Quick answer, a lot of money!
For more years than I care to admit I helped employees prepare for retirement. These were people in a large corporation who had a good pension and good health benefits mostly paid for by their employer. These are people in a distinct minority in America (unless you happen to be a state government employee). However, even these lucky individuals had no idea of the potential out-of-pocket costs they would face in retirement for health care expenses. Many entered retirement fat, dumb and happy with their situation. During retirement planning meetings, someone would ask, “What happens to my health benefits if I should die, can my wife keep them?” The answer was, “Yes, but she would have to pay 100% of the premium or about $350 a month if she was on Medicare or about $500 a month if not on Medicare.” The room became silent as the potential retirees calculated that the $500 was nearly 25% of the average pension they would receive…ooops! Oh, that $300 by the way was only covering the premium for the supplemental coverage.
The simply truth is that if you are going to pay for health benefits on your own during your retirement, you probably cannot retire before you are eligible for Medicare. If you and your spouse are age 65 or over you should figure on paying $900 to $1,000 per month for Medicare, supplemental coverage and your out of pocket costs…no kidding. And, that assumes you have only average medical bills.
Here is a good look at the overall picture and some expert estimates on how much you will need once you are on Medicare based on your situation. The calculations were done by the Employee Benefits Research Institute.
SAVINGS TO SUPPLEMENT MEDICARE WITH MEDIGAP AND PART D: EBRI finds that a man with median drug expenditures would need $65,000 in savings and a woman would need $93,000 if they want an average (50 percent) chance of having enough money to cover health care expenses in retirement. For a higher (90 percent) chance of having enough, a man would need $124,000 and a woman $152,000. A couple both with median drug expenses would need $158,000 for a 50 percent chance of having enough money, and $271,000 for a 90 percent chance. At the highest (90th percentile) level of drug spending, a man would need $187,000 and a woman $213,000 to have a 90 percent chance of having enough money to cover health care expenses in retirement.
SAVINGS TO SUPPLEMENT MEDICARE WITH SUBSIDIZED EMPLOYMENT-BASED COVERAGE: A 65-year-old man retiring in 2010 with retiree health benefits from a former employer will need $66,000 to have a 50 percent chance of having enough savings to cover health care expenses in retirement; for a 90 percent chance, he would need $125,000. Women would need $88,000 and $143,000, respectively. Few employers continue to provide subsidized retiree health coverage.
SAVINGS TO SUPPLEMENT MEDICARE WITH EMPLOYMENT-BASED COVERAGE WITHOUT SUBSIDY: Retirees who have employment-based retiree health benefits to supplement Medicare and whose former employer does not subsidize premiums will need to save more money than retirees whose premiums are subsidized. A man without subsidized premiums would need $109,000 in savings to cover health care costs in retirement if he wants a 50 percent chance of having enough money to cover health care expenses in retirement, while a woman would need $146,000. To have a 90 chance of having enough savings to cover health care costs in retirement, a man would need $211,000 and a woman would need $242,000 if the benefit is through a former employer and not subsidized.
WIDE VARIATION IN MEDIGAP PREMIUMS AFFECTS SAVINGS TARGETS: There is wide variation in Medigap premiums. The average premium was $1,479 for Plan F in 2010, but Connecticut had the highest average premium for Plan F at $2,493. Indiana has the higher premium variation, with at least one plan offering Plan F at a premium of $14,604.