Health Care Expenses for Retired Couples Hit Record $260,000: Fidelity

Tax-advantaged health savings accounts are soaring in popularity, study finds

A 65-year-old couple retiring this year will need an estimated $260,000 to cover health care costs in retirement, a 6% increase over the 2015 calculation, according to Fidelity’s Retiree Health Care Cost Estimate, released Tuesday.

The new estimate was the highest since Fidelity started making calculations in 2002.

Fidelity said in a statement that it based its estimate on a hypothetical 65-year-old heterosexual couple retiring in 2016, with life expectancies of 87 for the woman and 85 for the man, though costs could be more or less depending on actual health status, area of residence and longevity. The estimate was net of taxes.

Fidelity’s calculation assumed individuals had no employer-provided retiree health care coverage but did qualify for Original Medicare. It took into account cost-sharing provisions associated with Medicare parts A and B, and also considered Medicare Part D premiums and out-of-pocket costs, as well as certain services excluded by Original Medicare.

Not included in the estimate were other health-related expenses, such as over-the-counter medications, most dental services and long-term care.

Fidelity said several factors accounted for the 6% increase in its 2016 estimate, including increased use of medical services and escalating drug costs.

“In recent years, the health care industry has experienced a period of historically low spending levels, due to a range of factors including a period of slow economic growth,” Adam Stavisky, senior vice president at Fidelity Benefits Consulting, said in a statement.

“Looking forward, we expect health care spending to pick up from where it’s been in recent years, though less than what we’ve seen over the last few decades,” Stavisky said, citing research by the Kaiser Family Foundation.

Long-Term Care Costs

In compiling its new report, Fidelity also examined costs associated with long-term care.

Noting that Medicare covers long-term care costs only in limited circumstances, Fidelity estimated that a 65-year-old couple would need $130,000, in addition to savings for retiree medical expenses, to insure against long-term care costs.

This calculation assumed the hypothetical couple was in a good health and had bought a policy with $8,000 monthly maximum benefit, with three years of benefits and an inflation adjuster of 3% per year.

Fidelity said long-term care expenses could affect some 70% of Americans who reach age 65 in the next five years, citing a recent report by LeadingAge Pathways.

“Long-term care is an increasingly important part of retirement planning, as a significant percentage of retirees will likely need some level of long-term care in retirement,” Stavisky said.

He noted, however, that a recent Fidelity survey found that 43% of parents had not engaged in detailed conversations with family members about long-term care and elder care.

“Planning on how to address these potential costs will help avoid placing the burden of care on family and friends,” he said.

HSAs Thriving

Fidelity, reported that more and more companies are helping workers manage health care costs by offering high-deductible health plans with a health savings account.

In 2015, Fidelity said, research by Devenir showed that the number of HSA accounts in the U.S. had increased by 22% over the previous year. Fidelity’s own research found that in the past year, the number of Fidelity HSA account holders had increased by 38% and HSA assets by 40%.

A key reason for HSAs’ growing popularity is that these accounts offer attractive tax advantages, says Fidelity, which offers HSAs.

Since many people save more in their HSA than they spend, Fidelity said, more are opting to invest their HSA money to help it grow for use in retirement.

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