How Much Will a Couple Retiring in 2018 Need For Health Care Costs?

It represents a 2 percent increase from 2017

401k, retirement, health care, FidelityIt just keeps rising.

It’s another indication of why health care is increasingly crowding out 401k and retirement benefits when it comes to the amount participants have available to save.

A 65-year old couple retiring this year will need $280,000 to cover health care and medical expenses throughout retirement, according to Fidelity Investments.

It represents a 2 percent increase from 2017 and a 75 percent increase from Fidelity’s first estimate in 2002 of $160,000.

For individuals retiring this year, using same assumptions and life expectancies used to calculate the estimate for a 65-year-old couple, a male will need $133,000 to cover health care costs in retirement, while females will need $147,000, primarily due to the fact that women are expected to live longer than men, according to the Boston-based company.

“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, executive vice president and head of Fidelity Benefits Consulting, said in a statement.

Fidelity adds that many of the metrics it measures in the retiree health care cost estimate are susceptible to shifts in the economic landscape and changes in government regulations.

The 2 percent increase to this year’s estimate is the smallest annual increase since 2014, which indicates that many of the factors contributing to the estimate, such as prescription out-of-pocket drug expenses and Medicare premiums, have remained relatively flat over the last year.

This moderation of estimated retiree health care costs coincides with increasing savings levels for many Americans – an analysis of 401k accounts managed by Fidelity indicates the average savings rate has increased almost 10 percent since 2013.

When early retirees were asked how they were paying for out-of-pocket premiums, co-pays and deductibles associated with insurance coverage, 49 percent indicated they were dipping into personal savings to cover these expenses. Nearly one-quarter (24 percent) were relying on Social Security income, or retirement savings (15 percent). Only 14 percent of respondents were using a health savings account (HSA) to cover these costs.

In the face of these additional costs, Fidelity explains, many early retirees could be underestimating what they may need to cover health care in retirement. Nearly half (46 percent) of respondents estimated they would need less than $100,000 for health care costs in retirement – while another 33 percent admitted to not having any idea of what their expenses could be in retirement.

“Individuals who are faced with the prospect of retiring early, regardless of the reason, will need to educate themselves on the options available to bridge the gap to Medicare eligibility to help pay for the extra health care expenses they’re likely to incur during this period,” Talib concluded.

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