How will higher health costs impact your retirement plan?

If you haven’t done a check-up on your retirement health care costs lately, it’s a good time to update the numbers. Medicare’s premiums and out-of-pocket costs will jump over the next several years due to rising health care costs and changes in the program made by Congress.

After several years of minimal health care inflation, higher costs started showing up in the 2015 data. The projected health care expense in retirement for a married couple with median drug expenses jumped 7.5 percent to $158,000 in 2015 from 2014, according to the Employee Benefit Research Institute (EBRI).

Paul Fronstin, director of EBRI’s health research and education program, cautions planners against relying on the median figures, however. “If you plan to the median you have a 99 percent chance of being wrong,” he says. “Half of us will live longer and half won’t make it to average —so then the question is, how wrong are you?”

To be 90 percent sure, a married couple would need $259,000 in lifetime retirement expenses. A couple with high drug expenses (the 90th percentile) would need $392,000, up 20 percent from last year. (EBRI’s figures include premiums for Medicare Parts B and D and Medigap, plus out-of-pocket drug expenses.)

I break down the underlying trends driving those numbers in my WealthManagement.com column this month.

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