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Retirees Will Need $300,000 to Cover This One Expense, a Study Shows

By Christy Bieber - May 14, 2021 at 6:14AM

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You better be prepared to pay for it.

When you're planning for retirement, there's one expense you absolutely must be prepared to cover: healthcare costs. Unfortunately, saving enough to pay the bills for your medical care is getting progressively harder. 

In fact, a new study from Fidelity revealed how much seniors need to save for medical expenses, and the number is shockingly high.

Older male patient talking with doctor.

Image source: Getty Images.

Seniors may need to budget $300,000 or more for healthcare

According to Fidelity's new research, an opposite-gender couple retiring today at the age of 65 would need an estimated $300,000 to cover their healthcare costs during the course of their retirement. 

This figure is based on a hypothetical husband and wife who live to their projected life span. It's a projection of the amount of out-of-pocket expenses the couple would incur, including deductibles and co-insurance for services covered by Medicare Parts A and B, as well as Medicare Part D premiums and out-of-pocket expenses. It also includes the cost of some services traditional Medicare doesn't generally cover, but it excludes long-term care, most dental care, and over-the-counter drugs. 

Fidelity also estimated the expenses single retirees would face based on gender, finding that a single woman retiring at 65 in 2021 would need around $157,000 for care over her retirement while a single man would need $143,000. 

The cost of care is going up quickly

The $300,000 estimate is the highest in the 20 years that Fidelity has been calculating the likely costs of care for retirees.

It's up 30% from just a decade ago, when a senior couple was projected to need around $230,000. It also increased 1.7% compared with last year and is up 88% from the $160,000 that Fidelity estimated would be necessary for a senior couple retiring in 2002. 

Unfortunately, prices are rising rapidly because inflation in the healthcare industry tends to outpace overall inflation. And while these numbers may seem shockingly high already, this is for seniors retiring this year. If your retirement is decades away, you are likely going to need much more than $300,000. 

How can you prepare for the costs of healthcare as a retiree?

Saving so much for medical care can be  daunting, but it's also necessary since you want to ensure you don't have to drain your nest egg to take care of your health as a retiree.

To ensure you have the money you need, start investing early in a dedicated healthcare savings fund that you can tap as a retiree. The best way to do that is to put money into a health savings account (HSA) if you're eligible for one.

HSAs come with a unique triple tax benefit that no other account offers. You contribute with pre-tax funds, defer taxes on gains, and make tax-free withdrawals when the money is used for qualifying healthcare expenditures.

Unfortunately, not everyone qualifies to invest in an HSA. If you don't have an eligible high-deductible health plan, you won't be able to take advantage of this account.

You'll still need to save for healthcare, though, regardless of whether you have access to an HSA or not. You can increase the amount you're putting into your 401(k) or other existing retirement account in order to do that, or you can start a dedicated IRA that you specifically intend to use for health needs as a senior.

Whatever approach you take, you need to take this $300,000 expense into account during the retirement planning process to avoid a serious financial shortfall in your senior years. 

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