Don’t Let Headlines Scare You Out of Saving


Health Insurance, Medicare, Savings


June 17, 2021

When we are faced with what seems like a too-huge task, we often lose motivation to even try. It’s just human nature to feel defeated given the scale of the challenge.

I worry this may be going on with many of you who have read or heard about the cost retirees will pay for medical care in retirement. Some surveys suggest a 65-year-old couple retiring today will need around $300,000 to cover their out-of-pocket health care costs in retirement.

Talk about a daunting sum!

But here’s what that scary headline doesn’t mention. That is for two people, over 20 (or more years.) You certainly don’t need $300,000 set aside on day 1 of retirement at age 65. You will be incurring costs each year. Some of that you will be able to pay through your ongoing income sources such as Social Security income, and perhaps a pension. And some costs will come from spending your retirement savings.

But here’s where perspective is so important. An analysis by T. Rowe Price broke down the big scary retirement health care cost into an annual estimate. The most robust health insurance for a retiree would be a Traditional Medicare policy and the purchase of a separate Medicare Part D (prescription drug) policy as well as a Medigap policy. T. Rowe Price estimates that in 2020 the median annual cost for all that coverage was $6,300 per person. Granted, $500 or so a month is still money you need to budget for, but it’s not nearly as scary as $300,000. Right?

Of that $6,300 most of it ($4,900) is the monthly premium cost for Medicare Part B, Medicare Part D and a supplementary medigap policy. Those are knowable costs that can be budgeted for. (Medicare Advantage, a separate program under the Medicare umbrella is typically less expensive, but you are restricted to doctors in a given Advantage plan.)

I am in no way giving you the green light to not save for retirement expenses, such as health care. But nor do I want you to give up out of a misguided notion that you will never be able to have enough to feel safe and secure. Forget the scary lump sums you read about, or you see when you plug your numbers into online calculators. Break it down into what the cost is annually, or monthly, and I think you will see that you can indeed build the security you deserve.

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