With health-care costs steadily rising, it’s no wonder that many retirees will need to set aside more savings than originally planned to cover medical expenses in their golden years. Couples who retire in 2012 will need almost a quarter of a million dollars, an average of $240,000, to cover health-care needs after leaving the workforce, according to a new study by Fidelity. Here's the really scary part: Most soon-to-be retirees don't even have this much saved in their total retirement account. 

“We are all in collective denial,” says Ken Kamen, managing director of The Mercadien Group and president of Mercadien Asset Management. “Everything happening in health care today is viewed through a political lens, and everyone is waiting for this ‘Aha!, health care is fixed!' answer so they can start planning for the future. The fact is, you’re going to need a lot of money to cover medical expenses in retirement, and you can’t sit around waiting for that magic solution.”

Regardless of the fate of health-care reform, Kamen says retirees on Medicare will have to spend more money to have the same level of health care they enjoyed during their working life.

“You’re going to have to use your dollars to get back to what you’re used to having,” he says. "A lot of doctors don’t take Medicare or else they only take private-pay clients. You’ll have to pay out of pocket if you want anything beyond what Medicare covers. Medicare will give you health insurance, but it doesn’t do a lot for quality of life.”

When it comes to quality of life, Jason Hwang, an internal medicine physician and director of the Innosight Institute says the majority of a retiree’s medical expenses will go towards home health care and nursing homes, neither are covered by Medicare.

“People tend not to think about things like home health care or assisted living facilities until they need them,” says Hwang. “I’ve seen so many elderly couples go bankrupt because they didn’t have long-term care insurance and they weren’t prepared for those end-of-life expenses.”

However, Hwang points out that long-term care expenses aren’t the only reason for rising health costs among retirees. Health-care costs have risen for all age groups, and for people with certain health-risk factors, the price of care has increased at an even higher rate.  

“If you’re overweight, if you’re a smoker, all of these things can add to how much money you’re going to need if things go wrong,” says Hwang. “Of course, some things can be purely the genetic lottery; medical problems can run in families. But employers and insurance companies already penalize people for things like smoking and obesity, and that’s only going to continue.”

Sunit Patel, a senior vice president at Fidelity Benefits Consulting says that things like diagnostic technologies and pharmaceutical services now help patients increase their life span, but these breakthroughs have also pushed up health-care costs. When Fidelity first began conducting the study in 2002, the estimate of how much couples would need for medical expenses stood at $160,000. An average annual increase of 6% brought the figure to its current level.  

“It is very likely that health care trends will continue to increase at a faster rate than the growth of other metrics such as GDP or income growth,” says Patel.  “How much is debatable and very important to individuals.  Each year that medical costs exceed income growth for an individual, they are forced to reallocate their spending and savings profile.”

For people who aren’t in high health risk categories, Kamen says to “look up the genetic tree” to estimate how much might be needed for medical expenses once they leave the work force.

“There’s no such thing as ‘average’ health, so there really can’t be such a thing as an average amount of money needed to cover expenses. If someone needs a hip replacement, knee surgery, or a heart bypass, that’s going to be a much different experience from someone who only takes an aspirin every day and lives to be 100,” says Kamen. “But if you look to your family tree, you can see if something bad is coming your way. If it is, then the budget for that should take a prominent place in your planning.”

Unfortunately, most people in the workforce don’t begin saving for retirement medical expenses until their 50s, according to Kamen. Occasionally, it will take a medical disaster before people “wake up” and realize they need to set aside funds for health care.

“People really don’t spend too much time thinking about their medical future in their 30s and 40s,” Kamen says. “Forget about the 20-somethings. It’s hard to get them to take $50 out of their paycheck every month because they feel immortal. But life shouldn’t get in the way if you're seriously planning for medical care.”

Patel says that even though $240,000 is a big number, the healthier you are, the less you’ll have to spend. Although it sounds simple, sometimes it’s easier said than done.

“Become a better consumer who focuses on quality and cost when purchasing health care, improve your diet, increase the amount of exercise you get and manage the conditions you have,” Patel says.

But no matter your current level of health, Kamen says never to let other financial goals get in the way of planning for medical care.

“It always shocks people when I say we need to set aside money for medical expenses,” he says. “People are always thinking about their boat, their golf course, and I have to haircut their dreams by about $2,000 a month once they answer questions about their health. What good is being able to live on a golf course if you can’t afford the rotator cuff surgery you need in order to play? You have to fit in those expenses so you can live the life you want to have.”