Average Couple Needs $220,000 for Health Care in Retirement

Including health care costs is key to successful retirement planning, says Fidelity, citing data from Fidelity Benefits Consulting. 

A 65-year old couple retiring this year needs an average of $220,000 to cover medical expenses throughout retirement, Fidelity says.

That estimate tops at $220,00 for the second year in a row, and while that’s less than the peak of retiree health spending of $250,000 in 2010, health care continues to be one of the nation’s largest expenses in retirement, Fidelity says.

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The estimated cost does not include costs associated with nursing-home care, and applied only to retirees with traditional Medicare insurance coverage.

Retiree health care spending increased an average of 6% for nearly a decade until beginning to decline following 2010. 

Medicare changes in 2011, which reduced out-of-pocket expenses for prescription drugs for many seniors, are attributed to the decline of $20,000 in retiree health care spending in that year, Fidelity says. Then in 2013, it dropped again to $220,000, and held steady in 2014, because of a combination of factors.

Those factors include “lower-than-expected Medicare spending, continued long-term savings on prescription drugs because of the gradual closure of Medicare Part D’s ‘donut hole,’ and an increasingly cautious—and selective—health care consumer,” Fidelity says.

Fidelity also attributes the drop in retiree health cost since 2010 to the smaller payment increases to providers and demographic changes, adding that while that cost has dropped increases in aggregate Medicare spending have grown at a faster rate because of a larger number of beneficiaries.

Planning far in advance and opening a health savings account (HSA), if possible, are ways future retirees can be best prepared for the financial curve balls that health care-related costs can throw.

“We understand that some people don’t have a choice in when they retire,” Brad Kimler, executive vice president of Fidelity’s Benefits Consulting business, says in the report. “Sometimes health issues or someone’s occupation plays a role. So it’s critical that people plan well in advance for the considerable cost of health care by adding it into their overall retirement planning discussions.”

Written by Cassandra Dowell

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