A couple retiring this year needs about a quarter of a million dollars to cover medical expenses, a new study reports.
The $240,000 estimate is a 6.7% increase from last year’s, and the cost is expected to keep rising. The Fidelity Investments study is based on projections for a 65-year-old couple retiring this year with Medicare insurance coverage. It assumes no employer-provided insurance and a life expectancy of 17 years for the man and 20 years for the woman.
The study also factors in Medicare deductibles, co-payments and certain services that may not be covered.
In seven years of Fidelity’s annual study, projected medical expenses have increased 50%.
When you retire, healthcare is likely to be your largest expense, and it’s one that many people forget to factor fully into their retirement plans, said Sunit Patel, a senior vice president at Boston-based Fidelity.
“A lot of individuals feel today that Medicare covers a vast majority of costs,” he said. “We know that’s not true. It’s better not to be blind about that.”
In fact, Medicare pays about half of the healthcare costs for current retirees, and even that is in jeopardy. The Medicare trust fund reported last year that it expects to be insolvent in 2019 and needs either a payroll tax increase or a cut in benefits to keep it fully functional. That means Medicare may not provide the same level of support for future retirees.
“There are deductibles and co-payments and things that aren’t covered that people aren’t aware of until they get there unless they have a parent that they’re helping navigate the system,” said Paul Fronstin, director of health research and education at the Employee Benefit Research Institute.
The institute has researched the issue of rising healthcare costs in retirement. It found that just 12% of private companies offer insurance for retired workers. That means most retirees need to buy insurance themselves or pay medical costs out of savings.
Patel said it might make sense to start thinking about a savings account separate from your retirement account for healthcare.
Without a plan, retirees could end up with a much different lifestyle than expected or looking for a job to help pay for health costs.
“We have to face up to the reality of the situation, and that may be that people have to work longer just for healthcare,” institute researcher Fronstin said.