How Much is Enough? The Distribution of Lifetime Health Care Costs

Posted: 11 Apr 2010

See all articles by Anthony Webb

Anthony Webb

Boston College - Center for Retirement Research

Natalia Zhivan

Boston College - Center for Retirement Research

Date Written: February 1, 2010

Abstract

Estimates of the expected present value of lifetime out-of-pocket medical costs from age 65 onward are of limited value to households managing wealth decumulation in retirement. Their risk characteristics may differ from the average. They will also care about the whole probability distribution of health cost outcomes, and will want to update that probability distribution during the course of retirement. Using Health and Retirement Study data, we simulate health, mortality, and health cost histories of retired households. We show that the life expectancy and average health costs of our simulated households closely match published life tables and the findings of previous research. Using our simulated data, assuming a 3-percent real interest rate and including Medicare and private insurance premiums, we estimate that a typical household age 65 has a 5-percent risk of the present value of its lifetime health care costs exceeding $311,000, or $570,000 including the cost of long-term care. We find that relatively little resolution of uncertainty occurs with age, even for those who remain free of chronic disease.

Suggested Citation

Webb, Anthony and Zhivan, Natalia, How Much is Enough? The Distribution of Lifetime Health Care Costs (February 1, 2010). Available at SSRN: https://ssrn.com/abstract=1568137

Anthony Webb (Contact Author)

Boston College - Center for Retirement Research ( email )

Fulton Hall 550
Chestnut Hill, MA 02467
United States

Natalia Zhivan

Boston College - Center for Retirement Research ( email )

Fulton Hall 550
Chestnut Hill, MA 02467
United States

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