It is not news that U.S. health care costs eat up a big chunk of Americans’ financial resources. For a 65-year-old couple who retire this year, that means they will need an estimated $280,000 to pay for health care and medical expenses throughout retirement, Fidelity Investments reported Thursday.
This figure represents a 2% increase over the estimate for a similar couple in 2017, and a 75% increase from Fidelity’s initial 2002 estimate of $160,000.
Fidelity said its estimate was designed to calculate health care expenses for a traditional couple that retire at 65 and assumes that both partners are eligible for Medicare.
However, many individuals retire for various reasons before they reach 65, and a lot of these have to come up with hefty monthly sums to pay for health care premiums.
Retiring at 65
Fidelity noted many of the metrics that contribute to its annual retiree health care cost estimate were susceptible to shifts in the economic landscape and changes in government regulations.
The report said the 2% increase to this year’s estimate was the smallest annual increase since 2014, indicating that a number of the factors in its estimate, such as prescription out-of-pocket drug expenses and Medicare premiums, remained relatively flat over the last year.
According to Fidelity, the moderation of estimated retiree health care costs coincided with increasing savings levels for many Americans — an increase of nearly 10% in the average savings rate since 2013, according to an analysis of 401(k) accounts managed by the firm.
For individuals retiring this year, based on the same assumptions and life expectancies used to calculate the estimate for a 65-year-old couple, a man will need $133,000 to cover health care costs in retirement, while women will need $147,000, mainly because women are expected to live longer than men, according to the report.
“Despite this year’s estimate remaining relatively flat, covering health care costs remains one of the most significant, yet unpredictable, aspects of retirement planning,” Shams Talib, head of Fidelity Benefits Consulting, said in a statement.
“It’s important for individuals to educate themselves and take steps while working to ensure they are prepared to address these costs. Otherwise, people risk having to dip into more of their savings than originally anticipated, potentially impacting their overall retirement lifestyle.”