Advisers' female clients will face higher retiree health costs

New report details the high cost of living longer with fewer resources than men

Dec 7, 2016 @ 12:15 am

By Mary Beth Franklin

+ Zoom

Because of longer average life expectancies and lower average lifetime earnings, women need to plan for much higher retirement health care costs than men with far less savings and benefits, according to a new report from HealthView Services.

Although average health care costs for men and women are similar during their lifetimes, the fact that women tend to live two years longer than men mean they will have more years to pay Medicare premiums and other out-of-pocket costs.

And because husbands are often a few years older than their wives, according to the 2014 Current Population Survey, many women will spend their final years alone, often after depleting household assets to pay for the care of the first spouse. Driven by health care inflation, which is expected to increase by about 6% per year, medical costs in the final years of life will be the most expensive.

Rising divorces rates among older women, which may reduce available assets in retirement, are also a significant concern.

“While the challenges facing women should not be underestimated, with careful planning and preparation, financial security in retirement is an achievable goal for many,” said Ron Mastrogiovanni, founder and CEO of HealthView Services, a provider of health care cost data and planning tools for the retirement industry. “It is our intention for the data in this report to serve as a starting point for discussions leading to plans that reflect the future needs of women in retirement.”

The average expected future retirement health care premiums for Medicare Parts B and D, as well as supplemental medigap insurance, for a healthy woman retiring this year at age 65 and living to 89 are projected to be $235,516, according to the new report, “The High Cost of Living Longer: Women & Retirement Health Care.” That compares to $199,946 for men who are expected to live to age 87.

Adding all out-of-pocket costs, including hearing, vision and dental expenses not covered by Medicare, a 65-year-old women's total lifetime health care costs rise to $314,673, 17% higher than total health care costs of $267,395 for men.

(Related read: The Longevity paradox: As Americans live longer, they run the risk of outliving their money)

These numbers assume that modified adjusted gross income is retirement is below $85,000 for individuals and $170,000 for married couples that would trigger high-income premium surcharges for both Medicare Part B, which covers doctors' visits and outpatient services, and Part D prescription drug coverage.

“Americans can effectively address the woman's longevity gap through annuities, longevity insurance, life insurance or increased contributions to a 401(k) and/or a tax-free health savings accounts (HSAs),” the report said. Another option for the couples to cover the gap is to earmark $25,500 growing at 6% annually in an account dedicated to retirement health care costs.

Meeting long-term care needs will be an additional challenge. The U.S. Department of Health and Human Services predicts that 70% of people turning 65 will need some form of long-term-care in their lifetime. The HealthView report uses a blended approach that reflects the probability of needed care and future costs of each service to calculate the savings needed to cover this potential expense.

For example, a 55-year-old woman living to an average life expectancy of 89 is projected to have 32% chance of needing nursing home care for two years at a cost of $694,743; a 28% chance of needing assisted living services ($258,934); and a 40% chance of needing home care ($193,098). The report uses a weighted average long-term care cost of $372,631.

This is a significant reduction from the almost $700,000 a 55-year-old woman might need to cover about two years of nursing home care. Using a blended rate in the planning process makes the goal of affording end-of-life care more attainable.

For example, a 55-year old could earmark $61,200 of investments growing at 6% annually to cover that potential $372,000-plus long-term care costs, the report said. Other options include long-term care insurance, long-term care riders to an annuity or life insurance policy; longevity insurance or increased contributions to a 401(k) or health savings accounts.

(Related read: Mary Beth Franklin: These retirees will see a substantial increase in their Medicare premiums in 2017)

“As modern-day women, we need to acknowledge the challenges we will surely face and take the necessary steps to plan for future health and specialized care expenses,” Marcia Mantell, CEO of Mantell Retirement Consulting Inc., and author of “What's the Deal with Retirement Planning for Women?" (People Tested Books, 2015), wrote in the forward of the HealthView report. “There is only one way for women to do this: Plan ahead.”

Separately, a new report by Ascensus, a leading provider and administrator of health savings accounts, said these tax-advantaged accounts are growing in popularity, increasing 22% in 2015 to 16.7 million accounts with assets of more than $30 billion.

“Savers over age 55 account for 34% of health savings assets on the Ascensus platform, suggesting that more savers are leveraging HSAs as a tool to increase overall retirement savings,” the report said.

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