Retiring Americans Face $260,000 in Health Care Costs

Tue Mar 2, 2010 4:27pm EST

* Reuters is not responsible for the content in this press release.

For 1 in 20, costs could exceed $500,000, Center for Retirement Research Study
NEWARK, N.J.--(Business Wire)--
Health care costs for retiring Americans, including nursing home care, average
$260,000 and can exceed $500,000, according to new research conducted by the
Center for Retirement Research (CRR) at Boston College and underwritten by
Prudential Financial (NYSE: PRU). 

According to the study, "What is the Distribution of Lifetime Health Care Costs
from Age 65," in over 300,000 simulations the average remaining uninsured
lifetime health care expenditure for a typical married couple age 65 is
$197,000. This amount represents the present value of the couple`s premiums for
Medicare and private insurance, out-of-pocket payments, and home health costs,
but does not include nursing home care. And while this figure represents the
average, many households will incur greater expenditures. In fact, a typical
household has a 5-percent risk that the present value of its lifetime uninsured
health care costs will exceed $311,000. And when nursing home costs are
included, the amount for a typical couple increases to $260,000, with a
5-percent risk of exceeding $570,000. 

"Even at the peak of the stock market in 2007, less than 15 percent of
households approaching retirement had accumulated that much in total financial
assets, much less financial assets available for health care costs," states
Alicia Munnell, director of the CRR. 

The CRR undertook the study to better determine the risk American households
face of incurring exceptionally large health care expenses in retirement. "The
objective of the analysis was not to calculate how much households spend on
health care in practice, or even how much households should optimally choose to
set aside to cover health care costs - but to quantify the magnitude and
distribution of potential lifetime expenditure," according to Anthony Webb,
associate director of research for the CRR. 

The study cites the main sources of retired households` health care cost risk as
co-payments for Medicare covered payments and payments for non-covered services,
such as nursing home care. About one-third of individuals turning 65 in 2010
will need at least three months of nursing home care, 24 percent more than a
year, and 9 percent more than five years.1 In 2008, the annual cost of a nursing
home was about $71,000 for a semi-private room and $79,000 for a private room.2
Medicare pays for a maximum of only 100 days of nursing home care. 

"Americans need to assess the possibility that they may incur out-of-pocket
health care costs that are significantly higher than average," said Malcolm
Cheung, vice president of Long Term Care for Prudential. "Without managing this
risk, in some cases, a household may possibly have to either forego needed
health care or rely on Medicaid." 

The study also found that although lifetime health care costs decline with age,
they remain substantial. At age 85, couples face an average remaining lifetime
cost of $140,000 without nursing home care, and they face a 5 percent risk of
exceeding $266,000. Including nursing home care, the average cost is $203,000,
with a 5 percent chance of exceeding $477,000. 

The study concludes that when deciding how much to save for retirement, and how
rapidly to draw down their wealth during retirement, households need to

* What risk they are prepared to accept of having their assets substantially
depleted by health care costs 
* Whether they are above or below the average risk of incurring exceptionally
high costs 
* Whether they should insure against health care costs by purchasing long-term
care insurance.

To download a copy of the issue brief, or view a video of the study findings,
visit or 

Prudential Financial, Inc. (NYSE: PRU), a financial services leader with
approximately $667 billion of assets under management as of December 31, 2009,
has operations in the United States, Asia, Europe, and Latin America. Leveraging
its heritage of life insurance and asset management expertise, Prudential is
focused on helping individual and institutional customers grow and protect their
wealth. In the U.S., the company`s Rock symbol is an icon of strength,
stability, expertise and innovation that has stood the test of time.
Prudential's businesses offer a variety of products and services, including life
insurance, annuities, retirement-related services, mutual funds, investment
management, and real estate services. For more information, please visit 


1 Spillman and Lubitz (2002); Congressional Budget Office (2004). 

2 Prudential (2008).

Prudential Financial, Inc.
Simon Locke, 973-802-7373
Lisa Bennett, 973-802-2894

Copyright Business Wire 2010

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