Where Health Meets Wealth in Retirement Planning

September 20, 2012 ( – Do the estimates of income replacement in retirement take into consideration the single biggest cost and worry for retirees: health care?

By Rebecca Moore | September 20, 2012

Fidelity Investments estimates that  a 65-year-old couple retiring in 2012 is estimated to need $240,000 to cover medical expenses throughout retirement (see “Health Care Costs Could Consume Retirees’ Income”).

“At retirement, employees first determine if they have enough money to retire, then they realize they will no longer have health care benefits,” said Peter Kapinos, retirement product marketing manager for defined contribution at Putnam Investments, speaking at the Plan Sponsor Council of America (PSCA) annual conference.  

Kapinos said one-seventh of workers think Medicare is free.  Workers expect to spend less in retirement, but they expect health care costs to become an increasingly greater expense through retirement.  

Putnam thinks workers should strive to replace 100% of income in retirement. Health care costs take away from discretionary income in retirement, and Kapinos contended, if workers are shown this, it will drive higher retirement savings.  

Messages about health care savings decisions should include personalization. “Averages can be misleading and big numbers may intimidate,” Kapinos said. He noted that a healthy person’s savings goal may be different from that of someone with diabetes.  

Plan sponsors should include the message about saving for health care in retirement with other benefit offerings. If they offer a health savings account (HSA) or health reimbursement arrangement (HRA), they should convey how that will help save for retirement and not take away from other savings.