August 30, 2017
A healthy, 65-year-old couple retiring this year will need $275,000 to cover healthcare-related costs in retirement, according to a new study from Fidelity Investments. That number represents a 6% increase from last year.
Fidelity’s calculations include premiums, cost-sharing provisions and out-of-pocket costs associated with Medicare parts A, B and D, but does not include other healthcare expenses such as over-the-counter medications, dental services, and long-term care.
“This $275,000 is a brutal number,” said Adam Stavisky, a senior vice president at Fidelity. “In many ways, it’s annually a clarion call both for people to start understanding the obligations they will face in the future, and how they will best prepare for them.”
Fidelity’s estimate assumes retirement at 65—coinciding with Medicare eligibility. If people stay in the workforce longer and retain employer-sponsored coverage, their healthcare expenses in retirement could be reduced.
However, the share of Medicare enrollees with supplemental coverage from an employer-sponsored plan has been shrinking. Surveys from the Kaiser Family Foundation estimate 16% to 25% of seniors had employer-sponsored coverage in 2014.
Retiring before 65 could increase healthcare costs because of the lack of Medicare coverage.
Stavisky said health savings accounts, or HSAs, can help manage healthcare costs in retirement. When paired with high-deductible health plans, HSAs have a triple tax advantage: contributions are tax deductible, grow tax free, and can also be withdrawn tax-free for qualified medical costs.
“Given that $275,000 figure, the odds of you having too much money in a health savings account are pretty limited,” Stavisky said.
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