Mind the Gap

Health care expenses can pose stumbling block for retirement-ready workforce

The traditional focus of retirement planning in the workplace has been to emphasize wealth not health.

However, it’s estimated that health care expenses in retirement will cost $220,000 for an average couple retiring in 2014[i]. But the majority (79%) of American workers underestimates the cost of health care in retirement, and only about 10% were in line with what it really costs[ii].

With the average individual 401(k) balance at just over $91,000[iii], it’s paramount that employers acknowledge the need to engage employees to save more now—specifically to pay for anticipated health care expenses once they reach retirement.

Why now? Health care is creating a “retirement gap” for employees because many do not realize that health care expenses will cut into their retirement savings until it is too late. Health care costs are often times higher than anticipated and many assume that their savings will cover all of their expenses in retirement. For some, it can then become a mad dash either to save more or run the risk of health care expenses taking a sizable bite out of the retirement nest egg.

Compounding the issue, many working Americans have a false sense of their ability to control when they can retire. Recent research shows that a majority (86%) of pre-retirees said they were somewhat or very confident in their ability to control the timing of their retirement. In reality one-third (34%) of retirees admitted that the decision to retire ended up being out of their control and that they had to retire earlier than they planned, by an average of more than three years. Based on this research, one out of three workers may end up retiring earlier than they thought and with only the funds they had saved up until their last day of work[ii].

A key employer challenge: many employees delay their retirement because they simply cannot afford to retire. The lack of health care savings for retirement can take a toll the workplace-sponsored benefits system as a whole and can lead to increased expenses across the board for all workers—not just of retirement age.

The good news is that many employees look to their companies as a trusted source of benefits information and they increasingly ask their employers for help with the transition to retirement.

[i] Fidelity Retiree Health Care Cost Estimate  2014. Source Fidelity Benefits Consulting, 2014. Based on a hypothetical couple retiring in 2014, 65 years or older, with average (82 male, 85 female) life expectancies. Estimates are calculated for “average” retirees, but may be more or less depending on actual health status, area of residence, and longevity. Assumes individuals do not have employer‐provided retiree health care coverage, but do qualify for 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 Medicare.)

[ii] Fidelity-sponsored online survey of 1,007 adults, age 55–70 conducted by GfK Public Affairs & Corporate Communications, February 2014

[iii] 401(k) data as of December 31, 2014 based on Fidelity recordkept corporate defined contribution plan base of over 21,000 plans and 13 million participants


Here are five tips that can help employees get on the right track for retirement by paying attention to health care costs all year long:

1.    Explain present and future health care costs: Put health care expenses in perspective by breaking down how much they can expect to spend now and in retirement. Help employees understand the details of your plan—what’s covered and what’s not—and how much they should be prepared to cover out-of-pocket.

2.    Provide retirement resources that illustrate health care costs: Offer employees resources, such as calculators and tools, that provide a breakdown of anticipated retirement expenses based on the individual employee’s personal situation. The results from the tools can help an employee decide how much more they need to save and how.

3.    Get them to save more – just for anticipated health care expenses: Offering a high deductible health plan along with an employer contribution in a health savings account (HSA) can help encourage workers to participate. Any unused HSA money can be used to pay for future qualified medical expenses, including those in retirement.

4.    Keep them healthy: Develop specialized health improvement programs for workers that reward them for healthy-living activities, such as encouraging physical activity, installing walking paths near the office, teaching stress management techniques, and even offering better healthy eating options in the workplace cafeteria. This may help alleviate preventable health care issues that creep up as employees get older.

5.    Tailor communication to your audience: Customize your communications to the different generations in your workforce so that your message is more likely to resonate. For example, Millennials may be more interested in the savings they can rack up if they start young while pre-retirees may want to know exactly how much they need to save before they can retire.


Employers can help articulate the important role that health—as well as wealth—plays in retirement. With the proper guidance, employers can help workers transition into retirement with confidence and have enough savings to last throughout their Golden Years.


By David Conti, director of Workplace Thought Leadership for Fidelity Investments

Views expressed are as of the date indicated and may change based on market and other conditions. Unless otherwise noted, the opinions provided are those of the author, and not necessarily those of Fidelity Investments or Asset International.


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