How to Spend Less in Retirement

Last Updated May 11, 2010 2:57 PM EDT

In late March, Fidelity Investments issued its annual Retiree Health Care Costs Estimate, which found that a 65-year-old couple retiring in 2010 would need $250,000 in the bank to pay for all future medical expenses. This amount was calculated assuming the couple will be eligible for Medicare but won't be covered by employer-sponsored retiree medical benefits.

Amounts included in the estimate were premiums for Medicare Parts B and D, Medicare co-payments and deductibles, and any amounts not covered by Medicare. Not included were amounts for dental, vision, and long-term care expenses.

Let's start with the bad news: This amount is larger than many retirees' total 401(k) balances, which are supposed to cover all living expenses, not just medical expenses. (My prior post, Can't Retire Yet? Don't Despair, offers statistics on average 401(k) balances.)

But there's good news, too. Fidelity's reports from prior years showed a breakdown of the total amount needed: Medicare premiums would make up 30 percent of the total, and all other expenses would make up 70 percent of the total. Thirty percent of this year's total would be $75,000, the amount that's been estimated you'll need in the bank to pay for Medicare premiums over your lifetime. And you'll pay this amount regardless of your health.

The $175,000 remaining (70 percent of $250,000) is what you'll pay for Medicare co-payments and deductibles only when you get sick. Do all you can to stay healthy, and you can help control and even reduce these estimated costs.

This is just one more reason to make the lifestyle changes you probably already know you should be making. Eat the right amount and kinds of food, get adequate exercise, manage your stress, and quit bad habits such as smoking or excessive drinking. This could save you boatloads of money, and help you better enjoy your retirement years. There's definitely a potential financial gain in taking care of your health, so why not start now in order to better enjoy your retirement years?

P.S. Want some inspiration to make these lifestyle changes? Here's a story about Tao Porchon-Lynch, who's still teaching yoga at age 91.
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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.

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