Poor health can cost you dearly in retirement

New research shows that being unhealthy can cost you dearly in retirement.
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People in poor physical health may need as much as 20% more in annual retirement income than those in good shape, according to a new study.

An unhealthy person earning $80,000 a year may need to replace up to 96% of his or her income -- or $76,800 -- in retirement, according to Fidelity Investments. Someone in better condition, by contrast, might need as little as $61,600, or nearly 20% less.

Not all of that would go to healthcare, of course. But the two estimates show how much people could need to fund lifestyles that are roughly equivalent to their pre-retirement years.

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The report underscores the huge potential medical costs that await many Americans in retirement. It also reflects the sometimes unrealistic assumptions that people have about how much healthcare will cost in their later years.

More than seven in 10 poll respondents predict they will have better-than-expected health in old age, an unlikely outcome given that 35% of Americans are obese and only 20% get enough daily exercise, Fidelity said, citing data from the federal Centers for Disease Control and Prevention.

A Fidelity study of people aged 55 to 64 last year found that 48% think they will spend about $50,000 on healthcare in retirement. In reality, according to Fidelity, the average couple could spend $220,000, or more than double the estimate on a per-person basis.

“Making smarter decisions about your health means you’re making smarter financial decisions, particularly when it comes to retirement,” said John Sweeney, executive vice president of retirement and investing strategies at Fidelity. “Being in good health will probably mean you’ll be more active in retirement — and you’ll likely be able to spend more on discretionary expenses such as travel.”


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