees and “moderate” diabetes.) The calculator said his estimated total would be more than $334,000, of which he could expect to pay $105,000 out of pocket. Managing his diabetes, however, knocked about $6,000 off his tab.

The tool also asks if you have a health savings account, or HSA — a tax-advantaged account that works like an individual retirement account for health costs, and factors any balance in your account into your estimate. (OptumHealth offers health savings accounts, but the health tool is independent of Optum’s HSA sales efforts, Bos said.)

Here are some questions to consider:

Q: I expect to have coverage from my former employer when I retire, so do I need to save less?

A: The tool assumes no insurance other than traditional Medicare and its Part D prescription drug coverage, so having employer benefits may lower your out-of-pocket costs.

Q: Can I open a health savings account if I don’t have a high-deductible health insurance plan?

A: In order for you to be eligible to contribute to an HSA, your health plan must have a deductible of at least $1,250 for an individual and $2,500 for a family.

Q: Does the calculator factor in costs for long-term care?

A: No. Those costs, whether for care provided at home or in an institution like a nursing home, can be substantial and would be in addition to the estimate provided by the calculator.

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