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Fidelity’s latest estimate of what a 65-year-old couple needs to have saved for medical costs in retirement has gone up again, to $250,000.

That’s a 56% increase from the $160,000 the investment giant estimated a retiring couple would need in 2002. The estimate assumes the couple qualifies for Medicare but doesn’t have employer-provided health insurance, and does not include nursing home care.

Fidelity also surveyed 376 married retirees about their health care expenses and found some interesting figures:

  • Health care costs average $535 a month, or about 19% of an average couple’s total monthly expenses of $2,842
  • About one in 10 reported their health care costs are $1,000 a month or higher
  • Average health care costs ranked second to the largest expense, food, which averaged $659 a month and slightly higher than
    housing-related costs, which averaged $494
  • Nearly one half are paying more out of pocket for health care costs than they anticipated

Medicare does a good job of protecting retirees from catastrophic medical costs, but there are still plenty of out-of-pocket expenses and premium costs for supplemental insurance. That’s yet another reason to boost your retirement savings while you can–extra contributions now may give you a greater level of comfort down the road.

For  more, visit the Fidelity.com site.

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5 Comments

1

Thanks for this information. I want to figure out how I can effectively apply this to help my clients in divorce. Estimating post-divorce cash flow is frequently requested by my clients. The trick I am considering is that many clients can better understand a monthly or annual cost instead of the $250,000 amount that is the total needed during retirement. But to do that, I will need to drill down to the detail behind Fidelity’s phrase “health care costs average $535 a month”.

2

Good point, Tracy. Fidelity’s citing an average, which means there could be a wide range. I imagine the estimates get wobblier the farther the couple is from retirement, as well, since predicting health care costs even five years out is tough.

3

I just saw in this month’s Journal of Financial Planning that Medicare estimated average out-of-pocket expenditures at $6,351 in 2005. That’s about in the same ballpark.

4

Can that food number really be correct? $659 a month for food for two retirees seems high to me, at least if it’s an average figure. I don’t think my wife and I (we’re both around 30) spend even close to that amount, and it’s not like we eat every meal in or buy the cheapest food available or anything.

5

That’s a good question. I briefly checked the Consumer Expenditure Survey at bls.gov, and its figure for food expenditures by households headed by 65-to-74 year olds averages $445 a month, with 1.8 people per household. Householders in your age bracket spend on average about $520 a month, but tend to have more people than you do (2.8, to be precise). That’s eating out and eating in. It’s possible Fidelity was counting all grocery costs, including nonfood items, but I don’t know for sure.