When my son was a teenager, many of our conversations began with me reminding him of what homework he had to do — and with him storming out and slamming the door.
These days, I am reminded of those conversations when I think about retirement planners’ savings projections. Fidelity, for example, suggests a nest egg equal to eight times final salary (the median retirement-account balance for people age 55 to 64 is $120,000).
Now, Fidelity reminds us that we will need $220,000 per couple in retirement for medical costs alone. And the Employee Benefit Research Institute notes that we’ll likely spend more on health care at age 75 than on food and clothing combined.
Feel like slamming a few doors? Count to 10. That $220,000 is already baked into Fidelity’s eight-times-final-salary benchmark. If you’ve saved at all for retirement, you’ve already started setting aside money toward health care costs. Keep in mind, too, that the annual amount — about $10,000 per couple — might not be such a budget-busting expense. A couple with $3,000 per month in combined Social Security benefits plus $1 million in savings should be able to handle it easily.
Further, such projections can turn on a dime. A year ago, Fidelity calculated that a retired couple would have faced $240,000 in total health care costs. The new number factors in the effect of legislation that reduces out-of-pocket expenses for prescription drugs, as well as lower-than-expected spending among current retirees. Suddenly, you’re in better shape.
As for the EBRI report that health care expenses will take a bigger bite as you age, the same report shows that other spending categories will decrease. Overall, expenditures drop by an average of 19 percent by age 75, compared with age 65. So everything’s cool, right? Not quite. Not only are most people behind when it comes to saving, but they also don’t realize that they’ll have to pay for Medicare. Nor are they aware of what Medicare Part A and Medicare Part B do and do not cover, says Sunit Patel, senior vice-president of Fidelity’s benefits consulting group. Meanwhile, long-term-care costs — which are not included in Fidelity’s health-cost projections — can cripple anyone’s budget.
But rather than focus on a single number or a situation that may not apply to you, assess your own risks and keep saving. Plan to buy Medicare Part D and supplemental coverage (or an all-inclusive Medicare Advantage plan) and pick up long-term-care insurance.
In short, do your homework — and be sure you’re studying for the right test.Jane Bennett Clark is a senior editor at Kiplinger’s Personal Finance magazine. Send your questions and comments to email@example.com. And for more on this and similar money topics, visit Kiplinger.com.