With rapidly rising health care costs and longer life expectancies, it's a good idea to start thinking about how you'll pay for medical expenses in retirement. While Medicare and other programs may offer assistance, most retirees have at least some out-of-pocket health care costs.

Financial facts
A recent study predicts that:

A single woman who turned 65 in 2008 will need approximately $110,000 to $190,000 to cover out-of-pocket medical costs (excluding long-term care) during retirement if she has average drug costs. For a woman who will turn 65 in 2018, the range jumps to approximately $180,000 to $310,000.*

A single man who turned 65 in 2008 will need approximately $80,000 to $160,000 to cover out-of-pocket medical costs (excluding long-term care) during retirement if he has average drug costs. For a man who will turn 65 in 2018, the range jumps to approximately $130,000 to $270,000.*

A married couple who turned 65 in 2008 will need approximately $195,000 to $305,000 to cover out-of-pocket medical costs (excluding long-term care) during retirement if they have average drug costs. For a married couple who will turn 65 in 2018, the range jumps to approximately $325,000 to $510,000.*

*Employee Benefits Research Institute Issue Brief No. 317, May 2008

Planning ahead
Smart planning and saving can help you feel more secure about health care costs in retirement. Considerations include:

Ways to save — It may be a good idea to start a separate fund for health care costs. IRAs are one option. Or, you might find that a health savings account fits your needs. With an HSA, you can make tax-deductible contributions toward current and future health care expenses, provided you are covered by an HSA-eligible health plan. Your HSA account grows tax-free, and distributions are tax-free as long as they are used to pay for eligible medical expenses.

Long-term care — Chances are you will spend some time in a long-term care or rehabilitation facility during your lifetime. Today, the average cost of a private room in a nursing home is $75,000 per year, and that cost continues to rise. Purchasing long-term care insurance may provide some peace of mind.

Health assessment — No one can predict precisely what health care needs they'll have in retirement. However, you can use your current health and habits as a guide. And, your relatives' health histories might provide clues about what you can expect.

Available resources — Gather information about Medicare, Medicaid and other resources available in your area so that you're ready to apply for assistance when the time comes.

Employee benefits — Review your employer's benefits to see what you may still be eligible for when you retire. Some employers offer continuing benefits to retirees, usually at a higher cost. Others may provide a health reimbursement arrangement to help offset your costs for insurance and health care.