Health Math

September 30, 2009

Here’s a little math problem. Let’s see who can solve it first. The question is this: How much money would you need to give to a 21-year old today, in a lump sum, so he can invest it and pay for his lifetime of healthcare?

Your assumptions are as follows:

–        Life expectancy: 85

–        Health insurance currently costs $6,000 per year

–        Healthcare costs rise 10% per year

–        Investment income averages 4% per year after taxes

–        You can spend your principle too, so you have zero left at death

Feel free to add any assumptions I left out, except for assuming a higher investment return. You would invest your healthcare money in something safe, such as municipal bonds.