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Fidelity Estimates You Will Need $275,000 for Medical Care in Retirement

In 2017, almost 10,000 Americans will enter retirement daily.  The Baby Boomers are driving this surge in retirement, contributing 33 million more retirees over the next seven years to the current 24 million already in retirement.  If you are one of these current or prospective retirees, then you can look forward to more time with the family, a life of relaxation—and mounting medical bills.

A new report by Fidelity estimates that if you and your spouse are like the average retirement couple, you will need $275,000 to pay off all of the health care expenses of your twilight years.  This is a 6 percent increase over the estimate last year, suggesting that the cost of medical care is expected to rise.

Unfortunately, the average retirement savings for American families is about $95,000, leaving a major shortfall for most people. Even though most retirees will have about half of their health care expenses paid by Medicare, that still leaves you without thousands of dollars for your much needed medical care.  You may think that you can shore up this financial gap with other retirement benefits like Social Security, but the average Social Security retirement benefit is only $1,315 a month.

Retirement health Savings

Why Do You Need So Much?

Most people understand that prices of consumer goods naturally rise over time due to inflation, and that is true with health care.  However, health care prices seem to be rising much faster than most other goods and services. A major industry analyst predicts that the cost of medical services will rise 6.5 percent in 2018 alone. Although this is the first major jump in three years, it suggests that prices will continue to rise dramatically in the future.

There are many reasons why you should expect more of your dollars to go towards paying for health care.  The first reason is that the economy as a whole is heating up again and this will inflate prices for almost everything that you buy.  The past few years, the U.S. has been in a recession or modest growth which has suppressed price growth, but as the economy shifts into higher gear, manufacturers and service providers will have raise prices to meet demand and higher worker wages. Health care, which naturally beats general inflation, will also increase prices as the cost of supplies and labor also rises.

Another key reason why health care costs are growing so rapidly is that prescription drug prices are skyrocketing. In 2016, Americans spent almost $425 billion on prescription drugs, or almost 10 percent of the nation’s entire health care expenditure.  Unfortunately, our government doesn’t manage drug prices like other countries, and this allows companies to set their own exorbitant prices.

Pills On Dollar Money Isolated On Black Background. Medicine Exp

American doctors also tend to over-use the tools available to them, and this can add quite a bit to a medical bill.  Because most people who see a doctor usually have insurance, physicians feel comfortable running a full battery of tests or multiple treatments to obtain a correct diagnosis or an optimal outcome.  While many of these procedures are beneficial, others are unnecessary and merely inflate the bill.

Possible Solutions

There are a number of potential solutions, but most people will need to be lucky to use them. The most obvious solution is to just not retire.  More Americans are working through retirement; the Pew Research Center reports that 18.8 percent of people 65 or older are continuing to work—up from 12.8 percent in 2000.

Working past 65 has some real advantages.  If you are like most workers, you probably have a pretty good employer health plan that will defray a large portion of your health care costs.  Furthermore, with unemployment at lows, more employers are eager to keep on experienced employees.  Even if you are unable to remain with your old employer, you will find it easier to find a job.

The other major potential solution is to enroll in a robust Medigap health plan. These health plans are offered by private insurers and are intended to help pay for out-of-pocket expenses like copayments and deductibles.  While they may not cover nursing facilities, vision, dental or long term care, they can pay off a large part of those medical expenses that Medicare won’t.  For only a few extra dollars a month, you can fill in those coverage gaps and rest assured that you are better prepared for retirement.

Another smart strategy is to opt for a Medicare Advantage plan instead of traditional Medicare. A MA plan is paid primarily by Medicare and has the same benefits as Medicare Parts A and B, but is offered by private insurers. Many of these Medicare Advantage plans act as Medicare plus a Medigap plan because they integrate additional benefits like prescription drugs, vision or dental as well as many out-of-pocket expenses.

A final method of ensuring you have enough for your retirement is creating a health savings account or HSA.  A HSA allows you to deposit part of your paycheck before it is taxed; these funds can then be applied to certain medical expenses you may incur. The government allows you to use HSA funds to pay expenses that go towards your annual deductible, so these are especially important if you have a high deductible health plan.

There is a limit on how much you can set aside in these health savings accounts, for example it is $3,400 in 2017, but you can earn interest on the funds.  You can also roll over the principal and interest from one year to the next, so the sooner you start, the more you should have when you retire.  You can’t contribute to a HSA after age 65, but you can maintain it until you need it.


If you would like to learn more about how to prepare for health care expenses during  your retirement, please speak with one of the knowledgeable insurance specialists at Boost Health Insurance.

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