When my Vanguard colleagues learned I was part of the team responsible for formulating our position on planning for health care costs in retirement, they’d say, “Finally! What’s our number?” A reasonable question, because almost any discussion about health care costs starts with a big, scary number.

For example, the Employee Benefit Research Institute (EBRI) estimates that a 65-year-old couple needs $265,000 to ensure they can pay for lifetime health care costs. The Center for Retirement Research at Boston College puts that figure at $197,000. Google “health care costs in retirement” and you’ll find yourself immersed in an ocean of similar numbers, none of which include long-term-care costs. Yikes!

Life isn’t lived all at once

We decided that Vanguard wouldn’t use a lump-sum number to talk about health care costs in retirement. Why? Because lump-sum estimates depend more on future assumptions (e.g., life expectancy, growth of health care expenses, and investing rate of return) than on actual annual health care costs. A 65-year-old couple has a joint life expectancy of 27 years—virtually any expense calculation projected over such a long period will be high.

Health care fits into the “basic living expenses” category. It’s impractical to combine health care costs into a lifetime lump-sum estimate, just as it would be impractical to do so for food or clothing. These expenses are regular budgetary items, not one-time costs. Nobody says, “The average retiree will spend $600,000 just for food, clothing, and shelter over the course of retirement,” for good reason.

Take it 1 year at a time

Focus on figuring out your annual heath care cost. Vanguard estimates a typical 65-year-old can expect to spend about $5,200 in 2018.* This number is based on a model of health care costs we created in partnership with Mercer Health and Benefits. However, none of us may end up being “typical.” Annual costs could range from less than $3,000 to almost $20,000, depending on your particular situation.

To get a sense of where you might fit, ask yourself these questions:

  • Does my employer offer retiree health care benefits?
  • Am I healthy?
  • If I retire before age 65, how will I “bridge to Medicare”?
  • Which Medicare plan (or plans) will I choose?
  • Where do I live now (and where do I plan to live in the future)?
  • Will my income be high enough to subject me to Medicare premium surcharges?

When you retire, you may be looking at an increase of several thousand dollars a year for health care. Your increase is likely to be most dramatic if you’re in poor health or you have a low-cost subsidized employer-provided plan before retirement (not in retirement). For most retirees, however, the increase in annual costs represents a change to budget for, not a cost to fear.

Spending more, but spending less                                 

What about health care expense growth? Retirees can expect annual costs to increase throughout retirement. Our research shows a typical 65-year-old could see his or her annual health care costs double, in inflation-adjusted dollars, by age 85.

Don’t worry about this growth too much. The truth is that most other expenses decrease in inflation-adjusted dollars as we age—enough to cover rising health care costs. For example, spending data from the Bureau of Labor Statistics show the average single household aged 75 years and older spent over $500 more per year on average health care costs than those aged 65–74. However, the 75+ group also spent nearly $2,000 less on transportation costs annually. It seems like the more we need to spend on health care, the less we spend on other things.

My parents are in their late 70s, and they spend more time worrying about how to get rid of stuff than thinking about buying new stuff. (Note to Mom: Yes, I know that Dad just bought another new pair of skis, but I’m making a point!) But they also take a generous handful of pills every day. Even if their overall expenses aren’t any higher than they used to be, it doesn’t mean they don’t notice how much they’re spending on all those pills.

What are you afraid of?

Medical costs become more prominent as we age, but those increases aren’t likely to derail our retirement plans. Maybe scaring ourselves about future health care costs is a proxy for our true fear: getting older. How long will it be before I’m taking my own handful of pills? Did I really get that catch-up contribution-eligibility email this year? (Couldn’t they wait until my birthday to remind me that I’m turning 50!?)

Or maybe what we’re afraid of is the prospect of needing costly long-term care, which can be expensive for some retirees—in fact, according to our research, about 15% of retirees may experience long-term-care costs in excess of $250,000. But long-term care is a topic worthy of its own discussion.

Stay tuned for more about long-term care in the coming months.

*This estimate is projected premium, out-of-pocket, dental, and vision costs for a single woman with medium health risk purchasing a traditional Medicare including Part D and Supplemental Plan F in a median cost location. For more information, see Planning for health care costs in retirement.


The health care cost forecasting model provides likelihoods of estimated lifetime and annual health care costs expected in retirement, in addition to estimates of long-term care costs. It relies on numerous assumptions and underlying data sources. All estimates are based on the information available at a point in time and are subject to unforeseen and random events. Therefore, any projection must be interpreted as having a likely range of variability from the estimate. Mercer built this model exclusively for Vanguard. Mercer is not responsible for use of this model by any other parties.