A new report suggests that people approaching retirement look at health-care expenses in later life in terms of recurring and nonrecurring services, and it offers some numbers that can be helpful in crafting a retirement budget.

Health care represents the second-largest budget item (after housing costs) for retirees. But planning for those expenses can be challenging, given increasing life expectancy and the possibility that medical bills can increase substantially with age.

A good way to think about such bills might be to separate the more predictable expenses from the less predictable oneswhich is how the Employee Benefit Research Institute in Washington, D.C., frames the issue in a recently published report.

Based on data from the Health and Retirement Study, a survey of U.S. households age 50-plus, EBRI defines predictableor recurringexpenses as doctor visits, prescription-drug use and dentist services. All three have high usage, and that usage is consistent across different age groups.

By comparison, less predictableor nonrecurringevents include overnight hospital stays, overnight nursing-home stays, home health care, outpatient surgery and special facilities.

EBRIs findings: Recurring health-care costs appear to remain stable throughout retirementand across all age groups. Among the Medicare-eligible population (age 65-plus), the average, annual out-of-pocket expenditure for recurring health-care expenses, according to EBRI, was $1,885.

If we assume a 2% rate of inflation and 3% rate of return on savings, a person with a life expectancy of 90 would need almost $41,000 (to be exact: $40,798) at age 65 to fund his or her recurring health-care expenses through end of live. (Note: That figure doesnt include other recurring expenses like insurance premiums or over-the-counter medications.)

With nonrecurring expenses, the math is trickier; thats because, by definition, both the usage and intensity of usage of these types of services are very uncertain, the report states. Here, instead of providing a single figure needed at retirement, EBRI looks at specific services.

Case in point: nursing-home stays. For individuals ages 85 and older, the average and the 90th percentile of nursing-home expenses were $24,185 and $66,600, respectively, during a two-year period.

Equally important, the report looks at the use of health-care services in, roughly, the 12 to 24 months preceding to examine the extent of backloading in health-care expenses. Among the findings: More than 50% of people in every age group above 65 received in-home health care from a medically trained person before death, according to EBRI. For individuals age 85-plus, 62.3% had overnight nursing-home stays before death, and 51.6% were living in a nursing home before death.

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Encore: A smarter way to budget for retirement health-care costs