What Women Need to Know

When planning for health care costs during retirement, women should be aware that they face higher lifetime costs than men. The primary reason for this cost disparity is longevity. According to a recent report from Milliman1, the life expectancy of women is approximately two years longer than men. Consequently, the average woman will incur two additional years of health care-related expenses, including premiums and other out-of-pocket costs. This is compounded by the fact that the average woman is more than two years younger than her husband. Therefore, a married woman may be forced to pay health care-related expenses for up to four years or longer after her husband’s death.

A healthy 65-year-old couple who has retired in 2022 are estimated to pay $564,000 in health care expenses over their lifetime. While a portion of these costs may be covered by Medicare, Medigap, and Medicare Part D, this still requires approximately $371,000 in current savings upon retirement, assuming a 3% return per year, to personally fund these expenses.1 These figures assume that the individual’s (or married couple’s) modified gross income remains below the thresholds that trigger Medicare’s income-related surcharges.

Planning ahead for these potential costs is a vital component of a comprehensive financial plan. Individuals who have some time before retirement can set aside the funds necessary to ensure that a surviving spouse is able to afford premiums and other health care costs. Health care costs are estimated to increase by 4.6% annually over the next 25 years1 and will be highest during the final years of life. When planning, couples should consider their current health and prospects for longevity. Individuals in excellent health have a greater chance of living beyond life expectancy and facing additional years of health care expenses.

There are a variety of ways for a couple to ensure that a wife will be able to cover health care costs after her husband’s death. For example, a couple may consider an annuity that will provide income for the surviving spouse’s life. A couple may also consider a life insurance policy with a death benefit that will provide the surviving spouse with income to cover health care costs. Finally, a couple may increase savings in employer-provided retirement plans, IRAs, and health savings accounts (HSAs) with the goal of providing for future health care costs.

Unfortunately, these costs do not account for the potential future need for long-term care. Since Medicare will only provide funds for a short period under very specific circumstances, additional planning is necessary to address the potentially catastrophic costs associated with long-term care. Be certain to consult with your Stifel Financial Advisor, tax professional, and legal advisor to assess your options.