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Retiring early could cost you $51,000 in medical bills

Fidelity says couples retiring this year will face $220,000 in medical costs during retirement. It's $51,000 more if you retire early at 62.

By MSN Money Partner Jun 16, 2014 2:26PM

This post comes from Krystal Steinmetz at partner site Money Talks News.

Money Talks News on MSN MoneyThinking about retiring early? You may reconsider after you hear this: Retiring early could cost you an extra $17,000 per year for health insurance and medical bills, according to a new report by Fidelity Investments.

A 65-year-old couple who retire in 2014 will rack up about $220,000 on average in health care costs during their golden years of retirement, the study said.

Doctor sitting in office with patient talking and smiling © Paul Bradbury, OJO Images, Getty Images"It's a daunting sum, but it's unchanged from last year and comes on the heels of an 8 percent drop in Fidelity's 2012 forecast," Reuters said.

Fidelity said health care costs have moderated recently due to changes in Medicare Part D prescription drug coverage, a slower growth in Medicare spending, and a more cost-conscious consumer selecting fewer elective procedures.

According to Fidelity, the $220,000 in average retirement medical costs breaks down as follows:

  • Nearly half -- out-of-pocket expenses, including deductibles, co-payments and coinsurance.
  • Almost a third -- Medicare premiums.
  • About 23 percent -- prescription drugs.

Fidelity's estimates don't include dental care, over-the-counter medications or any long-term-care facility, like a nursing home.

But when you retire before age 65 (when Medicare kicks in), you're on your own when it comes to paying for health insurance -- unless, of course, you have the rare benefit of coverage from your former employer. According to CNN Money:

While the Affordable Care Act ensures that retirees won't be denied coverage for pre-existing conditions, the couple would still face around $17,000 a year in health care premiums and out-of-pocket expenses if they bought a policy on one of the exchanges, Fidelity estimates.
With the help of government subsidies, retirees with moderate incomes would likely be able to lower that bill. But many couples with joint retirement incomes would not qualify.

Retiring three years early probably doesn't sound quite as tempting when you consider having to pony up $51,000 for medical costs. Ouch. On the other hand, you can save about $10,000 a year by delaying retirement until 67.

If you're feeling overwhelmed thinking about paying for your medical expenses in retirement, relax. There are savings options beyond a traditional retirement plan. HealthView CEO Ron Mastrogiovanni told Reuters that it's important to plan now for "whatever might be coming."

One way to do that, he says, is to maximize Social Security benefits through delayed filing. Mastrogiovanni also points to Roth IRAs as an effective tool for health care saving. Roth accumulations and withdrawals are tax-free, and the accounts aren't subject to required minimum distributions after age 70½ (during the life of the owner).

Another avenue is a tax-friendly health savings account. CNN Money said:

Like a 401k, these accounts allow you to invest any unused money, giving you the ability to build up a sizable nest egg for health care expenses.
Unlike retirement accounts, not only do you save before-tax dollars, but you also won't have to pay any taxes on your withdrawal, including any investment earnings, as long as they pay for medical expenses.

Did Fidelity's $220,000 estimate for retirement medical expenses shock you?

More on Money Talks News

Jun 17, 2014 9:58AM
I am getting tired of these "wait to retire" news blurbs.
What are they afraid of?
Are there hidden agendas here?
It is taxes? The economy? SS?
or the fact that someone may enjoy their retirement? 
Let's see more articles about those who retired in their 50's and are doing fine.

By the time they say you should retire you will be too old to enjoy much of anything.
Makes me want give my notice and hit the road!!

Jun 17, 2014 9:28AM
Any retiree that is dumb  enough (and, , , most are) to spend their retirement time and money at the vulture doctors, deserved to lose both!   When a person retires, the plan should be to LIVE IT UP, while you still can.
Jun 17, 2014 11:42AM

If I hadn't retired at 62, I would have had a fortune in legal fees. I was trying to decide between a baseball bat and a 9 iron, but decided to retire instead.  Some of you will get this and some of you won't.

Jun 17, 2014 12:50PM
Dear MSN, 
Let me provide you some insight:::

Any person smart enough to figure out how to retire early has considered the need to self-fund Medical costs!
Jun 18, 2014 12:41PM
LOL, here we go again.  Another article telling everyone to work until they are too sick to enjoy retirement or are dead.  Well, bull knuckles to that!  

How about an article on WHY healthcare costs are so much higher here than anywhere else in the civilized world?  How about those obscene pharmaceutical companies' profits?  Why are we paying insurance companies to act as the middlemen?  

Jun 18, 2014 11:51AM
This is now a mantra, wait to retire, wait to retire, one wonders if there is a problem like maybe SS and Medicaid are paying for mothers and children coming over the border and they don't have money for me?  We retired at 57, the house is paid for and we have no debts and I will apply for SS at age 62 - now quit nagging at me!!
Jun 17, 2014 10:00PM
The best way to not run out of retirement money is to save more.  I know this doesn't help people who are already in retirement, and I do feel for them.  Social security benefits have been cut, and many pensions have been cut as well.  People whose retirements looked perfectly secure 20 years ago now have to worry about every dollar that they spend, and for many people it really isn't fair.  Because I am still 30 years away from retirement, I am focused on my savings, and I am determined to not have this happen to me.  After a thorough review earlier this year, these are the best tricks I found for putting away money.
1. Max out my match for my 401K by putting away the maximum amount (5% for me) that my employer will pay into the plan as a match.  It is free money and dumb not to do it.  
2. I need life insurance to protect my 2 daughters, but I ditched a $300 a month whole life policy for a policy from LifeAnt and now I only spend $25 a month.  I save the difference to my Roth IRA.  If you are unfamiliar with this and want to learn more watch Suzey Orman or Dave Ramsey sometime.
3.I cut wayy back on eating out.  I am having a year of putting away money hard, and food was a huge portion of my budget.  I save about an extra $100 a week now, and eat healthier and better.  Ditto if you spend a lot of money in bars.
If I plan on having a full savings account and retirement I have to make good decisions.

Jun 18, 2014 9:54AM
Don't believe this story one bit. 
Jun 18, 2014 10:51AM
just get obamacare.  let the govt pay for it.
Jun 17, 2014 7:01AM
One of the pressing issues about retirement is the high cost of health care or long term care. I do agree that the saving options mentioned here can help people pay for their future care expenses but I do believe that having a private insurance is also beneficial.

Those who are nearing retirement are often preoccupied on how to have enough funds to continue living their current lifestyle and totally omit the idea of planning for care. Consider long term care insurance is actually a good option because says that it provides comprehensive coverage for nursing homes, assisted living facilities, adult day care and home care. It is a bit pricey but if you purchase early and create a policy that is just right for your future needs, then you'll enjoy lower premiums.

The key in having a comfortable and financially stable life after retirement is planning and considering all their saving options.

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