Health Care in Retirement Will Now Cost How Much?

health insurance

Got enough money for a new house that’s just lying around? Hopefully so, because you’ll need it. Fidelity found that a couple, both aged 65 and retiring this year, can now expect to spend an estimated $245,000 on health care throughout retirement, up from $220,000 last year. So much for bending the cost curve.

The figure has increased 29 percent in the past 10 years, when it was $190,000. Factors include longer life expectancies and anticipated annual increases for medical and prescription expenses.

“The sticker shock of $245,000 hopefully reinforces for many people that they need to act now, regardless of their age,” said Brad Kimler, executive vice president of Fidelity’s Benefits Consulting Services. “For people offered a high-deductible health plan with a health savings account at work, choosing this option can really help them prepare, especially for Millennials who have a long time to save.”

As pre-retirees evaluate health insurance options for retirement, they may wish to consider private Medicare Advantage programs available in their area. Under typical Medicare Advantage plans, people pay monthly premiums to a private insurer and in many cases have a higher percentage of claims and prescriptions covered versus traditional Medicare. Over an extended time period like a couple’s retirement, this option could reduce their overall costs.

For people enrolled in high-deductible health plans paired with health savings accounts (HSAs), Fidelity recommends they open an HSA to save for qualified health care expenses today and in retirement. HSAs are a convenient way to pay for current and future medical expenses through a tax-advantaged account3. Contributions that are not spent each year may carry-over and be invested to help pay for health care in retirement.

In Fidelity’s 2015 Couples Retirement Study, nearly three-fourths of couples surveyed said being able to afford unexpected health care costs in retirement was their top concern. However, only 22 percent of couples had factored it into their financial planning4.

“People transitioning into retirement should seek help from trusted resources such as their retirement provider, employer or financial advisor,” said Kimler. “Important decisions on when to retire, how to manage debt or choosing health insurance will have a lasting impact.”

“Clients routinely tell us they’re worried about retirement medical expenses, so we make sure to add health care into all our planning conversations,” said Michael Gouldin, CEO and President, Gouldin & McCarthy, LLC, an independent advisory firm in Basking Ridge, N.J. 

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