Estimates for Health Care Costs in Retirement Continue to Rise

A 65-year old couple retiring in 2019 can expect to spend $285,000 in health care and medical expenses throughout retirement, Fidelity estimates, but it says it is possible to save for retirement health costs via health savings accounts.

A 65-year old couple retiring in 2019 can expect to spend $285,000 in health care and medical expenses throughout retirement, compared with $280,000 in 2018 According to Fidelity’s annual Retiree Health Care Cost Estimate.

For single retirees, the health care cost estimate is $150,000 for women and $135,000 for men.

Fidelity notes that the past two years combined have seen a slower rise (3.6%) than in the previous two (2015 to 2017), which saw the estimate grow to $275,000 from $245,000 (up a total of 12.2%). However, even without the same rate of growth, some retirees are still surprised by today’s cost of health care. A survey found 81% of Americans believe it would be very or extremely valuable for their financial adviser to include health care costs in their retirement planning.

Many of the metrics contributing to Fidelity’s annual retiree health care cost estimate are susceptible to shifts in the economic landscape and changes in government regulations. Fidelity’s estimate assumes both members of the couple are eligible for Medicare, which between Medicare Part A and Part B covers expenses such as hospital stays, care at a skilled nursing facility, doctor visits and services, physical therapy, lab tests and more.

“The promising news for this year’s retirees is that out-of-pocket Medicare costs have leveled—meaning at least in the past year, medical costs have not increased at the rate experienced in previous years,” Fidelity says. “However, many Americans are still unclear about what Medicare does and does not cover, likely a reason many still underestimate the costs of health care in retirement.”

Saving for health care costs

Fidelity says it is possible to save $285,000 for health care costs over 30 years. While Fidelity’s estimate is for a couple retiring in 2019, the firm says it’s also a call-to-action to younger generations, reminding them to take advantage of the time and investing opportunities they may have available to them.

“We recognize that when today’s 35-year-olds retire in 2049, their medical costs could be more than this year’s estimate, and the U.S. health care system could potentially look dramatically different. It’s hard for any of us to predict that far out, but it’s prudent to anticipate that health care costs could represent a significant expense in retirement and prepare as much as we can,” says Hope Manion, senior vice president, Fidelity Workplace Consulting.

According to Fidelity, a 35-year-old couple could potentially save $287,846 over 30 years by contributing $2,820 each year in a health savings account (HSA). This depends on whether that money is in an account in which it can be invested for potential growth, and on how participants use their HSA assets for current medical expenses.

At the end of 2018, more than 91% of Fidelity HSA funded account holders held all of their savings in cash. Lively Inc., an HSA provider, found its average HSA-holder spent 93% of his account savings on household health care costs last year.