Medical expenses during retirement likely to cost a fortune

By Dian Vujovich

The first Baby Boomers to retire are learning about the high cost of living. If they didn’t stash enough away into their three-legged retirement stool—which the majority haven’t—and plan to live until a ripe old age there’s more ‘Got Money?” bummer news coming their way.

According to Fidelity research, health care is likely to be the largest retirement expense even when you’ve got Medicare coverage.

I learned that from one of those short little one-question box quizzes from the fund family that asked: How much will a couple retiring need for medical bills?

The choices of answers given were $80,000; $175,000; $250,000; or “I don’t know”.

The correct answer, according to Fidelity, the follow-the-green-line people, is $250,000.

That’s a quarter of a million dollars. Whew. There was no clarification about the real stuff, like how old the couple in the calculation grew to be or the types and number of illnesses experienced. Nope, just the projected cost.

It’s no secret that the Boomers were the first to be introduced to IRAs and 401(k)s 30 years ago, and that many believed all the hype about these Defined Contribution vessels that individual investors and worker bee’s funded with things like stock and bond mutual funds. The purpose behind their creation, of course, was and still is, the desire of corporate America to get out from providing Defined-Benefit pension plans to their employees. Employees that, in general, knew beans about investing back then but have gotten a little bit smarter as the decades have gone by.

While things may have worked out for the corporation in a cost-savings kind of way, the same can’t be said for the long-term Defined Contribution investor.

Thanks to market dives along the way, including those from 2000-2002 and the most recent between 2007-2009, many learned that they couldn’t handle the market volatility and got out of their equity funds. One result of doing so was missing the following rallies. As a result, that get-out move wreaked havoc on many long-term retirement savings amounts.

Research from the Center for Retirement Research at Boston College reveals that those aged 60-62 don’t have enough money in their 401 (k) accounts to maintain their current style of living. In fact, they only have about one-quarter of what’s needed.

So, add the whopping ever-escalating costs for medical care during our Rusting Years to that and the financial future for many is far from rosy.

And that’s a shame. Particularly when you realize that many people believed what they were told about how to invest for the long-term and their retirements, and believed that places like mutual fund companies and their employers had their (the employees) best interest in mind.

But as it turns out, the big winners in this money game were the outfits that offered the Defined Contribution investments and charged annual fees for things like holding the accounts and the investment choices made.

Market volatility didn’t make a difference to these institutions at all—they collect their fees no matter what happens in the markets.

Well, I went off on a tangent there, but there’s a lot of truth in what I just wrote. And a question we all need to be forever reminded of before investing is this simple two-part one: What’s in it for me; what’s in it for them? For example, when Fidelity informationally points out info about the high cost of medical care during retirement it’s as much a self-serving point for them (to gather assets, charge fees and keep you investing) as it is something for all of us to try to financially prepare for.