Facing the pain of rising health care costs of an aging population
There are several downsides to our Aging of the Population investing theme, one of which centers on the rising cost associated with aging associated with healthcare. As this new report from Vanguard Group shows, there that cost balloons as we live longer and longer and that poses a savings and investment pain point for us as we age. It also means a pronounced shift in spending as more of the population falls into that age cohort, which presents a natural headwind to the speed of the overall economy. It also helps explain Amazon’s recent acquisition of PillPack and other moves in and around the healthcare space.
In a report, the Vanguard Group, with help from Mercer Health & Benefits, projected a typical woman could easily face $200,000 in out-of-pocket medical costs starting at age 65 and extending over her remaining estimated lifespan of 24 years. (The costs are roughly 2 percent less for men, partly because they tend not to live as long.)
That projection doesn’t include food, housing and other routine expenses — just medical outlays.
But the report instead encouraged people to focus on these costs as an annual expense, not as a lump sum.
It estimated that the same hypothetical woman would spend about $5,200 in annual health expenses in the first year, at age 65, rising gradually after that with inflation. That’s a more reasonable number — a lower figure that might encourage more people to view the challenge as achievable.
That annual figure encompasses most medical expenses retirees would face, including Medicare insurance premiums, drug costs and other out-of-pocket outlays. But it doesn’t include long-term care, which could run tens of thousands of dollars for some retirees or nothing at all for others.
Source: Retirement medical expenses: How to save enough for your care
