Life and Money With Helaine by Helaine Olen

High Health Care Expenses in Retirement

Dear Helaine: I’m writing with a question about medical expenses in retirement. Over and over, I keep reading something to the effect that “a couple retiring today can expect to spend $250,000 on medical expenses during their retirement, even with Medicare.” I realize Medicare doesn’t cover everything, but this seems like an unbelievably high number. Can you tell me where this figure comes from? Is it assuming some form of long-term care will be necessary? I am in my mid-40s and would like to know more about what those expenses are and how to plan. -- Young and Healthy Now

Dear Young and Healthy Now: The information you are thinking of almost certainly comes from Fidelity Investments, which releases an annual study attempting to estimate the medical expenses of a theoretical 65-year-old couple retiring in the current year. They released the most recent one this past April, and the number is $285,000 -- worse than you think. Women can expect to spend $150,000, while men spend a slightly lower $135,000. It’s possible these numbers are low -- they do not count such things as dental expenses or long-term care. HealthView Services, which also performs an estimate and includes these things as well as other costs not covered by Medicare, puts the number at $387,644 in today’s dollars.

Now of course Fidelity has a reason for wanting you to know that number: The press release trumpeting their finding also contains a pitch for Fidelity’s Health Savings Accounts, which you can use if you have a high-deductible health insurance plan. The money is contributed and grows on a pre-tax basis and there are also no taxes due if the money is withdrawn and used to pay medical bills. And this is indeed one way to plan. If you are saving the recommended amount for retirement, and you can afford to still put more money aside, you might want to put $3,500 -- the maximum an individual can contribute -- in an HSA. (Families are permitted $7,000.)

But the bigger question is: Why is the amount we will spend on doctors and hospitals and other medical needs in retirement so high? Americans pay significantly more for their health care than any other nation. Medicare -- despite what many think -- does not pay for everything. It comes with co-pays and a host of gotchas -- for instance, if a hospital doesn’t formally admit a Medicare patient, and keeps them on “observation” status, the program won’t pay for a stay at a rehab facility, even if it’s needed.

Yes, it’s good to save. But no other first world nation imposes this sort of burden on its residents. Fixing that would be the best savings plan of all.

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