In the seven years Fidelity Investments has issued an annual retiree health cost estimate, the number has risen by 41 percent, which is a 5.8 percent average annual increase. The latest estimate is a 4.7 percent increase over 2007, and it says a 65-year-old couple that retires in 2008 can expect to need $225,000 to cover medical costs in retirement. And that doesn’t include over-the-counter medications, dental services and long term care.

To help Americans prepare for rising medical costs after they retire, Fidelity offers a five-step approach:

  1. Create an individual retirement plan.
  2. Maximize savings opportunities and do so early. Health savings accounts and other tax-advantaged plans are one way workers can save for health care costs sure to hit in retirement.
  3. Assess health status to ensure smarter consumption of health care services. Consumers with chronic conditions know their health care is going to be expensive forever. Generally healthy folks can expect to spend less, but will still spend more as they age.
  4. Know the details of any employer-sponsored coverage. Pre-retirees should make no assumptions about the scope and level of their post-career coverage.
  5. Recognize the impact of health care costs on Social Security income. Fidelity calculated a number sure to open eyes: A 65-year-old who makes $60,000 and retires in 2008 can expect to spend 50 percent of his pre-tax Social Security benefit on personal health care expenses in the next 17 to 19 years.