This Is How Much Health Care Now Costs Retirees

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A couple retiring this year would need more than a quarter of a million dollars simply to cover medical costs during their golden years, Fidelity Investments reports.

A 65-year-old man who retires this year would need $135,000 for health care expenses throughout his retirement, according to Fidelity’s latest annual estimates, which the company released this week. A 65-year-old woman in the same situation would need $150,000.

The combined total of $285,000 for that hypothetical couple represents an increase of 3.6% over the past two years. The good news is that’s a lot less than the increase over the prior two years: Fidelity’s combined estimate grew from $245,000 in 2015 to $275,000 in 2017 — an increase of 12.2%.

The bad news is that the latest estimates do not include all health-related expenses. They exclude over-the-counter medications, most dental services and long-term care.

More bad news: Fidelity’s estimates are based on the assumption that the retirees are eligible for the federally subsidized Medicare health insurance program.

So, a couple who want to retire before 65 — the age at which you generally become eligible for Medicare — would likely need more than that estimated $285,000 to fund medical expenses in retirement.

It’s worth noting, however, that Fidelity’s estimates assume that the retirees chose Original Medicare, also referred to as traditional Medicare, rather than Medicare Advantage. The former type of Medicare plan tends to cover fewer expenses than the latter, as we explain in “7 Facts You Need to Know About Medicare.”

Coping with sky-high medical expenses

One way to get around the astronomical cost of health care in the U.S. is to retire abroad.

Last year, the publication International Living named Costa Rica the best country in the world for retirees in large part due to its cheap but modern national health care system.

If leaving the country sounds a little too drastic for you, consider a health care savings account (HSA) if you’re eligible for one. Saving money in an HSA enables you to avoid ever paying taxes on that money.

As we explain in “3 Reasons You Need a Health Savings Account — and How to Open One Today“:

“… you get a tax deduction for the money you put into the account. Then, the earnings grow tax-free. And, as long as you use it for qualified health care expenses, you don’t pay taxes on the money you withdraw from the account. It’s truly tax-free.”

Additionally, if you open your HSA with a custodian like Lively, which allows you to invest the money in your account, your HSA can double as a retirement savings account.

HSAs are not subject to a use-it-or-lose-it provision like health flexible spending accounts, or FSAs. So, you can basically leave your money in an HSA indefinitely, letting it grow.

In fact, if you saved money in an HSA throughout your working lifetime, you just might have enough to cover six figures worth of medical expenses by the time you reach retirement.

According to Fidelity Investments, it’s possible for a 35-year-old couple to save up about $288,000 by the time they reach retirement if they put $2,820 in an HSA each year for 30 years. That assumes the couple earns a 7% return on the money in their HSA — which is plausible if they invest it.

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