Retirees are underestimating healthcare costs

How much of your retirement savings do you need to set aside for healthcare costs? A couple thousand dollars? $10,000? $50,000? What if we told you that you need $220,000 just for medical related expenses once you leave the workforce?

That may sound nuts, but a new Fidelity Investments study has found that the average retiree should expect to spend that amount, if not more, over the course of their time outside the workforce. Fidelity also surveyed a sample of soon-to-be retirees and found that nearly half had severely underestimated how much they needed for medical costs. Most said that they needed about $50,000.

For some people, retirement can span for over two decades, and as folks get older, they tend to get sicker. Medical costs include not just a few trips to the doctor, but also expensive prescription medications and long-term care. If you think that Social Security benefits and Medicare will be enough to get you through these expenses, you're sadly mistaken. In order to make sure you have enough retirement income, Fidelity suggest that folks still in the workforce do the following: 

  • Increase your savings level – If you're currently putting 10 percent of your income into a 401(k) or individual retirement account, try to bump it up to 13 or 15 percent. 
  • Make saving an automatic process – Consider signing up for an automatic deduction plan that puts some of your paycheck into a retirement account. 
  • Use a health savings account (HSA) – The money that you put into these tax-free plans can be used to pay for medical expenses once you leave the workforce. 

In addition to the above, you may want to consider alternative retirement plan tools that can ensure you have what you need to live comfortably.