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Health Care Costs for Couples in Retirement Rise to an Estimated $245,000

  • Health Savings Account

BOSTON – While many things get better with age, new research shows the cost of health care isn't one of them. Fidelity's Retirement Health Care Cost Estimate reveals that a couple, both aged 65 and retiring this year, can now expect to spend an estimated $245,000 on health care throughout retirement, up from $220,000 last year1.

The figure has increased 29 percent since 2005 when it was $190,000 (see chart). Factors boosting this year's estimate include longer life expectancies and anticipated annual increases for medical and prescription expenses2. The estimate assumes enrollment in Medicare health coverage but does not include the added expenses of nursing home or long-term care.

"The sticker shock of $245,000 hopefully reinforces for many people that they need to act now, regardless of their age," said Brad Kimler, executive vice president of Fidelity's Benefits Consulting Services. "For people offered a high-deductible health plan with a health savings account at work, choosing this option can really help them prepare, especially for Millennials who have a long time to save."

Strategic Choices Can Help Mitigate Costs

As pre-retirees evaluate health insurance options for retirement, they may wish to consider private Medicare Advantage programs available in their area. Under typical Medicare Advantage plans, people pay monthly premiums to a private insurer and in many cases have a higher percentage of claims and prescriptions covered versus traditional Medicare. Over an extended time period like a couple's retirement, this option could reduce their overall costs.

For people enrolled in high-deductible health plans paired with health savings accounts (HSAs), Fidelity recommends they open an HSA to save for qualified health care expenses today and in retirement. HSAs are a convenient way to pay for current and future medical expenses through a tax-advantaged account3. Contributions that are not spent each year may carry-over and be invested to help pay for health care in retirement (see Three Healthy Habits for HSAs).

Transitioning into Retirement? Don't Go It Alone

In Fidelity's 2015 Couples Retirement Study, nearly three-fourths of couples surveyed said being able to afford unexpected health care costs in retirement was their top concern. However, only 22 percent of couples had factored it into their financial planning4. "People transitioning into retirement should seek help from trusted resources such as their retirement provider, employer or financial advisor," said Kimler. "Important decisions on when to retire, how to manage debt or choosing health insurance will have a lasting impact."

"Clients routinely tell us they're worried about retirement medical expenses, so we make sure to add health care into all our planning conversations," said Michael Gouldin, CEO and President, Gouldin & McCarthy, LLC, an independent advisory firm in Basking Ridge, N.J.

In addition to helping investors prepare for the escalating costs of health care in retirement, Fidelity offers education on a broad range of retirement savings issues, including: asset allocation in 401(k)s, 403(b)s and IRAs, developing a retirement income plan, and how to rollover a 401(k). Help is provided by phone representatives, at workplace education seminars, online and over mobile devices, and in-person at Fidelity's 180 investor centers nationwide. The firm also posts informative content on 401k.com, on Twitter and Facebook, and through Viewpoints (Retiree Health Costs Rise) on Fidelity.com.

About Fidelity Investments

Fidelity's goal is to make financial expertise broadly accessible and effective in helping people live the lives they want. With assets under administration of $5.1 trillion, including managed assets of $2.0 trillion as of August 31, 2015, we focus on meeting the unique needs of a diverse set of customers: helping more than 24 million people invest their own life savings, nearly 20,000 businesses manage employee benefit programs, as well as providing nearly 10,000 advisory firms with technology solutions to invest their own clients' money. Privately held for nearly 70 years, Fidelity employs 42,000 associates who are focused on the long-term success of our customers. For more information about Fidelity Investments, visit https://www.fidelity.com/about.

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1. 2015 Fidelity analysis performed by its Benefits Consulting group. Estimate based on a hypothetical couple retiring in 2015, 65-years-old, with average life expectancies of 85 for a male and 87 for a female. Estimates are calculated for "average" retirees, but may be more or less depending on actual health status, area of residence, and longevity. The Fidelity Retiree Health Care Costs Estimate assumes individuals do not have employer-provided retiree health care coverage, but do qualify for the federal government's insurance program, Original Medicare. The calculation takes into account cost-sharing provisions (such as deductibles and coinsurance) associated with Medicare Part A and Part B (inpatient and outpatient medical insurance). It also considers Medicare Part D (prescription drug coverage) premiums and out-of-pocket costs, as well as certain services excluded by Original Medicare. The estimate does not include other health-related expenses, such as over-the-counter medications, most dental services and long-term care. Life expectancies based on research and analysis by Fidelity Investments Benefits Consulting group and data from the Society of Actuaries, 2014.
2. For purposes of this hypothetical analysis, a 4% to 5% annual rise in health care costs is assumed.
3. Contributions, investment earnings, and distributions are tax free for federal tax purposes if used to pay for qualified medical expenses, and may or may not be subject to state taxation. For additional information, see IRS Publication 969. The administration of an HSA is an individual responsibility; see a tax professional for more information.
4. Fidelity Investments 2015 Couples Survey, June, 2015. The 2015 Fidelity Investments "Couples Retirement Study" analyzed retirement and financial expectations and preparedness among 1,051 couples (2,102 individuals). Respondents were required to be at least 25 years old, married or in a long-term committed relationship and living with their respective partner, and have a minimum household income of $75,000 or at least $100,000 in investable assets. This online, bi-annual study was launched in 2007, and is unique in that it tests agreement of both partners in a committed relationship on communication, as well as their knowledge of finances and retirement planning issues. Fidelity Investments was not identified as the sponsor. GfK's Public Affairs & Corporate Communications division executed the study, which was fielded in April 2015.
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