— After years of increasing health care costs, the
outlook is improving for seniors worried about paying
their medical bills during retirement.
the second time in the last three years, estimated
medical expenses for new retirees have fallen,
according to a study released Wednesday by Fidelity
Investments. A 65-year-old couple retiring this year
would need $220,000 on average to cover medical
expenses, an 8 percent decrease from last year's
estimate of $240,000. The study assumes a life
expectancy of 85 for women and 82 for men.
attributes this year's decrease to several factors,
including a slowdown in healthcare spending that
hasn't rebounded with the economy.
times are tough people tend to cut back on health care
expenditures," said Sunil Patel, a senior vice
president for benefits consulting at Fidelity. "I
think what surprised many people is that in recent
years, even as the economy recovered, you've still
seen a fairly significant slowdown."
fewer doctor's visits can help seniors save money,
Patel stressed that skipping necessary care can lead
to more serious health problems and higher expenses
down the road.
2013 decrease is significant since Fidelity's
estimates had increased 6 percent per year, on
average, between 2002 and 2012. The estimate decreased
only once before in 2011 due to changes in the Obama
administration's health care overhaul, which have
reduced seniors' out-of-pocket spending on
projections assume that a 65-year-old couple retires
this year with Medicare coverage and no additional
coverage from former employers. The estimate factors
in the federal program's premiums, co-payments and
deductibles, as well as out-of-pocket prescription
costs. The estimate doesn't factor in most dental
services, or long-term care, such as the cost of
living in a nursing home.
company's projection has fallen 12 percent from its
high of $250,000 in 2010. But Americans continue to
drastically underestimate how much money they're
likely to spend on health care during retirement. A
recent poll of people in their 50s and 60s conducted
by Fidelity found that nearly half of respondents
think they will need just $50,000 to cover medical
many Americans underestimate the scale of medical
expenses they'll need in retirement, the financial
burden remains a serious concern.
recent survey by Merrill Lynch found that health care
expenses were the number one retirement worry among
people preparing to retire. Three out of five retirees
surveyed said they were forced to retire earlier than
expected due to a health problem.
is a generation that is living longer than any
previous generation and because of that longevity they
have a whole new set of risks they're worried
about," said David Tyrie, managing director of
Merrill Lynch's personal wealth and retirement
are some initial steps to help prepare for medical
expenses during retirement:
Talk to a financial planner: Experts agree there is no
universal formula to plan for retirement costs. The
amount of savings needed for medical care can vary
depending on whether seniors continue working during
retirement or retire before they become eligible for
Employee Benefit Research Institute, an independent
nonprofit, conducts similar research to Fidelity, but
doesn't focus on an average cost because there are so
many variables that impact a retiree's circumstances.
The group recommends working with a financial
professional to develop a retirement plan that factors
in medical bills.
general, people need to sit down and figure out what
they want and talk to a financial planner to realize
their goals," says Paul Fronstin, EBRI's director
of health research and education.
its most recent estimate, EBRI projected that a couple
with typical drug expenses would need $163,000 for a
50 percent chance of covering all medical expenses in
retirement. They'd need $283,000 to have a 90 percent
Consider a health savings account: One of the best
vehicles to begin saving for medical costs in
retirement are health savings accounts offered by many
employers and financial institutions. Workers can
begin contributing to health savings accounts while
they are younger and generally healthier. The money is
invested tax-free and rolls over each year, regardless
of whether you change employers. Unlike retirements
accounts like IRAs and 401ks, the money is not taxed
when it is withdrawn as long as it is spent on health
care. Currently health savings accounts are only
available to people enrolled in high-deductible health
plans. These plans have lower premiums but a fixed
deductible that must be paid out of pocket before
coverage begins. They are generally a good idea for
people in good health with few health care needs.
Consider an annuity: For workers who don't have a
health savings account an annuity can be another
useful investment tool. Under a deferred annuity, a
person can set aside a large amount of savings in
return for a steady stream of payments in the future.
The advantage of an annuity is that it provides a
guaranteed minimum monthly payment, no matter what
happens to the value of the principal investment.
couple that knows they are likely to face $220,000 in
expenses over their retirement could setup an annuity
to provide about $11,000 a year over twenty years. The
downside to an annuity, versus a healthcare savings
account, is that withdrawals are taxed as income.
Annuities can be very complex and investors need to do
their homework about the related fees. For more info