Health Care Cost Estimate Hits New High: A Couple Retiring Today Will Need $300,000 to Cover Medical Expenses

As you read the following keep in mind they are also promoting Health Savings Accounts (HSAs) which are a source of investment business. And remember, this is spending estimated over a thirty-year period. The vast majority of the spending is on premiums, not actual health care costs.

Nevertheless, those planning for retirement must consider their basic annual costs (2021 dollars) of about $389.00 per month (with some variables for age and location). This covers Parts A and B and D Medicare plus Medigap supplemental plan. Individuals with incomes above $88,000 will pay higher Medicare premiums.

This combined coverage nearly eliminates out of pocket health care costs with the exception of prescription drug costs for those using high cost medication. An HSA will come in handy here.

If you are concerned about long term care costs based on your health or family history, that is a entirely different issue.

BOSTON–(BUSINESS WIRE)–Fidelity Investments®, one of the industry’s most diversified financial services firms and a leader in creating dynamic employee benefits programs, today announced its 20th annual Retiree Health Care Cost Estimate.

According to Fidelity, a 65-year old, opposite-gender couple retiring this year can expect to spend $300,0003 in health care and medical expenses throughout retirement. For single retirees, the 2021 estimate is $157,000 for women and $143,000 for men.

This year’s estimate marks a new milestone high, up 30% from 10 years ago when the amount was $230,000, but just 1.7% from 2020 ($295,000) as health care inflation has remained relatively flat over the last few years. Fidelity began measuring in 2002 to build greater awareness of estimated health care costs and the importance of starting to plan and save early to meet those anticipated expenses.

Since then, the estimate has risen a total of 88% (from $160,000). “While this past year has certainly made protecting our health today a priority, we need to do the same when planning for future health care needs,” said Hope Manion, senior vice president, Fidelity Workplace Consulting. “Covering health care costs is one of the most significant, yet unpredictable, aspects of retirement planning.

By providing this estimate for retirees, we want to increase awareness among people of all ages to help them proactively get more engaged in saving and investing, so they can be better prepared in years to come.” Broader awareness is much needed, as 58% of current employees say they have spent little or no time thinking about what they need to cover in retirement. Even among those who have, 50% believe they’ll need just $50,000 or less to meet health care expenses.

Fidelity’s estimate assumes both members of the couple 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.

Source: Fidelity’s 20th Annual Retiree Health Care Cost Estimate Hits New High: A Couple Retiring Today Will Need $300,000 to Cover Medical Expenses, an 88% Increase Since 2002 | Business Wire

5 comments

  1. Wow, this is stunning. I’d like to see how Fidelity calculated a 30-year cost of $300,000. They don’t say exactly what they used for healthcare cost inflation.

    But let’s round $389 a month to $400, that’s $4800 a year. Let’s make that $5000. Times 30 years we get a 30-year total of$150,000. With no inflation.

    CPI inflation since 1990 has been 98%. Because healthcare inflation is higher than the CPI measure, it makes sense that it will more than double in 30 years, based on the historic record.

    https://www.usinflationcalculator.com/inflation/health-care-inflation-in-the-united-states/
    https://www.usinflationcalculator.com/

    Liked by 1 person

    1. I was wondering how helpful Fidelity’s number was. For the shock & awe value it might drive some people to save more, some to never stop working, or some just give up trying to save.

      I can do the same thing with other essentials too. In NJ, my current property tax has doubled in the last 20 years too. It is close to $4,000.00 a year in South Jersey (2020). There are people paying $12,000 a year in property taxes in North Jersey (outside of NYC). That would probably require about $360K without inflation to be saved. The same for food, utilities, etc…

      Although you may need or spend that big mountain of cash over 30 years, I don’t think that large number is very useful. I think the monthly or annual costs would be better. I think it is easier to figure out if you have enough of an income stream to retire (social security, savings, 401Ks, pensions). Once you have a realistic number you can apply an inflation factor which you can adjust to your annual expenses. Do you have a way to adjust for inflation without depending on COLAs?

      Once you get a good number, then you will determine how big the mountain will need to be when you figure out how you want to withdraw your money (4% rule, flat $20K / year, etc). It will still be big, but I don’t think it will as much as a shock value.

      Liked by 1 person

      1. Right on target. I live in North Jersey, my property taxes on a condo are nearly $13,000. A block away there are houses with taxes north of $25,000.

        Liked by 1 person

    2. I looked at the Fidelity article that was attached to the original Commentary again. In a footnote is an item that adds important context to their estimate.

      Footnote 3 says ‘The Fidelity Retiree Health Care Cost Estimate assumes individuals do not have employer-provided retiree health care coverage, but do qualify for the federal government’s insurance program, Original Medicare. The calculation takes into account cost-sharing provisions (such as deductibles and coinsurance) associated with Medicare Part A and Part B (inpatient and outpatient medical insurance). It also considers Medicare Part D (prescription drug coverage) premiums and out-of-pocket costs, as well as certain services excluded by Original Medicare.

      Fidelity did not include coverage under MediGap or Medicare Advantage plans. If that’s right, it will possibly _significantly_ increase healthcare costs for the retiree to pay.

      Like

      1. It’s possible to construct just about any estimate you like. Medigap virtually eliminates OOP costs on the medical side and Rx is highly variable.

        Like

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