Saving for retirement might be easier if you know how much money you’ll actually need.
It’s a tough number to nail down, but a new report estimates how much you’ll spend on what’s likely to be your biggest expense: health care.
A couple retiring this year will need $260,000 to cover health care costs in retirement, according to Fidelity.
It’s a ballpark number, but it’s helpful to keep it in mind as you plan out your retirement.
The estimate applies to those with traditional Medicare insurance coverage and considers premiums, co-payments, deductibles, and out-of-pocket drug costs. It assumes that both spouses are 65 years old.
About one-third of the total $260,000 cost is for something everyone has to pay no matter how healthy you are: premiums for Medicare Part B (doctor services and outpatient care) and Part D (prescription drugs).
This year most people with Medicare paid $105 a month — or $1,260 a year — for Part B premiums, and that could go up by $2 a month next year, according to the National Committee to Preserve Social Security and Medicare. The price is tied to inflation, and could be more for new retirees and high-income beneficiaries.
The premiums for Part D are set by your provider and vary by plan and by where you live. You can expect these to take up a big chunk of your expenses and are big drivers of rising health care costs.
The rest of your health care costs will come from out-of-pocket costs and things not covered by Medicare at all, like most vision, hearing and dental costs.
Things like home health aids, assisted living, and nursing homes aren’t covered by Medicare, either. So some people opt to buy long-term care insurance in case they do need that kind of help later in life.
Fidelity estimates that the same 65-year-old couple retiring this year would need an additional $130,000 to insure against long-term care expenses, if they choose to do so. That assumes the couple is in good health, and purchases a policy that offers three years of benefits with a $8,000 monthly maximum that adjusts for inflation of 3% annually.
Not everyone will decide long-term care insurance is for them. To get a more personal estimate of your health care costs in retirement, try using a calculator like this one from HealthView or this one from AARP.
If you’re not retiring just yet, expect your health care costs to be even bigger. Fidelity experts expect their estimate to jump between 4% and 6% annually in future years.