Americans who want to make sure they save enough to cover post-retirement health care costs now have a higher goal.
Fidelity Investments estimated Wednesday that a typical U.S. resident who retires at age 65 will need $172,500 to cover the cost of health insurance premiums and out-of-pocket costs.
The new estimate is 4.5% higher than the post-retirement health care cost estimate Fidelity released in 2024.
The rate of increase is a little lower than the 4.8% increase Fidelity announced last year.
What it means: The overall R-CPI-E, or the rate of inflation for goods and services used by U.S. residents ages 62 and older, increased 2.8% between the first half of 2024 and the first half of this year.
The new Fidelity estimate means that post-retirement health care costs are rising faster than overall prices, but slowly enough that cash invested in a multi-year guaranteed annuity or an ordinary investment portfolio that performs reasonably well should be able to keep up.
Methods: Fidelity does not provide much information about how it calculates the post-retirement health care spending total.
Fidelity assumes people will get Medicare Part A hospitalization coverage without having to pay premiums, because they and their employers contributed enough payroll taxes to cover the costs.
The cost estimate team does include the premiums for Medicare Part B physician and outpatient services coverage and the premiums for Medicare Part D prescription drug coverage.
The team excludes the cost of long-term care.
The team does not say whether its hypothetical retirees pay for Medicare supplement insurance or Medicare Advantage plan coverage.
Total post-retirement spending: Fidelity does not provide estimates of total spending in retirement.
It suggests elsewhere that many people with annual income over $120,000 will cut spending to 55% to 65% of their pre-retirement income level once they retire.
If two spouses earned $150,000 per year at retirement, then spent about $100,000 per year after retirement for 15 years, they would need $1.5 million to pay for that.
If the two spouses paid a total of $345,000 for health care for two people, that would amount to about 23% of total spending.
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