Health care remains one of the largest costs for people entering and living in retirement, warns Adam Stavisky, senior vice president, Fidelity Benefits Consulting. And for that reason, he says planning for these expenses is “a critical part of any retirement savings strategy.”
To help people understand and plan for these costs, Fidelity annually estimates what a 65-year old couple, retiring in the current year, will need to cover health care and medical expenses throughout retirement. The 2017 estimate is $275,000, a 6% increase over last year’s estimate of $260,000.
Stavisky sat down with PLANADVISER to review the findings, observing that the increase in 2017 “reflects general market trends and expectations for health care costs across a variety of expenses an individual could face in retirement.” These include monthly expenses associated with Medicare premiums, Medicare copayments and deductibles and prescription drug out-of-pocket expenses. Further, the analysis assumes enrollment in Medicare health coverage but does not include the added expenses of nursing home or long-term care.
The research points out that the 2017 estimate may only be 6% greater than last year’s estimate, but this year’s figure represents more than a 70% increase since Fidelity’s initial retiree health care cost estimate in 2002. Stavisky agrees that there is little sign that the inflation will slow down, “but at some point something is going to have to give.” As it stands today, the projected health care expense for a retiring couple outstrips the average 401(k) balance measured by Fidelity. While older workers nearing retirement, generally speaking, have greater assets than the average rate, as well as potentially sizable holdings beyond the 401(k), the substantial heath care costs projected by Fidelity will be enough to challenge even those with a strong financial footing.
Responding to these pressures, Fidelity finds an increasing number of companies are offering health savings accounts (HSAs) as part of their benefits platform, “which allow people to put aside money for today’s health care expenses while investing for medical costs they may incur in retirement.”
“The number of clients on Fidelity’s HSA platform increased 38% in the last year, and the number of individual Fidelity HSA holders has increased 46%,” Stavisky observes. “We are focused on improving consumers’ understanding of the way that HSAs are paired with high-deductible health plans (HDHP), which often have lower monthly insurance premiums than traditional health plan offerings. When an employer helps the employee fund an HSA to cover the high deductible, these plans can be very effective in protecting employees’ wealth in a health emergency.”
Stavisky says a key step in maximizing the value of HSAs is ensuring that employees are investing their contributions, which will help them take full advantage of tax-free growth.
“In addition, an increasing number of employers are looking across health and retirement benefits together to see how they can best support their employees during critical life events that can have an impact both inside and outside of the workplace,” Stavisky says. “Taking a total well-being approach, employers are looking to address their employee’s financial, work/life and physical health care needs. This focus on total well-being is expected to increase as more employers recognize how these programs, when coupled with education and targeted efforts to increase participation, can improve employee productivity, health and financial wellness.”