JEFF STRACK, a 61-year-old sales manager in Charlotte, N.C., enjoys his work and is in good health. But the prospect of paying for health costs after he retires weighs on him.
"Within health care," he said, "there's all kinds of uncertainties."
Mr. Strack hasn't decided yet when he'll stop working full time. But he doesn't expect any retiree health coverage from his employer, which now provides insurance for him and his wife, Penny, a retired educator. If he leaves work before he turns 65, he won't be eligible for Medicare — so they'll have to buy interim coverage on the private market. He hopes affordable plans will be available, but the rocky debut of the Affordable Care Act's health insurance market worries him.
"I don't think anybody knows how this is going to play out," said Mr. Strack, who in the meantime is saving cash in a tax-advantaged health-savings account to help pay future medical costs.
Mr. Strack isn't alone in his concern. As the American population ages and insurers try to rein in costs, the share of health and medical costs that retirees can expect to shoulder is becoming more formidable.
A look at estimates of retiree health costs suggests that, if long-term care costs are included, it is not difficult to come up with a situation in which a couple's tab for out-of-pocket costs post-retirement could approach — or even exceed — $1 million.
Getting to such a large number can mean combining some bleak possibilities — say, both spouses ending up in a nursing home in a high-cost part of the country — and factoring in extended life spans. But it is not far-fetched.
"It's certainly possible," said Paul Fronstin, a researcher at the nonprofit Employee Benefit Research Institute.
That doesn't mean it is likely for most people. But it does suggest that most need to think about saving a lot more for health costs in retirement. Half of Medicare beneficiaries have below $77,500 in personal savings, according to the nonprofit Medicare Rights Center.
That is far less than the estimated amount retirees will need to pay out of pocket for basics like doctor visits and prescription drugs, never mind long-term care or other retirement needs or wants. Fidelity Investments estimates that the average married couple retiring this year at age 65 need $220,000 to cover health costs throughout retirement. That has actually fallen from last year's estimate of $240,000 because of lower-than-expected Medicare spending, Fidelity said; also, people have cut back on medical care during the lackluster economy, and increases in payments to doctors and health plans have slowed under the Affordable Care Act. But the number is still daunting.
Adjusting some of the assumptions used to arrive at the estimate can also make the amount grow substantially.
Consider: The estimate assumes the couple have traditional coverage under Medicare, the federal health plan for those over 65, which means they are sharing in the cost of their medical care through premiums, deductibles and coinsurance (your share of the cost after you meet your deductible). Most people don't pay a premium for Part A, which covers hospital care; but almost everyone pays a premium for Part B, which covers doctor's visits and other care. The estimate also factors in premiums and co-payments for prescription drug coverage, known as Medicare Part D.
(About a quarter of Medicare beneficiaries have private Medicare Advantage plans, which offer lower out-of-pocket costs and restricted doctor networks; having such a plan would lower the estimate.)
The estimate assumes the couple have no employer-provided retiree coverage to help pay for care, but does factor in "Medigap" coverage that many beneficiaries buy to help budget for some of the costs that traditional Medicare doesn't cover. Sunit Patel, senior vice president of Fidelity's Benefits Consulting group, said the estimate doesn't assume a specific type of gap insurance. But having a "less generous" supplemental plan, he said, could mean your individual costs would exceed the average.
The couple are assumed to be of average health, based on medical claims. (The numbers come from a sample of anonymous claims released each year by Medicare.) It does include costs for vision tests, glasses and hearing aids, which aren't covered by Medicare; but it doesn't include any costs for over-the-counter drugs or dental care, neither of which Medicare covers. Significantly, it doesn't include any costs for long-term care — help at home or in an institution with daily tasks like eating, bathing and dressing, when you can no longer do those things yourself.
The estimate expects the man to live 17 more years, to age 82, while the woman is expected to live 20 more years, to 85.
Eric Ross, a financial planner with Truepoint in Cincinnati, said the $220,000 estimate could be low, based on the life expectancies used. "With a healthy couple at 65," he said, "we like to plan into their early 90s."
And indeed, assuming a longer life span adds to the cost, Mr. Patel said. If the husband and wife live to be 92 and 94, the estimate balloons to $355,000.
Someone with higher-than-average health claims might also need more money. On the other hand, the person might die sooner because of illness, which would tend to lower lifetime costs.
This article has been revised to reflect the following correction:
Correction: November 21, 2013
An article on Wednesday about medical costs in retirement misstated the amount of personal savings that half of Medicare beneficiaries have. It is less than $77,500, not "just" $77,500.
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