Knowing that healthcare costs are on the rise is one thing. But seeing the numbers in black and white can be a shocker. A recent report from Fidelity Investments reports on the costs, and what some companies are doing to help employees before they retire.
An annual study by Fidelity Investments reports that a 65-year old couple retiring in 2017 should prepare to spend an estimated $275,000 in health care and medical expenses during the course of their retirement years. This is an increase of 6% from last year, which doesn’t sound too bad. However, since 2002, when Fidelity first began doing this study, the cost has surged by 70%.
The article, “Retiring This Year? Here’s What You’ll Pay for Health Care,” appearing in Think Advisor, says that the $15,000 increase over the 2016 estimate is caused by general market trends and expectations for health care costs across monthly expenses associated with Medicare premiums, Medicare copayments and deductibles and prescription drug out-of-pocket expenses. They also assume Medicare health coverage, but don’t include the added expenses of nursing home or long-term care.
The article also explains why reverse mortgages shouldn’t be used to bridge the income gap when you wait to collect your Social Security benefits. With ongoing uncertainty in health care, you need to understand what you can take to prepare for health care needs in retirement. With these expenses expected to increase in the future, it’s important to add them as a significant part of your retirement plan.
Fidelity’s calculations are based on a hypothetical 65-year-old couple retiring in 2017 with life expectancies from the Society of Actuaries’ RP-2014 Healthy Annuitant rates with Mortality Improvements Scale MP-2016. The estimate was net of taxes. It considered folks who didn’t have employer-provided retiree health care coverage but qualified for Original Medicare. This included cost-sharing provisions associated with Medicare Parts A and B, Medicare Part D premiums, along with out-of-pocket costs, and some services excluded by Original Medicare. It didn’t include other health-related expenses, like over-the-counter medications, dental services and long-term care.
More companies are offering health savings accounts as part of their benefits packages. HSAs are paired with high-deductible health plans which often have lower monthly premiums than traditional health plans. They also include tax benefits of tax-free contributions and balances and savings that can be withdrawn for medical costs without federal tax.
The bottom line: retiree health care costs are only going to increase. The best way to prepare for this is to focus on saving enough during your working years to be prepared for this big retirement cost.
Reference: Think Advisor (August 29, 2017) “Retiring This Year? Here’s What You’ll Pay for Health Care”
Holden & Campbell, LLC – Annapolis Estate Planning Attorneys
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