Brace yourself: Your medical care over the course of your retirement will cost you and your spouse about $220,000. So says Fidelity Investments, which published the widely reported figure in 2013. Average medical costs over your last few decades, however, are very hard to predict, and there are ways you can plan to minimize them.
How Much Money Will You Need?
Fidelity's isn't the only estimate out there. The Employment Benefits Research Bureau, a nonprofit organization, came up with $151,000 for the future medical costs of a couple who are both at age 65, the age when you become eligible for Medicare. EBRI's estimate is a literal average. To have a 50-50 chance of meeting medical expenses, a 65-year-old man needs $65,000 set aside, while a woman needs $86,000 because she's likely to live five years longer (81 years versus 76 for men). For men, that's an average of $5,900 a year; for women, $5,375.
How High Can Medical Expenses Go?
Expenses vary, though. The estimates above are for the average (median) use of prescription drugs. If, however, you need a lot of prescription drugs in retirement -- if you're in the 90th percentile for drug use -- the savings you'll need for a 90 percent chance of covering your medical costs soars to $172,000 for a man and $195,000 for a woman. (To clarify, that figure gives you a 90 percent chance of covering your medical costs if your prescription drug use is in the 90th percentile.) These figures do not include long-term care. Changes in Medicare benefits are possible, and, although the Affordable Care Act is underway, it's yet to be seen how it will affect retirees on Medicare.
Get Medigap Coverage Early
As it stands, most of your medical expense will be for supplemental insurance to pay for what Medicare does not. When you turn 65 -- whether you're working or not -- you will probably be covered by Medicare. You should sign up immediately for this so-called Medigap insurance. If you sign up during the first six months after the first of the month in which you turn 65, you'll pay the same premium as a 65-year-old until the day you die. If you miss that open enrollment period, things get more complicated. Before retirement, too, look into long-term care insurance. The younger you are, the more likely it is that you can get a reasonably priced policy.
To Prepare, Read Up
The Centers for Medicare and Medicaid Services offers a helpful booklet called "Choosing a Medigap Policy: A Guide to Health Insurance for People with Medicare." If you expect high expenses for prescription drugs, you can enroll in a Medicare Advantage plan (also known as Medicare Part C), which usually covers drugs, or Medicare Part D, which covers drugs specifically. If it sounds complicated, well, it can be. Nonetheless, no matter what your age, you should gear up on your planning. By age 65, you've missed your chance to live fast, die young, and leave a good-looking corpse.
Sarah Brumley has written extensively on business and health-industry topics since 1995. Her work has appeared in publications ranging from Funk & Wagnall's yearbooks to "Medical Economics," a magazine for physicians. She holds a master's degree in finance from New York University.