Fidelity: Couples Need $250,000 for Retirement Health Costs

Several studies find a 6-figure sum may be necessary to cover out-of-pocket health costs in retirement

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A 65-year-old couple retiring this year will need $250,000 to pay for medical expenses throughout retirement, according to Fidelity Investments calculations released today. This figure is up 4.2 percent from last year’s estimate of $240,000. Fidelity attributes this rise in expected retiree health expenses to increasing costs for medical services such as doctor’s visits and diagnostic tests, the higher prices associated with new technology, and general price inflation.

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This quarter of a million dollar estimate takes into account the typical premiums, deductibles, and coinsurance associated with Medicare Part A and Part B medical insurance, premiums and out-of-pocket costs faced by a retirees with Medicare Part D prescription drug coverage, and some services not covered by Medicare. It is assumed that the retirees do not receive employer-provided retiree health care coverage and that the man will live 17 years in retirement and the woman will live 20 years. The figure does not include the costs associated with over-the-counter medications, most dental services, and long-term or nursing home care.

[See Retiree Health Care Costs Expected to Double by 2040.]

Other researchers have come up with similarly large estimates of retiree health care costs. Calculations by the Center for Retirement Research at Boston College released earlier this month estimated that a 65-year-old married couple will need $197,000 to pay for out-of-pocket medical costs throughout retirement. And an Employee Benefit Research Institute study conducted last year determined that a couple, both age 65 in 2009, needs $210,000 to have a 50 percent chance of affording their retirement health expenses.

[See The High Cost of Growing Older.]

Many current retirees are unprepared for the health care costs they are now facing. Almost half (47 percent) of retirees are paying more for insurance premiums and out-of-pocket health care costs than they had anticipated before retiring, according to a related Fidelity survey of 376 married individuals age 65 years and older. The average health care expenses reported by the survey respondents was $535 a month, which is about one fifth of the average couple’s total monthly expenses of $2,842. Only about 30 percent of these retirees saved specifically for retirement health care needs during their working years.