Last Updated Apr 6, 2011 10:44 AM EDT
In its news release announcing its findings, Fidelity encouraged individuals to save for future medical expenses with a Health Savings Account (HSA). The release notes that in 2010 HSA account holders contributed an average of $2,630 to their accounts; 95 percent of these people carried some part of these balances forward to future years.
I agree that contributing to an HSA is a good idea, and I encourage you to invest as much as you can in an HSA. But there's a big problem if that's the only thing you do to manage your medical costs in retirement: There's no way you could accumulate $230,000 in an HSA if you're currently in your 50s or 60s.
So what else can you do? Before I offer my suggestions, let's take a look at a breakdown of that $230,000:
- 31 percent, or $71,300, will be needed for Medicare Part B and D premiums. You can't avoid this cost.
- 24 percent, or $55,200, will be needed for out-of-pocket costs for prescription drugs.
- 45 percent, or $103,500, will be needed for co-payments, co-insurance, deductibles, and other out-of-pocket medical expenses.
Now don't get me wrong: I expect you'll need some medical services over your lifetime, even if you do everything right. So I'm using $100,000 as the potential lifetime savings if you're very serious about maintaining a healthy lifestyle. This still leaves $58,700 that you and your spouse may need to spend on medical costs over your lifetime.
Here are a few more details about Fidelity's projected lifetime medical costs:
- The total includes Medicare premiums for Parts B and D, co-payments and deductibles for Medicare Parts A, B, and D, and out-of-pocket costs for hospital and medical services and prescription drugs.
- It assumes you aren't covered by employer-sponsored retiree medical insurance. If you're lucky enough to have this coverage, your numbers could be lower.
- It doesn't cover over-the-counter drugs, dental costs or long-term care costs, so the actual numbers to keep you healthy could be a lot higher.
P.S. Note that if Rep. Paul Ryan has his way with Medicare, your out-of-pocket medical expenses will increase in future years!
Image from iStockphoto contributor kcline
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