A 65-year-old retiring this year can expect to spend an average of $157,500 in healthcare and medical expenses throughout retirement.
That’s according to data from Fidelity Investments, which today shared its 22nd annual Retiree Health Care Cost Estimate. Interestingly, the 2023 estimate remains the same as last year, due to expected limits to retiree out-of-pocket costs for prescription drugs starting in 2025. This is the first time in nearly a decade that the anticipated healthcare costs for retirees have stayed flat year-over-year in Fidelity’s annual study.
“While this year’s estimate offers a welcome reprieve from a decade of increasing health care costs, retirees are still expected to cover significant costs above and beyond what Medicare covers”
Fidelity’s Hope Manion
The estimate assumes retirees are enrolled in traditional Medicare, which between Medicare Part A and Part B covers expenses such as hospital stays, doctor visits and services, physical therapy, lab tests and more, and in Medicare Part D, which covers prescription drugs.
“While this year’s estimate offers a welcome reprieve from a decade of increasing health care costs, retirees are still expected to cover significant costs above and beyond what Medicare covers,” said Hope Manion, senior vice president and chief actuary, Fidelity Workplace Consulting. “Understanding what your health care costs may be in the future is an essential part of the retirement planning process.”
With the nation’s share of solo households doubling since 1960, Fidelity this year shifted its annual estimate to focus on individual retirees. The 2023 estimate is flat from 2022 ($157,500 for a single retiree, or $315,000 for a couple), and has nearly doubled from the $80,000 for a single retiree estimated in 2002.
If that retirement lasts 20 years, a retiree is looking at needing to budget $7,875 to spend per year or $656.25 per month on healthcare costs, based on the $157,500 estimate.
“Our analysis finds that limits on how much retirees can spend on prescriptions covered by Medicare Part D from the Inflation Reduction Act are likely to temporarily offset the overall inflationary trend of health care costs for retirees,” said Manion. “Even so, those planning for retirement need to build a plan that incorporates the still-high cost of health care and the medical and drug expenses not covered by Medicare.”
Research has shown many Americans consistently underestimate just how much they may spend on health care in retirement; in fact, a 2022 survey found they expect a couple to spend just $41,000 on health care once they retire, far below Fidelity’s estimate of $157,500 for the average 65-year-old retiring this year.
For the sake of comparison, the 2023 Milliman Retiree Health Cost Index, released in May, found a healthy 65-year-old male retiree with an MAPD plan will spend $134,000 for healthcare in his remaining lifetime (equating to $90,000 of savings in today’s dollars), down from $137,000 in 2022. A 65-year-old female retiree with the same coverage will spend approximately $155,000 on healthcare expenses over the course of her lifetime ($100,000 in savings today), down from $158,000 in 2022.
The Milliman index projects total premiums and out-of-pocket expenses for medical care and prescription drug costs.
SEE ALSO:
• How Much a 65-Year-Old Retiring in 2023 Needs to Cover Healthcare Costs
• Americans Are Increasingly Worried Over Healthcare Costs
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.