Recs

7

You'll Need $215,000 for Your Doctor

Thanks a lot, Fidelity Investments.

Just when I was about to enjoy a steaming bowl of spinach-carrot soup, I read that, according to Fidelity's latest calculations, "A 65-year-old couple retiring in 2007 will need approximately $215,000 to cover medical costs in retirement." I'm not planning to retire for perhaps another 20 years, so given the recent growth rate of health-care costs (this estimate alone is 7.5% higher than last year's, and up 34% over 2002's), I'm shaking at the thought of what this picture might look like for me. Are you shaking, too?

Worse, the number was roughly echoed in Fortune magazine, which noted, "Of the $440,000 the average American spends on health care in his lifetime, $280,000 is spent after age 65."

And there's more bad news. Fidelity also calculated that for retirees who rely solely on Social Security, that $215,000 in medical costs would mean having to spend about half of their benefit checks every month on health care. That's a tough nut to crack.

The good news
Fortunately, there are a few bright spots in this dark picture. For starters, note that the $215,000 is for a couple -- two people, not one. Phew. Next, it assumes that they don't have any employer-sponsored retiree health-care coverage. If you have that, your picture may improve considerably. The estimate does include expenses related to Medicare Part B and D premiums, Medicare cost-sharing provisions, and prescription-drug out-of-pocket costs. Excluded are expenses such as over-the-counter medications, most dental services, and long-term care.

Meanwhile, there are ways to prepare for these kinds of costs. One option is the relatively newfangled "Health Savings Account" (HSA), which permits you to sock away pre-tax money into an account earmarked for health expenses. Doing so gives you a lower taxable income and available moola for medical expenses. It has its quirks, though -- such as a requirement that you have high-deductible health-insurance coverage -- so read up. Major banks such as Wells Fargo (NYSE: WFC  ) and Bank of America (NYSE: BAC  ) , as well as full-service brokerage firms such as Merrill Lynch (NYSE: MER  ) , offer HSAs. Oh, and Fidelity offers them, too, of course.

If you don't qualify for an HSA or you just don't want one, you can still put money into regular investments and let them grow into larger amounts that will be available for your future health-care needs. A simple S&P 500 index fund will give you roughly the market's return, which has averaged about 10% on a compound annual basis over many decades. That's enough to turn $50,000 into $540,000 over 25 years.

Let us help
You can build a comfortable retirement for yourself, and we'd love to help you. I encourage you to take advantage of a free 30-day trial of our Rule Your Retirement newsletter service. It's prepared by Robert Brokamp, a smart and witty guy who distills what you really need to know into a manageable volume each month. A free trial will give you full access to all past issues, allowing you to gather valuable tips and even read how some folks have retired early and well. Robert regularly offers recommendations of promising stocks and mutual funds, too.

The following articles may also be of interest:

Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. She recently learned that the eyes of goats and octopuses have rectangular pupils. Bank of America is a Motley Fool Income Investor recommendation. Try any one of our investing services free for 30 days. The Motley Fool isFools writing for Fools.


Read/Post Comments (0) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 530243, ~/Articles/ArticleHandler.aspx, 9/21/2014 4:33:51 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Selena Maranjian
TMFSelena

Selena Maranjian has been writing for the Fool since 1996 and covers basic investing and personal finance topics. She also prepares the Fool's syndicated newspaper column and has written or co-written a number of Fool books. For more financial and non-financial fare (as well as silly things), follow her on Twitter...

Today's Market

updated 1 day ago Sponsored by:
DOW 17,279.74 13.75 0.08%
S&P 500 2,010.40 -0.96 -0.05%
NASD 4,579.79 -13.64 -0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/19/2014 4:04 PM
BAC $16.95 Down -0.09 -0.53%
Bank of America CAPS Rating: ****
MER.DL2 $11.64 Down +0.00 +0.00%
Merrill Lynch & Co… CAPS Rating: *
WFC $53.36 Up +0.12 +0.23%
Wells Fargo CAPS Rating: ****

Advertisement