A 65-year-old couple retiring this year can expect to spend a combined $300,000 on health care costs in retirement, according to Fidelity’s annual Retiree Health Care Cost Estimate released last week.
While that's up just 1.7% from last year’s estimate of $295,000, the relatively small jump is no consolidation for pre-retirees, who can expect health care spending to represent about 15% of their annual expenditures, Fidelity says.
“Let’s get the message to folks out there that when they’re dreaming about retirement, health care is one of the biggest costs,” says Hope Manion, Chief Health & Welfare Actuary and senior vice president, Fidelity Workplace Consulting.
The $300,000 estimate assumes an opposite-gender couple, where the man lives until age 87 and the woman until age 89. (For single retirees, the 2021 estimate is $157,000 for women and $143,000 for men.) It assumes the couple is on Original Medicare, with a Part D drug plan and no Medigap supplement plan. Of the $300,000 total, about 40% goes toward premiums for Part B and D, another 40% goes toward out-of-pocket costs like copays and services that Medicare doesn’t cover, and 20% goes toward out-of-pocket drug costs, Manion says.
The total excludes two potentially big expenses: dental care and long-term care costs like assisted living and home health aides. Medicare doesn’t pay for routine dental expenses or non-medical care for older adults who need help with bathing, dressing and other activities of daily living.
Fidelity began measuring retirement health care costs in 2002. Since that first estimate of $160,000, costs have risen a total of 88%.
Understanding these numbers is half of the battle, experts say. Many people approaching retirement think Medicare is free, and they’re blindsided about the actual costs. Knowing the truth can help you prepare.
Health savings accounts are a powerful way to save for health care costs in retirement. They’re available to people with qualifying high-deductible health insurance plans and can be accessed through an employer, if that’s how you get your coverage, or individually. The money you contribute to an HSA is tax-free, and you can withdraw the money tax-free to pay qualifying medical expenses now or in retirement (bonus: you don’t pay taxes on any interest or earnings your money makes while in the account).
Another way to prepare? Control what you can by eating well, exercising and listening to your doctor. Doing your best to stay healthy can help contain costs.