Retirees are worried about health care more than anything else.

The greatest financial worry of people over the age of 50 is health care expenses. At least that is what a Merrill Lynch survey conducted in May 2014 discovered. Health care expenses are something of an unknown and can be hard to estimate. And any estimate you come up with is just that… an estimate.

One thing we do know is that the cost of health care has increased over the years. It is increasing faster than household income levels.  According to an AARP study, from 2001 to 2011 households in the middle income classification increased their health care spending by 51%. Over that same time period, household income levels only increased 30%.

Also, we know that health insurance premiums have been on the rise. Premiums for employer sponsored health insurance doubled from 2001 to 2011. This infographic sums it up very nicely:

Rising health care costs

And just to really drive the point home, health care spending per person from 2000 to 2010 has grown at an average rate of 5.6%, compared to an average inflation rate of 2.4%. That’s a bit more than twice the inflation rate!

You can check out those statistics from the AARP study by CLICKING HERE.

Another startling statistic shows estimated total lifetime costs of health care. This is a chart that appeared in the Merrill Lynch study I cited above:

Estimated lifetime health costs

This chart shows estimates of health care costs assuming retirement starts at age 65 and lasts x number of years. Notice that this chart does not include any costs for long-term care expenses. I ran some numbers myself based on current insurance premiums for Medicare supplements. I arrived at a very similar figure for a retirement that lasts 25 years. You can see my discussion of that in the video link at the top of this post.

What Is a Retiree To Do About Rising Health Care Costs!?

It’s good to be aware of this issue. It’s better to do something about it. At least as much as can be done.

First of all, there is nothing that anyone can do to stop rising health care costs. So the best thing to do is focus on what we are in control of, and make changes there.

What Are We In Control Of?

There are some things we have limited control of when it comes to health care costs. We all know that personal health choices play a role. Simple things such as not smoking, staying fit, exercising, and eating a healthy diet.

But another important area that we are in control of is our finances. We are in control of our budgets. And we are in control of the decision on whether or not to plan ahead with a Retirement Income Plan.

If you don’t know what a retirement income plan is… It is a plan that all retirees need to put together before (or when) they retire. It has 3 main components:

  1. How much cash you should have on hand
  2. How much lifetime guaranteed income you need
  3. How much you should allocate to growth accounts to combat inflation

To learn how to put together your own retirement income plan, CLICK HERE.

Estimate Those Medicare Expenses

One piece of information you will need is an estimate of your medical expenses in retirement. Now, we have already discussed how difficult this can be to estimate, especially over a period of potentially 25 to 30 years. But an educated estimate is better than no estimate at all.

So, using some of the information I discussed at the beginning of this article we can make some assumptions:

  1. Since health care expenses have outpaced inflation by about twice, let’s assume that going forward.
  2. A good industry standard inflation estimate is 3%.
  3. Therefore, let’s use a 6% annual increase estimate for health care expenses.
  4. Assume that retirement starts at 65. It is very common to retire when you become eligible for Medicare.
  5. Estimate the price of a Plan F Medicare Supplement. Plan F is used because it pays pretty much all of the Medicare approved charges that Medicare doesn’t pay.

Putting It All Together

So when you turn 65, you have a choice of how to take your Medicare coverage. If you take Original Medicare and purchase a Plan F, your insurance will cover just about all your Medicare approved health expenses. This means the premium you pay for your Plan F (as well as the premium you pay for your Part B) will be your total out-of-pocket expenses for Medicare approved charges.

Using some current rates for a Plan F (these are in the state of TN, so the price may be different in your state), your costs would include:

  • Plan F – $128.99*
  • Medicare Part B premium for 2014 – $104.90
  • TOTAL – $233.89

That’s a good starting point for your first year of retirement. After that, I used a 6% annual cost increase on both the Plan F and Part B premiums. And I ran the figures up to the age of 90, which is 25 years of retirement from age 65. My results came very close to the chart cited in the Merrill Lynch study above. My exact health care cost estimate for a male that retires at 65 and lives till 90 was $224,388.89. Check out my video to see my excel spreadsheet that I used.

My excel spreadsheet shows the monthly health care costs estimates for each year, from age 65 to age 90. That monthly figure is the one you would want to use in your retirement income plan when estimating health care expenses.

Focus On What You Can Control

There are some things that are in our control. So, here are the 3 things you can do to protect yourself against rising health care costs in retirement are:

#1. List your monthly expenses against your lifetime income sources in retirement

You need to make sure that your expenses are under control and that your lifetime income sources can cover those expenses. You won’t know how much lifetime income you need if you don’t take the time to list out your monthly base expenses.

#2. Consider a diversified portfolio to combat inflation

Your retirement may be longer than you think. If you retire at age 65 it could last 30 years. It is no uncommon for someone to live into their 90’s. That’s a long time for inflation to cause prices to rise. You need a portfolio that at least gives you a fighting chance against inflation.

#3. Put together your own personal retirement income plan

The retirement income plan is going to show you how much cash you need to safely have on hand, how much in guaranteed lifetime income you need, and how to fight back against inflation with a diversified portfolio. If you don’t know how to put together a retirement income plan, CLICK HERE to get your free e-report on how to create a Retirement Income Plan.


Since we can’t stop the increase in the cost of health care in the future, it’s better to focus on what you are in control of. You are in control of your finances. And in retirement you need to be proactive on ways to keep costs under control. Using educated estimates and forecasts is essential when planning for your retirement.

Also, don’t forget to check out my free e-report that shows you how to put together a retirement income plan. It shows you the best way to combat inflation, which is extremely important since retirement can last up to 30 years and beyond. Inflation can do a lot of damage in that time period. CLICK HERE to get your free e-report on how to create a Retirement Income Plan.

Best of luck!


P.S. If you have any questions or comments, you can leave them in the comments section below. If you have a question you want to send directly to me, you can email me. I’ll do my best to help point you in the right direction.

*NOTE: This is not an offer to sell a Plan F Medicare Supplement or any insurance. This is just one company’s monthly rates in an area of TN for a 65 year old male as of the writing of this article. Rates change and may be different in the future. Consult your insurance agent before making any decision on your Medicare coverage.