Uh-Oh: Good Health Will Cost You More in Retirement

Last Updated May 11, 2010 11:57 PM EDT

Damned if you do, damned if you don't. That's what I'm thinking after poring over some new research that makes the case that the healthier you are at age 65 the more you'll end up paying in out of pocket medical expenses over your lifetime. Yep, good health is going to cost you more money in retirement.

According to the Center for Retirement Research at Boston College, a couple in good health at age 65 in 2009 can look forward to an average tab of $260,000 for out of pocket health care expenses. A couple with at least one chronic disease in the household will end up, on average, spending $40,000 less than that. The gap is even more dramatic at the outlier end of the spectrum; in the 95th percentile for health care costs, the tab for the healthy couple is $570,000 vs. $465,000 for the couple with at least one chronic disease.

This is really giving me second thoughts about maybe living it up a bit more to reduce my life expectancy from the mid 90s to something more affordable. I'm kidding. I think.

The Downside of Being Virtuous
Once again, we have the pesky longevity issue to blame here. I'll let the killjoys at the CRR at Boston College explain:

First, people in good health can expect to live significantly longer. At age 80, people in healthy households have a remaining life expectancy that is 29 percent longer than people in unhealthy households, and, therefore, are at risk of incurring health care costs over more years. Second, many of those currently free of any chronic disease will succumb to one or more such diseases. For example, our simulated individuals who are free of any chronic diseases at age 80 can expect to spend one-third of their remaining life suffering from one or more such diseases. Third, people in healthy households face an even higher lifetime risk of requiring nursing home care than those who are not healthy, reflecting their greater risk of surviving to advanced old age, when the risk of requiring such care is highest.
Once you think about it for a minute, it makes a whole lot of sense. If you're around longer, you're going to run into more medical costs in those extra years. And you end up in the high-risk pool for nursing home care. But I'm still committed to trying to land myself in the healthy-at-65 cohort. Costs be damned. After working my way to retirement, I figure I'll be able to enjoy my retirement all the more if I am in pretty decent health.

Let the Marketing Pitches Begin
There is, of course, one contingent that has been rendered absolutely giddy by this research. The marketing departments at financial service firms. I imagine the teams tasked with boosting long-term care insurance and annuity sales are firing up PowerPoint right now, eager to drop in some references to this research, which just happens to have been financed by Prudential Financial.

I suggest treading cautiously and carefully before buying any retirement-related insurance. Immediate annuities can be a fine complement to any retirement plan, but not at today's incredibly low interest rates. If you feel compelled to annuitize today, make it a small part of your overall portfolio. You can annuitize more in the coming years, at what will likely be higher interest rates. And if you're contemplating long-term care insurance, be sure to check out Kathy Kristof's report of what to look out for before you buy a LTC policy.