Vanguard Research Reframes Retiree Healthcare as Annual Expense

A new study from Vanguard claims framing healthcare costs in retirement as a yearly expense rather than a lifetime lump sum can help investors better understand total annual expenditures and plan accordingly during their retirement years, reports InvestmentNews . "Most analyses available today point to a daunting out-of-pocket healthcare expense over the lifetime of a retiree," notes Vanguard's Jean Young. "These large dollar values can be demotivating for investors from a psychological and behavioral perspective. Instead, our model focuses on the more manageable task of planning for incremental, annual health care costs, while separately considering and integrating the potential for long-term care expenses." Research found a key input in understanding potential costs is the amount of healthcare services a person may consume in retirement, which can be estimated based on pre-existing chronic conditions and family health history. Also impacting out-of-pocket costs is the type of Medicare coverage that a retiree chooses, and whether their income dictates additional surcharges. Vanguard estimated that 50 percent of individuals will incur no long-term care costs, but 15 percent could incur more than $250,000. Vanguard recommends all retirees consider the possibility of an extended, costly long-term care stay, given the magnitude of the potential expense.