Prioritize Your Financial Health With This Kind of Medical Checkup

Steve McDonald By Steve McDonald, Bond Strategist, The Oxford Club

Two-Minute Retirement Solution

Today’s Two-Minute Retirement Solution offers a dose of retirement medical reality…

In today’s world, if you have $250,000 saved for retirement, you’ve done a good job.

In most cases, that quarter-million dollars isn’t enough to maintain anything close to your current lifestyle. But considering how badly prepared most folks are for 20 to 30 years of unemployment, it’s well above average for most 60-somethings.

If you’re willing to assume the risk necessary to earn a 7% yield in today’s income market, that’ll put an additional $1,458 per month in your pocket. If you cut that down to a more realistic, safer number like 4%, you’ll earn $833 per month.

Let’s assume you also receive a maximum of $2,000 per month from Social Security –  $700 more than the national average.

With the earnings from your savings, that puts you in the $2,700 to $3,400 monthly income range.

Assuming you no longer have a mortgage, $3,400 a month is a nice chunk of change. There’s very little chance it’ll allow you to maintain your preretirement lifestyle, but you won’t starve.

But here’s where the medical reality comes in…

For a 65-year-old man to cover just 50% of his expected medical costs in retirement (Medicare deductibles, premiums and other health expenses), he’d need $72,000. He’d need an additional $93,000 to cover 50% of his wife’s expenses.

To cover 90%, it’d cost him $127,000. And it’d cost $143,000 for his wife.

(These numbers come courtesy of a new report published by the Employee Benefit Research Institute.)

In today’s dollars, that’d account for a huge chunk of your $250,000 retirement savings.


But medical costs are increasing much faster than the broad inflation rate… So in the future, you will need far more than these amounts.

For the majority of baby boomers, it’ll be a challenge to make this work.

In fact, if medical costs continue to increase at their current rates, they’ll bankrupt most of us in our later years.

The solution? Work longer, save more and budget appropriately.

And, if you qualify, fund a health savings account (HSA).

HSAs work just like IRAs, except there’s no required minimum distribution. And the money has to be spent on healthcare expenses.

But if the estimates of what it’ll take to fund healthcare costs in retirement are even close, spending the money on medical expenses won’t be a problem for most of us.

(Marc wrote a great article about maxing out your HSA a few months ago. To read it, click here.)

It’s going to be a wild ride over the next 30 or 40 years… so do what you can to prepare for it now.

Good investing,

Steve