Fidelity: Cost of Retiree Health Care Jumps Again

Fidelity Investments' annual Retiree Health Care Costs Estimate indicated a 65-year-old couple retiring this year will need $250,000 to pay for medical expenses throughout retirement, not including nursing home care.

That estimate is 4.2% higher than last year’s estimate of $240,000 (see “Retiree Health Care Estimate Jumps 6.7%”) and 56% higher than 2002, when Fidelity first calculated retiree health care costs at $160,000.      

Fidelity said the significant jump in the retiree health care cost estimate from 2002 to 2010 can be attributed to a number of factors including higher costs (e.g., for doctor’s visits, diagnostic tests); increased expenses associated with new technology; and general price inflation.     

According to Fidelity, the survey assumes individuals do not have employer-provided retiree health care, but do qualify for the federal government’s insurance program Medicare. The Fidelity estimate 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 Medicare.      

The estimate does not include other health-related expenses, such as over-the-counter medications, most dental services, and long-term care.      

A recent study suggested that adding the cost of nursing home care could possibly double the amount retirees need for health care expenses (see “Average Cost of Retiree Health Care: $260,000”).     

The annual health care costs estimate is calculated by Fidelity’s Consulting Services business, which helps mid- to large-size employers assess and design their workplace benefits programs.

Retirees Paying More than Expected for Health Care     

As part of its annual Retiree Health Care Costs Estimate, Fidelity also surveyed 376 married individuals 65 years or older and not working full-time and found almost half (47%) are paying more each month for insurance premiums and out-of-pocket health care costs than they had anticipated. Only three out of 10 of these retirees saved specifically for health care needs in retirement during their working years.     

More than four in 10 of those surveyed (44%) said health care expenses have had a negative effect on their retirement budget.    

According to the study, more than half (51%) are paying out-of-pocket for health care costs not covered by Medicare and four out of 10 (45%) have bought supplemental insurance to cover the gap. Only a small percentage of retirees indicated using other measures, such as tapping retirement funds earlier than anticipated (2%), credit cards (2%), or relying on family (1%).      

When asked to identify their single biggest financial concern today, three out of 10 retirees said paying for today's health care costs and long-term health care expenses such as a nursing home are among their biggest worries. Other financial concerns included paying for daily living expenses such as food, transportation, and utilities (17%); assisting grown children and grandchildren with their financial needs (10%); and paying for housing (7%).