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“Wait, I need how much for medical costs in retirement?!"

Recently, Fidelity came out with a study stating that the average male retiree would need $143,000 for out of pocket medical costs in retirement not including long term care; for women, the estimate is $157,000. For a couple, $300,000.I nearly fell off of my chair!Then, when I examined the figure a bit more closely, I felt...well, relieved would be an overstatement. But I was less panicked. Here’s why:

  • You may not be average. There are a wide variety of experiences in retirement. The Fidelity number takes into account that some people retire before reaching their Medicare eligibility age (which is 65, by the way). And while some people will experience ill health as they age, many people will not be especially troubled. Taking care of your health in these pre-retirement years is the single best way to reduce your medical expenses in retirement.
  • Retirement lasts a long time. $150,000 (averaging men and women) is an awful lot of money to have available at once. But over the course of 25 or 30 years of retirement? That’s “only” $5,000 to $6,000 per year. 

The take-home message here is not that you must have the full amount set aside for medical costs on the day that you turn 65 (although that certainly would be fantastic). Rather, you need to consider the substantial ongoing out-of-pocket costs for medical care over the length of your retirement years and factor that into your cash flow planning. Medicare covers a lot, but according to the Kaiser Family Foundation, the typical Medicare household will still need to devote 15% of their budget to healthcare expenses. When you consider your sources of income in retirement, are they sufficient to cover this? Not sure? This is a puzzle that the Your Money Line team can help you solve!