What’s going to be your biggest expense in retirement? Quite possibly it will be healthcare.
A new report from Fidelity puts a number on the expense and it’s a steep one. A 65-year-old couple retiring in 2016 will need an estimated $260,000 to cover health care costs in retirement, says Fidelity’s Retiree Health Care Cost Estimate.
That’s a 6 percent increase over last year’s estimate of $245,000, and the highest estimate since calculations began in 2002, Fidelity says.
The estimate applies to retirees with traditional Medicare insurance coverage. It provides a general overview of monthly expenses associated with Medicare premiums, Medicare co-payments and deductibles, and prescription drug out-of-pocket expenses.
The six percent increase in this year’s estimate is attributed to several factors, including an uptick in the utilization of medical services and rapidly rising drug costs.
“In recent years, the health care industry has experienced a period of historically low spending levels, due to a range of factors including a period of slow economic growth,” said Adam Stavisky, senior vice president, Fidelity Benefits Consulting. “Looking forward, we expect health care spending to pick up2 from where it’s been in recent years, though less than what we’ve seen over the last few decades.”
This year, Fidelity also looked at the costs associated with long-term care, which could affeect 70 percent Americans who reach age 65 over the next five years. Fidelity estimates that a 65-year-old couple would need $130,000, in addition to savings for retiree medical expenses, to insure against long-term care expenses. This assumes the couple is in a good health and purchases a policy with $8,000 monthly maximum benefit, with three years of benefits, and an inflation adjuster of 3 percent per year.