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Health care costs can add up to $315,000 for couple in retirement

Yahoo Finance's Kerry Hannon details the rise in health care costs for retirees.

Video Transcript

SEANA SMITH: Healthcare costs in retirement can get pretty expensive. A new estimate from Fidelity says that a couple will need more than $300,000 to cover their expenses in retirement. Kerry Hannon has more on this for us. And Kerry, over $300,000-- that's a heck of a lot of money.

KERRY HANNON: Oh, my gosh, yeah. 315 is actually what they're estimating for the average couple who's 65, an opposite sex couple, who retired this year. So that's pretty daunting if you're thinking about. A lot of people really don't spend a lot of time thinking about that thing. Oh, retirement, my cost of-- basic cost of living, travel, fun things I might do. But they're not focused that your medical costs, your healthcare costs, are going to be about 15% of your total budget. So you really have to get a grip on this early because you never know.

Of course, those have caveats, if you're a healthy person or where you live, and, let's face it, that crystal ball about how long are you going to live. But the fact is, it's really important for people to take charge and think about ways that they can make sure that they're set. They've set enough aside because, you know what? That number is after tax. That is not-- that's thinking about-- that's after Medicare, right? So that's including the premiums you're going to pay for Medicare and the things that Medicare does not cover, but it doesn't even include extra things like over-the-counter drugs or long-term care.

So, trust me. It's going to be a big number. So the best advice we give people right now is, if you can, a health savings account. So many people just don't understand how these work or simply haven't opened one yet. If you have a high deductible health insurance plan and what the IRS considers that something that where the premiums are at least, if you're an individual, $1,400, and for a family, $2,800, and you can set money aside in these health savings accounts. Your employer, 80% of large employers offer these plans as part of the high deductible insurance plan.

And they're investment accounts. I mean, that's the beauty of it. You can set money aside tax-free. You know, it's tax-free when you set it aside. It's tax-free when you take it out. And it grows. It's invested money. And unlike your flexible savings account, right, you don't have to use it every year. It rolls over to the next year. And if you get to the end and you say, oh, I'm over 65, and you know what, I don't need that for medical costs, then you can take it out anyway and use it for other expenses that aren't qualified medical expenses. That is the caveat there. But you can over 65, but you will pay tax on it then.

SEANA SMITH: All right, well, certainly, advice that I think everyone should listen to. Kerry Hannon, thanks so much for joining us.