No retirement plan is complete without budgeting for healthcare costs

Written by Sahas Gulati

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Healthcare costs are increasing rapidly, and they shoot up dramatically post-retirement. If you do not plan ahead for these expenses, they could potentially cause you to run out of money during retirement.

The incidence of chronic diseases goes up substantially during your senior years, often requiring lifelong medication.

In India, a high percentage of these healthcare costs are paid out of the patient’s pocket.

Inflation in healthcare costs is much higher than the general rate of inflation; your retirement corpus needs to account for this.

As you approach your senior years, ensure adequate health cover that you could continue into your retirement.

Consider the following excerpts from Current Issues in Geriatric Health Care in India - A Review (Khan S and Itrat M. J Community Med Health Care. 2016)


“one out of two elderly in India suffers from at least one chronic disease which requires lifelong medication.” and “a geriatric individual takes an average of six prescription drugs concurrently”


“As per 2011 census, most common disabilities among the aged were locomotor and visual; almost half of the elderly disabled population was reported to be suffering from these two types of disabilities.”

High incidence of illness during retirement

Source: National Sample Survey Office

The problem of healthcare costs for the elderly is especially acute in India. According to 2011 World Bank data, a sizeable 61.2% of healthcare expenses came out of the patient’s pocket, more than double the average for the remaining BRICS economies, and more than three times the average for OECD countries.

Out-of-pocket heathcare expenses in BRICS economies

Source: World Development Indicators (2011)

Costs are only getting higher


According to the 2018 Global Medical Trends Survey Report by Willis Towers Watson, inflation in healthcare costs in India in 2017 was 11.3%, a massive 7.5% points higher than general inflation; the report continues to forecast a healthcare inflation rate of 11.3% for 2018 as well. More simply, at this rate healthcare costs would more than double every seven years. Therefore, every retirement plan should not just factor is the high healthcare costs that come with old age, but also the rate of inflation in these costs, which is far in excess of the general rate of inflation.

Health insurance for senior citizens


The incidence of illness and the cost of treatment are not the only variables that go up with age; so does the health insurance premium. In fact, most general insurance companies do not issue new regular health insurance policies to customers over 65 years of age. If you are above 65, and are in the market for a new insurance policy, you would have to be content with fairly restrictive health insurance policies designed especially for senior citizens. Such policies have higher premiums, require copayments from the insured, place sub-limits on various expenses, and may have longer waiting periods for certain conditions.

While it is better to have a restrictive health insurance policy than to have no policy at all, the best approach is to buy a good health cover well in advance of your retirement, and continue renewing it afterwards. Remember that even if your employer provides a health insurance cover, it would not continue into your retirement years. By buying a separate health insurance policy and continuing it into your senior years, you do not have to put up with the restrictions of a senior citizen plan.

Create a separate healthcare corpus


Whether you have a regular or a senior citizen health insurance plan, ultimately, it would not not cover every expense. Some standard exclusions apply to all policies - cataract, hearing aids, dental procedures, etc. Moreover, non-hospitalisation expenses form a large part of your overall medical bill during your senior years, and are not comprehensively covered by health insurance policies.

By some estimates, an otherwise healthy retired couple could spend upwards ₹50,000 per year on non-hospitalisation expenses. As per a 2009 report by the Planning Commission, which looked at out-of-pocket non-hospitalisation expenses of 400 urban households across UP, Rajasthan, and Delhi, 81.4% of the expense was on medicines, 6.5% on doctor’s fee, 7.2% on transportation, and 4.9% on diagnostics.

Non-hospitalisation healthcare expenses in India

Source: World Development Indicators (2011)

Therefore, it is imperative that in addition to getting health insurance, you create a corpus to manage these additional medical bills. You could begin planning this corpus by considering two separate categories - non-hospitalisation expenses and expenses for hospitalisation not covered by insurance. Consider the following example:

For the first category, assuming a ₹50,000 annual bill for non-hospitalisation expenses, and a 30 year retirement, you would need a corpus of ₹15,00,000. For the second category, assume four minor procedures not covered by insurance, per retired couple, during the course of their post-retirement life. At an estimated cost of ₹1,00,000 per procedure, the total corpus for the second category could be ₹4,00,000 in today’s money. Note that we have just calculated the total corpus of ₹19,00,000 in today’s money, i.e., not accounting for inflation.

To maintain the value of your corpus, you should continue holding your investments even after retirement. However, post-retirement investment portfolios tend to be conservative; while post-tax returns on such portfolios may help you beat annual inflation of upto 6% (applicable to your other expenses), they don’t suffice for health care inflation which, as we discussed above, could be in excess of 11% annually.

Since making aggressive investments post retirement is not option, you need to create a larger corpus for medical expenses. With 6% overall inflation and 11% inflation in healthcare costs, and assuming for simplicity that you withdraw your investments for medical bills during the beginning of the year, you would need a corpus which is 2.1 times, i.e., slightly more than double, your original estimate of ₹19,00,000.

(Please note that the above example is for illustrative purpose only. While planning your healthcare corpus, please consider the your existing conditions, and the ones you may be susceptible to. Finally, don’t forget that the cost assumptions in the above example are in today’s money, i.e. in terms of spending power in the year 2018)

Mind your health

As you go about planning your medical expenses for retirement, the importance of managing your health in the decade leading up to your retirement bears mentioning. This is the time when your lifestyle choices of the past thirty years have caught up. This is also the time when stress levels are potentially high with many of the life’s financial milestones - higher education and wedding expenses for the kids, paying off the mortgage, creating a retirement corpus - concentrated in one short decade. So whether you are on the cusp of retirement or still a few decades short, it’s also your health, and not just healthcare, that you should be planning for.

Published on: September 5, 2018

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