A 65-year-old retiring this year can expect to spend an average of $165,000 in healthcare and medical expenses throughout retirement, according to Fidelity Investments’ 23rd annual Retiree Health Care Cost Estimate, released today.
Fidelity’s 2024 estimate is up nearly 5% over 2023 and has more than doubled from its inaugural estimate in 2002. It’s also much higher than what most Americans think they will pay. Recent Fidelity research found the average American estimates costs will only be about $75,000—less than half of Fidelity’s calculation.
“Health care costs are among the most unpredictable expenses, especially when it comes to retirement planning,” said Robert Kennedy, SVP, Workplace Consulting at Fidelity. “As we approach the fall open enrollment period for health care benefits, it’s a great time for Americans to be proactive with their financial planning efforts. The best time to plan for those health care costs is long before they occur.”
Designed to inform Americans about the importance of incorporating health care costs into retirement planning, this year’s estimate continues the decades-long upward trend of health care costs.
“There is always opportunity to provide education around the cost of health care and the tools Americans have at their disposal to manage those expenses,” said Kennedy. “For Americans approaching retirement, understanding Medicare options and how they fit into your plan is a good first step.”
Fidelity’s estimate assumes an individual is enrolled in traditional Medicare—both Part A and Part B—which covers most hospital care and doctor visits, and Part D—which covers prescription drugs. However, things like Medicare premiums, over-the-counter medications, dental and vision care, and all other healthcare costs that Medicare typically does not cover are left to retirees to manage on their own.
Planning for healthcare costs
Making a plan to cover healthcare costs in retirement can feel daunting, particularly as Americans balance competing priorities in day-to-day household budgets. There are a number of drivers behind this mounting retirement healthcare cost challenge—people are living longer, and healthcare inflation continues to outpace the rate of general inflation—so it’s no surprise healthcare is creating a gap for many Americans.
There are several simple steps investors can take to become better prepared for future costs while managing today’s expenses, however, including exploring the utility of health savings accounts (HSAs), which give Americans enrolled in HSA-eligible health plans a tax-advantaged way to save for short- and long-term health expenses.
Making right Medicare choices not simple
When it comes to selecting Medicare coverage, many Americans approaching retirement age are concerned that it’s easier said than done. In fact, 55% say it will be difficult to enroll in Medicare coverage, and half expect to feel overwhelmed or confused when selecting their plan.
“As Americans wrestle with the impact of rising healthcare costs today, it’s understandable that preparing for health carecosts in retirement would be a top concern,” said Harold Stankard, head of Fidelity Medicare Services. “We’ve heard directly from our clients that choosing health coverage in retirement is one of the most complex decisions they face. For those approaching Medicare eligibility, or even those already in retirement, understanding how the options available can support individual needs is an important step in simplifying a strategy.”
Despite the desire for greater clarity, the effort it takes to do the necessary research can be a challenge. Notably, while nearly two-thirds (63%) of older Americans say they plan to review their Medicare options annually, Americans ages 75 and over are the least likely to review their coverage each year, despite shifting health conditions.
EDITOR’S NOTE: This article has been updated to clarify that the estimate includes Medicare Part D.
SEE ALSO:
• Healthcare Costs in Retirement: What to Expect
• 401(k), HSA Account Balances Grow in Q2: Bank of America
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.