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The Average 65-Year-Old Retired Couple Needs $260,000 to Cover Health Care

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Paying for health care is hard on many Americans, but costs are especially high in retirement.

That’s according to recent analysis by Fidelity Investments, released this week, which found a 65-year-old couple retiring this year will need about $260,000 to cover their health care.

“The estimate applies to retirees with traditional Medicare insurance coverage,” Fidelity said in a press release, “and provides a general idea of monthly expenses associated with Medicare premiums, Medicare co-payments and deductibles, and prescription drug out-of-pocket expenses.”

It assumes the average life expectancies of 85 for a man and 87 for a woman.

The cost of covering healthcare in retirement is up 6% over last year’s estimate of $245,000, Fidelity said. It’s also their highest estimate since they began running the numbers in 2012.

“In recent years, the health care industry has experienced a period of historically low spending levels, due to a range of factors including a period of slow economic growth,” said Adam Stavisky, senior vice president of Fidelity Benefits Consulting.

However, long-term care expenses, which are based on a number of factors, could also throw a monkey wrench in retirees’ finances. As Fidelity noted, these costs are only covered by Medicare in certain circumstances, and a 65-year-old couple would need $130,000, plus savings for medical expenses, to insure against long-term care costs. (Keep in mind, this is assuming the couple is in good health and purchased a policy with an $8,000 monthly maximum benefit, with three years of benefits, and an inflation adjuster of 3% per year.)

Saving on Medicare 

According to one report by the Kaiser Foundation, Medicare beneficiaries spent $4,734 out-of-pocket on average in 2010; when hospitalized two or more times, those costs soared to $6,216. So how is a retiree to save on Medicare? Fortunately, there are ways to get around the problem. Credit.com asked Nate Purpura, vice president of Consumer Affairs with eHealth, a health insurance provider in San Francisco, how it’s done.

  1. Do your research. “The important thing to know is that Medicare you get from the government only covers about 80% of medical costs on average, and that doesn’t include prescription drugs,” Purpura said. “The other thing is that the government doesn’t cap your out-of-pocket expenses.” So if you get sick and visit the hospital twice in a year, you’ll incur out-of-pocket costs despite holding insurance. “If you just kind of glide into retirement and stick with the original government Medicare, you miss a lot of opportunities to save money,” Purpura added. Spend some time doing research to figure out your Medicare coverage options.
  2. Comparison shop for plans. “There’s a bunch of different insurance you can buy to supplement Medicare,” Purpura said. “Our research shows that, on average, a person can save 20% when they compare monthly premiums for Medicare Supplement Plan F — the most popular supplement plan.”
  3. Review your prescription drug coverage annually. Yes, the plans are “massively complicated,” Purpura said. However, different types of drugs (think generic versus brand name) are covered at different levels, so it pays to comparison shop for drug coverage. “And the good news is the rules change ever year,” Purpura added. “You have a time once a year to compare and update and make sure you’re getting the best price.” Using online portals offered by private insurers or the government, type in your prescription and dosage amount to see which plan works best for you.
  4. Consider Medicare Advantage for dental and vision. “On average, seniors spend 6% of that $4,700 on out-of-pocket dental care,” Purpura said. Medicare Advantage plans typically roll dental, vision and prescription drug coverage all into one, plus, they’ll cap your out-of-pocket spending on deductibles, co-pays, co-insurance and more.

Remember, combining the tips above with a rock-solid financial plan will keep you ahead of the game when it’s time to retire. To see how any debt is affecting your finances, you can view two of your free credit scores, updated monthly, on Credit.com. Carrying debt? See how long it will take to pay it off with our lifetime cost of debt calculator.

Image: Susan Chiang

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