Your health care costs in retirement - $240,000?

As Washington dives into the great health care reform debate v. 2.0, Fidelity Investments released its latest estimate of health care costs for retirees.

If you’re not sitting down, we’ll wait.

Okay, here goes: A 65 year old couple retiring in 2009 will need about $240,000 to cover their health care costs in retirement. Yes, nearly a cool quarter-million or so. That sickening sum is 50% more than the 2002 Fidelity estimate. (For those of you keeping score at home, the C.P.I. rose “just” 20% during that stretch.)
What about Medicare, you ask? Well, if you haven’t been paying attention, Medicare requires an annual premium, has gaps in coverage and often requires substantial co-pays. Translation: Medicare covers a lot, but not everything.

Worse, it seems that Fidelity’s forecast may actually be optimistic. When the Employee Benefit Research Institute took a look at out-of-pocket costs for retirees it calculated that for a retired couple in 2008 to have a 90% chance of having enough money to cover health care costs (assuming no employer-provided benefits) they will need a cool $376,000 stash.

Now here’s the part where I am supposed to tell you that a Health Savings Account is a great way to save for your future health care costs. It is; the money you save grows tax-deferred; and if you eventually use it to pay for covered health care costs your withdrawals are 100% tax free. But let’s get real; the $3,000 an individual can tuck away in an HSA this year ($5,900 for married couples) isn’t enough; and that’s even assuming that with everything going on in your financial life you have that sort of money to save.

So while you watch the health care debate heat up in the coming weeks and months, you just might want to check in with your reps to see what their take is on how we’re all going to be able to afford to take care of ourselves in retirement.

-- Carla Fried