Studies show that we all think we're eating fewer calories than we really are, burning more calories during exercise than we really do, and, overall, are in better health than we actually are.
This little self-delusion doesn't go away as we get older, according to the folks at Fidelity Investments, who recently released new data showing that 71 percent of the respondents to a survey they conducted "expect to have better-than-average health in retirement."
There are costs associated with this denial, real dollars-and-cents costs. When Fidelity asked pre-retirees (ages 55-64) how much they'll need for health care in retirement, about half (48 percent) said they would need about $50,000 apiece. The true figure is about $220,000 for a couple, or more than double that estimate, according to the company, which has been issuing an annual figure for years. (That number assumes one member of the couple, usually the woman, will live about seven years longer than the other).
The Fidelity numbers are, unfortunately, an echo of conclusions reached by other research: It's difficult to plan for the cost of health in retirement, and many people can't afford it anyway, so we tend to bury our heads in the sand and not do it. When AARP asked the question in the fall, it found that only 36 percent of people aged 50 to 64 have tried to estimate how much they'll need for health care in retirement.
The AARP respondents were perhaps a little more realistic about costs: 42 percent said they would need less than $100,000 for out-of-pocket health-care expenses during their retirement, 16 percent said it would cost them less than $50,000, and 15 percent said they didn't know.
Laura Skufca, who conducted the research for AARP, said there are three factors at work here: People overestimate the amount of their costs that Medicare will cover, they don't really know the true size of their health-care-related costs, and they can't afford them anyway, so they don't try to plan. Two-thirds of the survey's respondents said they had thought about the costs but only 52 percent were confident they could afford them.
When the Employee Benefit Research Institute, a nonprofit that analyzes such costs, looked at the issue, it found that Medicare covered about 62 percent of retirees' health-care needs in 2010, with out-of-pocket spending accounting for 12 percent, and private insurance covering about 13 percent. (Other benefits, such as Veterans Administration coverage, made up the rest).
That means, EBRI calculated, that a couple who uses the median amount of prescription drugs should be prepared to spend $151,000 on health care in retirement (male: $65,000, female: $86,000). In fact, EBRI said, prescription drugs are the critical factor in this calculation, because even with help from Medicare, drugs are a very large out-of-pocket cost. If that married couple is in the 90th percentile of prescription drug users, their costs rise to $255,000.
A bit of good news (I'll bet you're ready for some at this point): both EBRI and Fidelity's estimates fell slightly from 2012 to 2013. EBRI notes that Obamacare will progressively help with drug costs, narrowing -- but not completely closing -- the "doughnut hole" for out-of-pocket expenses. Fidelity noted that during the economic slowdown, people used less medical care, and it projected smaller increases to health-care providers in coming years.
So what can you do about all this, besides stashing away as much money as possible? The answer is obvious and simple: pay attention to your health now. Fidelity estimates an individual with a pre-retirement income of $80,000 who is in poor health may need to spend as much as 96 percent of his pre-retirement income each year for all expenses in retirement -- about $76,800. But someone in excellent health might need just 77 percent, or $61,600, a nearly 20 percent difference.
"It actually has a big financial impact," said John Sweeney, Fidelity's executive vice president of retirement and investing strategies. "The linkage between them is really critical."