Whenever I see those huge numbers that retirement planning experts wave around when they are talking about savings goals, it is all I can do not to say, "Come on, man."
Earlier this week, the Employee Benefit Research Institute, or EBRI, offered a particularly disturbing report. It revealed that a married couple with significant drug costs throughout retirement who wants a 90 percent chance of having enough money to pay health care bills for the rest of their lives, will have to save $360,000 by age 65 and earmark that amount strictly for health care. That's down from $387,000 in 2012, EBRI calculates.
Fidelity Investments, a major provider of 401(k) plans, figured out that in the first quarter of 2013, the average saver age 55 and older who had worked for the same employer for 10 years had saved an average of $255,000 in his 401(k) account. That's it -- $105,000 less than what EBRI says we ought to have put away just to pay for health care. Come on, man.
I asked Paul Fronstin, director of EBRI's Health Research and Education Program and co-author of the report, how this study was conducted and what it meant for most of us who just don't have that much money to devote to health care alone.
Fronstin says EBRI economists use a Monte Carlo simulation, an algorithm that isn't too different from the way the house calculates the odds of your winning big when you repeatedly pull the handle on the slot machine. This Monte Carlo calculation factors in more than 100,000 combinations of life expectancy, health care costs, possible inflation and investment returns. Then it spits out a number that can't really be divided into monthly spending or savings goals, but can be used as a target for a couple figuring out a total budget, Fronstin explains.
The couple doesn't have to have all $360,000 available the day they opt for retirement, Fronstin says. "You don't need to pre-fund it," he says. "You could have a part-time job. You could be expecting to get Social Security."
But the bottom line, he believes, is that accumulating this big number ought to be what you're aiming for.
In the meantime, beating the house is a good goal. Eat well, exercise, stay healthy and hope that you don't need too many prescription drugs. Maybe you'll get lucky and you won't need all that money.