Here's How Much You'll Need To Save For Health Care In Retirement

fidelityFidelity is out with its new estimate for how much today’s retirees will spend on health care for the rest of their lives.

There’s good news and bad news.

Bad news first: A 65-year-old couple retiring this year will need to have $220,000 saved up to afford their medical care. That’s a lot of doctor’s visits, not to mention the fact that it doesn’t even count long-term care costs (about $6,900 per month) or over-the-counter medicine. Fidelity based its estimate on a 65-year-old heterosexual couple relying on Medicare who live the average lifespan of a man and woman today, 82 and 85 years, respectively. 

Now for the good news: The estimate has actually fallen 8% since 2012, when it was about $240,000.  It’s only the second time in a decade that the estimate has fallen (the other was a $20,000 drop in 2011, when Medicare lowered prescription drug costs for many seniors). The reason? Lower-than-expected Medicare spending in recent years, according to Fidelity, which in turn reduced projected Medicare spending for the future.

The big picture: The news isn’t awful, but it’s not great either. Retirees will still need to save up a big chunk of change to keep themselves in good shape as they age, and chances are we haven’t been thinking big enough. About half of 55 to 64-year-olds polled by Fidelity found they thought they’d only need $50,000 to cover health care in retirement. This year and 2011 notwithstanding, health care cost estimates have risen 6% every year since 2002, according to Fidelity.

“While lower, this year’s estimate is still daunting for many retirees, and it will consume a considerable amount of a couple’s retirement savings,” said Brad Kimler, executive vice president of Fidelity’s Benefits Consulting business. 

Here’s how Fidelity breaks down retirees’ health care budget: 

33%: $72,000 of their budget on monthly premiums for medical and drug coverage under standard Medicare plans

44%: $96,000 on co-payments, co-insurance and deductibles, along with stuff Medicare doesn’t cover, like vision and hearing exams, eyeglasses and hearing aids.

23%: Another $50,000 will go toward prescription drug costs not covered by Medicare (Note:  Spending on prescription drugs has risen 114% from 2000 to 2010).

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