A 65-year-old couple retiring this year will need aquarter of a million dollars to pay for medical expenses throughout retirement,not including nursing-home care, according to a new study.
The Fidelity 2010 retiree health care costs estimate is 4.2percent higher than last year's estimate of $240,000 and 56 percent higher thanin 2002, when Fidelity first calculated retiree health care costs at $160,000.
The significant jump in the retiree health care costestimate from 2002 to 2010 can be attributed to a number of factors includinghigher costs (e.g., for doctor's visits, diagnostic tests, etc.); increasedexpenses associated with new technology; and general price inflation.
Fidelity Investments surveyed 376 married individuals, 65years or older and not working full-time, to better understand theirexperiences in financing health care needs in retirement. Almost half (47percent) are paying more each month for insurance premiums and out-of-pockethealth care costs than they had anticipated in retirement. Only three out of 10of these retirees saved specifically for health care needs in retirement duringtheir working years.
The nationwide study found that health care costs anaverage of $535 a month, or about one-fifth of an average couple's totalmonthly expenses of $2,842. Among those surveyed, 11 percent said their healthcare costs are $1,000 a month or higher. Average health care costs rankedsecond to the largest expense, food, which averaged $659 a month and slightlyhigher than housing-related costs, which averaged $494.
When asked to identify their single biggest financialconcern today, three out of 10 retirees said paying for today's health carecosts and long-term health care expenses such as a nursing home are among theirbiggest worries. Other financial concerns included paying for daily livingexpenses such as food, transportation and utilities (17 percent), assistinggrown children and grandchildren with their financial needs (10 percent) andpaying for housing (7 percent). A little more than a third (35 percent) ofretirees said they have no financial worries.
According to the study, over half (51 percent) are payingout of pocket for health care costs not covered by Medicare and four out of 10(45 percent) have bought supplemental insurance to cover the gap. Only a smallpercentage of retirees indicated using other measures, such as tappingretirement funds earlier than anticipated (2 percent), credit cards (2 percent)or relying on family (1 percent). However, more than four in 10 of thosesurveyed (44 percent) said health care expenses have had a negative effect ontheir retirement budget.
The retirement cost estimate survey assumes individualsdo not have employer-provided retiree health care coverage, but do qualify forthe federal government's insurance program, Medicare. The Fidelity estimatetakes into account cost-sharing provisions (such as deductibles andcoinsurance) associated with Medicare Part A and Part B (inpatient andoutpatient medical insurance). It also considers Medicare Part D (prescriptiondrug coverage) premiums and out-of-pocket costs, as well as certain servicesexcluded by Medicare. The estimate does not include other health-relatedexpenses, such as over-the-counter medications, most dental services and long-termcare.
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