Planning for health care costs in retirement

Vanguard engaged Mercer Health and Benefits to develop a new model to forecast health care costs for U.S. retirees. Vanguard believes that retirement planning frameworks should be adapted as follows:

  • Planning for annual health care insurance premiums and out-of-pocket expenses

    at retirement should be distinct from planning for long-term care expenses.

  • Some research on health care costs in retirement estimates these expenses as a lifetime lump sum. We believe that a better planning framework considers these costs as annual expenses personalized to an individual’s health status, coverage choices, retirement age, and loss of any employer subsidies. For a typical 65-year-old woman, the Mercer-Vanguard model predicts an annual health care expense of $5,200 in 2018.

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