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Poor health will cost you big

By Jennie L. Phipps ·
Thursday, March 20, 2014
Posted: 12 pm ET

Staying healthy can save you big bucks in retirement, according to new research from Fidelity Investments.

Most financial experts, including those at Fidelity, agree that you'll need about 80 percent of your pre-retirement income to maintain the same standard of living in retirement that you enjoyed while you were working. But good health -- or poor health -- can significantly change this estimate.

Fidelity calculates that an individual with a pre-retirement income of approximately $80,000 who is in poor health is likely to need to replace as much as 96 percent of his or her pre-retirement income each year, or approximately $76,800. A person in good health gets a break and might need just 77 percent, or $61,600. That's a 20 percent difference that can have a huge impact on your retirement planning -- especially when you factor in the needs of two people.

John Sweeney, executive vice president of retirement and investing strategies at Fidelity Investments, has several suggestions for people who want to ensure that they'll have enough money in retirement to pay for health care costs.

Invest in good health when you are young. Given a 20 percent difference between the cost of good health and bad health in your old age, you can justify the additional expense related to living a healthy lifestyle, including eating well, getting plenty of exercise, going to the doctor and the dentist regularly and managing your stress.

Be honest with yourself. "Look in the mirror," Sweeney says. "If you are overweight and out of shape, commit to doing something about it."

Look for ways to build a healthy lifestyle into your retirement planning. Our activity level is particularly important as we age. Include motivations to keep moving into your plan.

Choose an insurance plan with a health savings account, or HSA. If your employer offers an HSA option, consider it, and if you can swing it, don't touch the money you save in the HSA. Instead, let it grow as part of your tax-advantaged retirement savings. The good thing about HSAs is that you don't pay taxes on the money when you save it and it grows-tax free. When you take it out, as long as you spend the money on health care, you still don't pay taxes. In retirement, that's a particularly good deal.

Be realistic about your health care costs in retirement. "When people underestimate by more than half, that's when they run into trouble," Sweeney says.

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