Retirees’ medical costs are expected to moderate, but still high
The Employee Benefit Research Institute, using a probability approach, found that retirees with original Medicare may need accumulate even more savings than Fidelity estimates they have a high chance of covering their health costs because of the financial state of the Medicare program and cuts to employer-based health programs for retirees.
Earlier this year, the institute estimated that a 65-year-old man would have to save $166,000 and a woman $197,000 to have a 90 percent chance of having enough money to pay Medicare premiums and the cost of prescription drugs. cover when he retires. (The institute’s estimate assumes the retirees have Medicare replenishment planalso called a Medigap plan, with average premiums to cover costs that Medicare does not.)
In some cases, the institute says, the savings needed could be much greater. For example, a couple with particularly high drug costs would need to save $383,000 to meet the 90 percent threshold.
“It’s a pretty sobering number,” said Mr. Mirror.
Spending estimates may be lower for retirees in the increasingly popular Medicare Advantage plans, federally funded but privately administered health plans that cover both medical care and prescription drugs. However, such plans have drawbacks such as limited doctor networks.
A man enrolled in Medicare Advantage who has median drug spending and average health care use would need $96,000 to have a 90 percent chance of meeting health needs in retirement, while a woman would need $113,000 needed, the institute said.
Cheryl Costa, a certified financial planner in Framingham, Massachusetts, said the projections may seem scary, but it might help to think about the estimates in annual or monthly costs, rather than a lump sum. Over 20 years, Fidelity’s average estimate comes in at about $656 a month — not consistent with what you may already be paying for health care, she said.
“Keep it in perspective,” she said.
Carolyn McClanahan, a certified financial planner in Jacksonville, Fla., said there were many variables in health care costs and future changes to Medicare rules were unpredictable. So instead of focusing on generic estimates to save for retirement costs, people should consider their specific situation, including what they currently pay for health care, their general health status, their family history, and how much health care they use.