Medical costs soar for retirees

Study: Typical couple needs quarter-million

March 26, 2009 

DES MOINES, Iowa — As if saving for retirement weren't enough to worry about, now comes a study that shows a cou- ple retiring this year needs about a quarter of a million dollars to cover medical expenses.

The $240,000 estimate is a 6.7 per- cent increase from last year's, and the cost is expected to keep rising.

The Fidelity Investments study is based on projections for a 65-year-old couple retiring this year with Medicare insurance. It assumes no employer-provided insurance and a life expectancy of 17 years for the man and 20 years for the woman.

To paint a full picture, Fidelity also factors in Medicare deductibles, copayments, as well as certain services that may not be covered.

In just seven years of its annual study, projected medical expenses have increased by 50 percent.

When you retire, health care is likely to be your largest expense and it's one that many people forget to factor fully into their retirement plans, said Sunit Patel, a sen-ior vice president at Boston-based Fidelity.

"A lot of individuals feel today that Medicare covers a vast majority of costs," he said. "We know that's not true. It's better not to be blind about that."

In fact, Medicare pays about half the health care costs for current retirees and it could be less very soon.

The Medicare trust fund reported last year that it expects to be insolvent in 2019 and needs a payroll tax increase or a cut in benefits to keep it fully functional. That means Medicare may not provide the same level of support for future retirees, making it more vital to understand the medical costs in retirement.

"There are deductibles and co-payments and things that aren't covered that people aren't aware of until they get there unless they have a parent that they're helping navigate the system," said Paul Fronstin, director of health research and education at the Employee Benefit Research Institute.

The benefit institute has researched rising health care costs in retirement. It found that just 12 percent of private companies offer insurance for retired workers.

That means most retirees need to buy insurance themselves or pay medical costs out of their savings.

Patel said it may make sense to start thinking about a savings account separate from your retirement account for health care.

"We think it's significant enough that it should potentially be a distinct goal," he said.

If you've been looking at a ravaged 401(k) balance, you likely don't want to hear that.

Patel said he understands that sentiment, but believes it's better to be forewarned than caught off guard.

Without a plan, you could end up having to significantly change your lifestyle from what you had expected or looking for a job to pay for health costs.

"We have to face up to the reality of the situation, and that may be that people have to work longer just for health care," benefit institute researcher Fronstin said.

Experts advise researching supplemental health insurance options so you enter retirement informed.

You may want to consider a phased retirement in which you go from full time to part time if your employer offers health insurance for part-time workers. By gradually entering retirement, you delay tapping into savings.

Once you're retired, ways to save money on health care include getting routine screenings to stay ahead of any health issues, selecting quality providers by using the Department of Health and Human Services Web site,, and routinely reviewing claims for accuracy to ensure you're not paying more than necessary.

On the Net:

Fidelity Investments,

Employee Benefit Research Institute,

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