Retiree Study: Couples Will Need $250,000 for Medical Expenses

Health care costs consume one-fifth of retirees' monthly budgets

By Stephen Miller Apr 1, 2010

A 65-year-old American couple retiring in 2010 will need a quarter of a million dollars to pay for medical expenses throughout retirement, not including nursing home care, according to an annual survey by Fidelity Investments, a financial services provider. The finding assumes post-retirement life expectancies of 17 years for men and 20 years for women.

Fidelity's annual Retiree Health Care Costs Estimate surveypolled a nationwide sample of married individuals, 65 years or older and not working full-time, to understand their experiences in financing health care needs in retirement. The survey, conducted March 4-14, 2010, revealed that:

Almost half (47 percent) are paying more each month for insurance premiums and out-of-pocket health care costs than they had expected in retirement.

Only three out of 10 saved for health care needs in retirement during their working years.

Health care costs averaged $535 a month, or about one-fifth of an average couple's total monthly expenses of $2,842. But 11 percent said their health care costs were $1,000 a month or higher.

Average health care costs ranked second to the largest expense, food, which averaged $659 a month and slightly higher than housing-related costs, which averaged $494.

"It's crucial that workers begin to incorporate future medical expenses into today's retirement plans," says Brad Kimler, executive vice president of Fidelity's Consulting Services business. "In the past, retirees relied on their former employers to provide health care coverage, but this is no longer something to which most of today's retirees have access."

Biggest Financial Concerns

When U.S. retirees were asked to identify their biggest financial concern, they responded:

Paying for health care costs and long-term health care expenses such as a nursing home


Paying for daily living expenses such as food, transportation and utilities


Assisting grown children and grandchildren with their financial needs


Paying for housing


No financial worries


Source: Fidelity Investments Consulting Services

Health Care Costs Not Covered by Medicare

According to the study, over half (51 percent) of retirees are paying out-of-pocket for health care costs not covered by Medicare, and 45 percent have bought supplemental insurance to cover the gap.

Only a small percentage of retirees indicated using other measures to pay for health care, such as tapping retirement funds earlier than planned (2 percent), credit cards (2 percent) or relying on family. However, more than four in 10 of those surveyed (44 percent) said health care expenses have had a negative effect on their retirement budget.

Higher Retiree Health Care Costs

Fidelity's 2010 retiree health care costs estimate is 4.2 percent higher than 2009's estimate of $240,000 and 56 percent higher than in 2002, when Fidelity first calculated retiree health care costs at $160,000.

The significant jump in the retiree health care cost estimate from 2002 to 2010 can be attributed to a number of factors, including higher costs (e.g., for doctor's visits, diagnostic tests); increased expenses associated with new technology; and general price inflation.

The survey assumes that individuals do not have employer-provided retiree health care coverage but qualify for the federal government's insurance program Medicare. The estimate takes into account cost-sharing provisions (such as deductibles and co-insurance) associated with Medicare Part A and Part B (inpatient and outpatient medical insurance). It considers Medicare Part D (prescription drug coverage) premiums and out-of-pocket costs as well as certain services excluded by Medicare. The estimate does not include other health-related expenses, such as over-the-counter medications, most dental services and long-term care.

Stephen Miller is an online editor/manager for SHRM.

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