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Cost of retiree health care: $240,000 and rising

By David Pitt

As if saving for retirement wasn’t enough to worry about, now comes a study that shows a couple retiring this year needs about a quarter of a million dollars to cover medical expenses.

The $240,000 estimate is a 6.7 percent increase from last year and the cost is expected to keep rising.

The Fidelity Investments study is based on projections for a 65- year-old couple retiring this year with Medicare insurance coverage. It assumes no employer provided insurance and a life expectancy of 17 years for the man and 20 years for the woman. Fidelity also factors in Medicare deductibles, copayments, as well as certain services that may not be covered.

In just seven years of its annual study, projected medical expenses have increased by 50 percent.

When you retire, health care is likely to be your largest expense and it’s one that many people forget to factor fully into their retirement plans, said Sunit Patel, a senior vice president at Fidelity.

“A lot of individuals feel today that Medicare covers a vast majority of costs,” he said. “We know that’s not true. It’s better not to be blind about that.”

In fact, Medicare pays about half of the health care costs for current retirees and it could be less very soon as its funds run out, as early as 2019.

The Employee Benefit Research Institute has researched the issue of rising health care costs in retirement. It found that just 12 percent of private companies offer insurance for retired workers. That means most retirees need to buy insurance themselves or pay medical costs out of their own savings.

Patel said it may make sense to start thinking about a savings account separate from your retirement account for health care.

Also, research various supplemental health insurance options so you go into retirement informed.

You may want to consider a phased retirement in which you go from full time to part time if your employer offers health insurance for part-time workers. That way, you delay tapping into savings.