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Retiring This Year? Here’s What You’ll Pay for Health Care

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Fidelity Investments reported Thursday that a 65-year-old couple retiring this year can expect an estimated $275,000 in health care and medical expenses throughout retirement.

Fidelity’s annual analysis of retirees’ health care costs represented a 6% increase over last year’s estimate but a whopping 70% increase since its initial retiree health care cost estimate in 2002.

The $15,000 increase over the 2016 estimate reflects general market trends and expectations for health care costs across monthly expenses associated with Medicare premiums, Medicare copayments and deductibles, and prescription drug out-of-pocket expenses, according to the report.

It assumes enrollment in Medicare health coverage, but does not include the added expenses of nursing home or long-term care.

“With ongoing uncertainty across the health care landscape, it’s more important than ever for individuals to educate themselves on steps they can take to prepare for their health care needs in retirement,” Adam Stavisky, senior vice president at Fidelity Benefits Consulting, said in a statement.

“These expenses are only expected to increase in the future, so it’s critical that people include health care as a significant part of their retirement plan.”

Fidelity’s new estimate was based on a hypothetical 65-year-old couple retiring in 2017, with life expectancies that align with Society of Actuaries’ RP-2014 Healthy Annuitant rates with Mortality Improvements Scale MP-2016. The estimate was net of taxes.

The calculation assumed individuals did not have employer-provided retiree health care coverage but did qualify for Original Medicare. The calculation included cost-sharing provisions associated with Medicare Parts A and B, as well as Medicare Part D premiums and out-of-pocket costs, and certain services excluded by Original Medicare.

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

Companies Jump In

Fidelity said in its statement that employers were playing a more active role in helping workers manage their pre-retirement health care expenses and were providing benefits that could contribute to improved health, and possibly lower health care costs, in retirement.

A growing number of companies are offering health savings accounts as part of their benefits platform. The number of clients on Fidelity’s HSA platform increased by 38% over the last year, and the number of individual Fidelity HSA holders grew by 46%, according to internal Fidelity data.  

The report noted that HSAs are paired with high-deductible health plans, which often have lower monthly premiums than traditional health plan offerings. They also include three key tax benefits: contributions go in tax-free, and balances and savings can be withdrawn for medical costs free of federal taxes.

A key step in maximizing the value of HSAs, Fidelity said, is ensuring that employees invest their contributions, which will help them take full advantage of any tax-free growth.

An increasing number of employers are also taking a “total well-being” approach, looking to address their employee’s financial, work/life and physical health care needs. Fidelity said this focus would increase as more employers recognize how total well-being programs, when coupled with education and targeted efforts to increase participation, can improve employee productivity, health and financial wellness.

According to a recent Fidelity/National Business Group on Health survey, 87% of companies polled were planning to continue or expand their well-being programs next year, with focus on programs such as student loan repayment, debt management, mindfulness training and subsidies for fitness wearables.

“As retiree health care costs continue to rise, it’s becoming increasingly important for workers to focus on saving enough to ensure these expenses don’t derail their retirement,” Stavisky said.

“But workers can’t do it alone — employers need to find practical, innovative ways to help their employees understand the health care expenses they may face in retirement, as well as provide the tools and education to help employees save enough.”

— Check out Your Children Can Spare You Time and Money in a Nursing Home on ThinkAdvisor.