Retiring Early Could Cost You $51,000 Extra in Medical Bills

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Thinking about retiring early? You may reconsider after you hear this: Retiring early could cost you an extra $17,000 per year for health insurance and medical bills, according to a new report by Fidelity Investments.

A 65-year-old couple who retire in 2014 will rack up about $220,000 on average in health care costs during their golden years of retirement, the study said. “It’s a daunting sum, but it’s unchanged from last year and comes on the heels of an 8 percent drop in Fidelity’s 2012 forecast,” Reuters said.

Fidelity said health care costs have moderated recently due to changes in Medicare Part D prescription drug coverage, a slower growth in Medicare spending, and a more cost-conscious consumer selecting fewer elective procedures.

According to Fidelity, the $220,000 in average retirement medical costs breaks down as follows:

  • Nearly half – out-of-pocket expenses, including deductibles, co-payments and coinsurance.
  • Almost a third – Medicare premiums.
  • About 23 percent – prescription drugs.

Fidelity’s estimates don’t include dental care, over-the-counter medications or any long-term-care facility, like a nursing home.

But when you retire before age 65 (when Medicare kicks in), you’re on your own when it comes to paying for health insurance – unless, of course, you have the rare benefit of coverage from your former employer. According to CNN Money:

While the Affordable Care Act ensures that retirees won’t be denied coverage for pre-existing conditions, the couple would still face around $17,000 a year in health care premiums and out-of-pocket expenses if they bought a policy on one of the exchanges, Fidelity estimates.

With the help of government subsidies, retirees with moderate incomes would likely be able to lower that bill. But many couples with joint retirement incomes would not qualify.

Retiring three years early probably doesn’t sound quite as tempting when you consider having to pony up $51,000 for medical costs. Ouch. On the other hand, you can save about $10,000 a year by delaying retirement until 67.

If you’re feeling overwhelmed thinking about paying for your medical expenses in retirement, relax. There are savings options beyond a traditional retirement plan. HealthView CEO Ron Mastrogiovanni told Reuters that it’s important to plan now for “whatever might be coming.”

One way to do that, he says, is to maximize Social Security benefits through delayed filing. Mastrogiovanni also points to Roth IRAs as an effective tool for health care saving. Roth accumulations and withdrawals are tax-free, and the accounts aren’t subject to required minimum distributions after age 70½ (during the life of the owner).

Another avenue is a tax-friendly health savings account. CNN Money said:

Like a 401(k), these accounts allow you to invest any unused money, giving you the ability to build up a sizable nest egg for health care expenses.

Unlike retirement accounts, not only do you save before-tax dollars, but you also won’t have to pay any taxes on your withdrawal, including any investment earnings, as long as they pay for medical expenses.

Did Fidelity’s $220,000 estimate for retirement medical expenses shock you? Share your thoughts below or on our Facebook page.

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Comments & discussion

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  • I.Popoff

    That’s an overgeneralization. Many peoples situations will be different. It goes without saying that before retiring you should consider your health care expenses.

    • LagunaLady27

      Exactly. The retirement incentive I received to retire two years before my target retirement date far exceeded what I paid for medical insurance during those two years.

  • Johns.Opinion

    Since my income was less then 400 % ($45,960)of the poverty level, the hospital qualified me for charity care. Eliminating all co-pays and all hospital costs (test and emergency care). This did not cover the doctor. Each hospital has diffeernt limits some are 100% of the poverty level.Too low for me to qualify. I research this extensively before I retired early, as I saw all the MOOCHERS / loser people not pay and get away with it. So being smart, and joining the band wagon, I retired early and am enjoying he good life. My medicare did kick in many years later, which actually cost me more. But I wanted to get the insurance and pay my share during >65 retirement. Research, Research, Research. Research