Retiree medical expense study is a shocker

(MoneyWatch) The projected cost folks are expected to spend on medical expenses in retirement is staggering.

According to a new study by Fidelity Investments, a 65-year-old couple retiring in 2012 is estimated to need about $240,000 to cover medical expenses during their retirement years. And according to the study, households relying on Social Security benefits to cover health care costs should expect medical bills to consume 61% of their Social Security payments by 2027.

For many folks, it doesn't look like they will be prepared. According to a new survey by LIMRA, nearly half of Americans are not saving for retirement. And 49 percent of Americans responded that they are not contributing to a retirement plan (56 percent of people ages 18 to 34 were in the group not saving for retirement). The survey found that only one-quarter of all Americans and less than one-third of Americans older than age 50 worked with a financial professional to plan for retirement.

Plan before retirement
Faced with the near certainty that retirement for future workers will not include employer sponsored health benefits, workers need to include a strategy for covering their health care costs years before they enter into retirement.

Workers who are nearing retirement need to find out what, if any, retiree health benefits are available by their current employer. If considering changing jobs, they should look for an employer who provides access to some form of retiree health care coverage.

Some employers offer specific health insurance plans that allow workers to make pre-tax-savings into a Health Savings Account, or HSA. The funds in an HSA can build up if not used while working and be withdrawn tax free for qualified medical costs in retirement. The HSA is particularly advantageous since workers can save for future health care costs with pre-tax income while employed, whereas current retirees must pay for their health insurance costs from after-tax retirement income.

Non working spouses should consider reentering the workforce, seeking an employer that provides retiree medical benefits or savings programs.

Older working couples can put the extra income to work by building up their savings to better prepare for the additional financial burden of medical costs in retirement.

When planning for retirement, folks need to look at the amount of medical care they use today and factor this into their savings projections for retirement. And if you plan to retire before age 65, which is before you will be eligible for Medicare coverage, you'll need a plan to pay for health insurance coverage and consider how pre-existing conditions might affect the cost and availability of it.

The reality for many workers nearing retirement age will be to continue working so that they remain covered under an employer's health insurance program.