Eagle Eye RIA

The average couple retiring today at age 65 will need $260,000 to cover medical costs in retirement, according to an annual estimate by Fidelity. The figure shows you don’t need to be particularly sick to rack up huge medical bills over decades in retirement.

Last year’s estimate was $245,000. The 6% increase falls within the typical range for health care costs, which historically have risen faster than overall inflation. The pace of growth slowed during the recession but has since rebounded.

Whether the growth rate is 3%, 6% or more, the hard truth is you are unlikely to over-save for health care in retirement.

Eagle Eye Advisory comprehensive planning includes Medicare costing estimates

Retirement Health Care Report
Retirement Health Care Report


For instance, routine dental work, hearing aids, long-term care, home health aides and non-rehabilitative stays in nursing homes and/or assisted living are among services and devices are typically excluded by Medicare.

Estimates show the the average 65-year-old couple will need $130,000 for health care expenses on top of the $260,000 long-term care expenses . These figures are all in today’s dollars and represent the after-tax amounts that an average couple will need to have saved by age 65 to cover lifetime medical and long-term-care expenses.

These projection assumes that the male partner dies at age 85 and the female at age 87.  Plenty of people will live beyond these averages, potentially adding to their tab.

The $260,000 medical-cost estimate assumes the couple has original Medicare from the government, not a private Medicare Advantage program.  The figure includes premiums for Part B doctor coverage and Part D drug coverage, which together represent 36% of the total. Another 24% comprises cost-sharing requirements for drugs.

Forty percent represents cost sharing on medical expenses, such as deductibles and co-insurance, or the percentage of the medical bill that’s the patient’s responsibility.  That 40% also includes services and devices that Medicare doesn’t cover, such as hearing aids and eyeglasses.

The $260,000 average holds whether the couple has bought Medicare supplemental insurance or not.

Plan F is the most comprehensive Medigap policy, as these supplement plans are also known, and it picks up most of the costs that original Medicare does not.  Whether the couple pays Part F premiums or simply pays out-of-pocket for services without a supplement plan, the lifetime total remains the same on average.

But that does not mean that the costs of having Medigap or not will be the same for any particular couple: Someone who gets a devastating diagnosis and doesn’t have supplemental coverage will potentially incur higher costs than average.  Retired individuals who sign up for original Medicare should buy a Medicare supplement, because the government program doesn’t have a cap on the maximum costs you might have to pay out of pocket.