Retiree Medical Costs Are Expected to Moderate, but Still High

The Employee Benefit Research Institute, using a probability approach, found that retirees with original Medicare may need to accumulate even more savings than Fidelity estimates to have a strong chance of covering their health costs because of the financial condition of the Medicare program and cuts to employer-based retiree health programs.

Earlier this year, the institute estimated that to have a 90 percent chance of having enough money to cover Medicare premiums and prescription drug costs in retirement, a 65-year-old man would need to have saved $166,000 and a woman $197,000. (The institute’s estimate assumes the retirees have a Medicare supplement plan, also called a Medigap plan, with average premiums to help cover costs that Medicare doesn’t.)

In some cases, the institute says, the savings needed may be much greater. A couple with particularly high drug costs, for instance, could need to save $383,000 to meet the 90 percent threshold.

“It’s a pretty sobering number,” Mr. Spiegel said.

Spending estimates may be lower for retirees in increasingly popular Medicare Advantage plans, federally funded but privately managed health plans that cover medical care as well as prescription drugs. Such plans have trade-offs, however, like limited doctor networks.

A man enrolled in Medicare Advantage who has median drug spending and average use of health care services would need $96,000 to have a 90 percent chance of meeting health spending needs in retirement, while a woman would need $113,000, according to the institute.

Cheryl Costa, a certified financial planner in Framingham, Mass., said that the projections might seem scary but that it could help to think about the estimates in annual or monthly costs, rather than a lump sum. Over 20 years, Fidelity’s average estimate works out to about $656 a month — not out of line with what you may already be paying for health care, she said.

“Keep it in perspective,” she said.

Carolyn McClanahan, a certified financial planner in Jacksonville, Fla., said that there were many variables in health care costs, and that future changes to Medicare rules were unpredictable. So rather than focusing on generic estimates to save for retirement health costs, she said, people should consider their specific situation, including what they currently pay for health care, their general health status, their family history and how much health care they use.