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How to Solve the $350k Gap In Your Retirement Savings

Got $350k lying around?
You may need it to pay for medical costs in retirement!


A shocking new report claims seniors must set aside well over a quarter of a million dollars for health care costs in retirement.

They want you to save how much for retirement?! You read that right — nearly $350,000. I don’t know about you, but I sure as heck don’t have that kind of money set aside in my retirement account!

Yet, a new report by the Employee Benefit Research Institute (EBRI) says you should have a huge nest egg for just one of many expenses during the Golden Years: your healthcare.

Stressed yet? You’re not alone. One third of people nearing retirement feel stressed about preparing and saving for retirement. However, those same survey respondents seem to be grossly underestimating how much they’ll need to save in order to retire comfortably.


How Did They Determine How Much Retirement Savings Is Needed?

I’m sure you’re as shocked as I was to read that EBRI recommends seniors should have at least $349,000 designated to cover health care expenses once they retire and are dependent on Medicare. How did they figure this amount?

First of all, they looked the costs under Original Medicare (more on this later…) and the average Part D prescription drug plan. They also took into consideration a person’s health care use; in other words, people who are not as healthy or who have expensive medications will need to set aside more money for healthcare expenses.

The EBRI looked at several scenarios:

“In 2016, a 65-year-old man would need $72,000 in savings and a 65-year-old woman would need $93,000 if each had a goal of having a 50% chance of having enough savings to cover health-care expenses in retirement. If they wanted a 90% chance of having enough savings, the man would need $127,000 and the woman would need $143,000.


A couple with median prescription drug expenses would need $165,000 if they had a goal of having a 50% chance of having enough savings to cover health-care expenses in retirement. If they wanted a 90% chance of having enough savings, they would need $265,000.


For a couple with drug expenses at the 90th percentile throughout retirement who wanted a 90% chance of having enough money saved for health-care expenses in retirement by age 65, targeted savings would be $349,000 in 2016.”

While most reports look at an overall average amount needed, the EBRI report does provide lower figures for people who are healthier or who do not have a goal of having a majority of their money saved in advance. For example, Fidelity’s Benefits Consulting recommends across the board that couples save an average of $260,000 for healthcare costs. What do they recommend for people who aren’t as healthy? Or people who are much healthier?


Did These Estimates Include All Health-Related Expenses?

Unfortunately, some other related factors were not considered when coming up with the ERBI’s magic number. One of the important things to take away from this report is that many retirees depend on the little income they have — generally, Social Security — to pay their medical bills. But as some of us know too well, Social Security often the scrapes the bottom of the barrel. It’s important to save ahead of time for retirement and not rely on Social Security, especially since Social Security increases (as small as they may be) cannot be predicted well in advance.

Another glaring omission from this report is the costs of miscellaneous care that is not covered by Medicare, including dental care and long term nursing care. Yes, believe it or not, but Medicare does not cover dental, vision, or hearing care! This means it’s up to you to either pay high out of pocket costs for your dental, vision, and hearing (DVH) care — or purchase a DVH insurance plan that keeps your costs predictable and low. One of the biggest expenses seniors come across and often don’t plan for are long-term nursing care. Whether this be a live-in nurse who assists around the clock, or room and board at a facility such as an assisted living center, long-term care is extremely expensive. And if you need that amount of care, you often have no choice but to shell out the money.

Furthermore, those of you lucky enough to retire before Medicare age may face even higher healthcare costs. Costs under retirement plans or private individual plans are often higher than costs are under Medicare. Depending on how many years before Medicare-eligibility you retire, you may need to factor in premiums and out of pocket costs under your current coverage. Unfortunately, as Adam Stavisky from Fidelity’s Benefits Consulting points out, retirement doesn’t always by choice:

“Sometimes health issues or someone’s occupation plays a role. So it’s critical that people plan well in advance for the considerable cost of healthcare by adding it into their overall retirement planning discussions.”


How Can I Ensure I Have the Lowest Healthcare Costs During Retirement?

Ah, the more-than-one-quarter-million dollar question! It’s simple, really.

Enrolling in the right Medicare Supplement plan could not only reduce your out of pocket costs — it could eliminate them altogether!



One major thing to note about the ERBI report is that ERBI only took into consideration the costs under Original Medicare-only. As frequent readers of the My Medicare Partners blog know, Original Medicare leaves you exposed to the risk of very high healthcare costs. Even the authors of the ERBI report agree:

“Individuals should be concerned about saving for health insurance premiums and out-of-pocket expenses in retirement for a number of reasons. Medicare generally covers only about 62% of the cost of health-care services for Medicare beneficiaries ages 65 and older, while out-of-pocket spending accounts for 13%.”

While Part A and Part B only (also known as Original Medicare only or OMO) do provide better coverage than having no coverage at all, being covered by only Original Medicare can still leave you responsible for high costs. Luckily, Medicare Supplement (also known as MediGap) plans can make your costs predictable.

For example, people who have a Medicare Supplement Plan G are only responsible for paying their monthly premium and an annual deductible ($183 per year in 2017). Got a doctors appointment? — covered by your Medicare Supplement! Got a big surgery? — Covered by your Medicare Supplement! Medicare Supplement enrollees have the benefit of being able to estimate their healthcare costs in advance.

Medicare Supplement Plans


When paired with a Part D drug plan, MediGap plans offer the ultimate convenience and flexibility in healthcare. You can keep your doctors and visit specialists without the need for referrals. Plus, you’re covered nationwide!

While there are many options of MediGap, Part D, and Medicare Advantage plans out there, it’s important to enlist the (free) help of a licensed professional to find the most economic plan for you, based on your needs.

“You also want to be a smart shopper when the time comes. The cheapest Medicare Advantage plan or the cheapest Part D plan might not be the best one for you.”

Experience Transparent copy


Other Things to Consider

The report’s authors also suggest thinking about your own health care attitudes and trends. Are you the type who runs to the doctor every time you have the slightest sniffle? Or do you generally wait until you’re pretty darn sick before seeking medical help? Do you stay active, eat well, and overall try to live healthy? Or do you throw caution to the wind and lead a less-than-healthy lifestyle? Be honest with yourself!

Finally, realize that as much as we would all like to, we can’t predict the future and we can only plan for so much of the unknown. Not only can our health outlook change, so can health care costs and the political landscape of healthcare. If you have already saved money for retirement, the sad/good news is that you’re ahead of many other Baby Boomers.

Do your best to prepare for the future while still enjoying life. It’s a tough balance, but with the right discipline and the right MediGap plan, you may not need the $350,000 the ERBI recommends.

Take a deep breath. There is light at the end of the healthcare tunnel — and the right Medicare Supplement plan can help!


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