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Retired couple needs $200,000 for health care

An American couple that retires at age 65 will, on average, need $200,000 in retirement to cover out-of-pocket medical costs, Fidelity Investments, the No. 1 mutual fund firm, said Monday.
/ Source: Reuters

An American couple that retires at age 65 will, on average, need $200,000 in retirement to cover out-of-pocket medical costs, Fidelity Investments, the No. 1 mutual fund firm, said Monday.

That amount, considered the biggest single expense for most people in retirement, increased 5.3 percent from $190,000 last year, said Brad Kimler, a senior vice president of Fidelity Employer Services Co., a company division.

The increase mostly resulted from the rising cost of health care and has gone up an average 5.8 percent a year since Fidelity began releasing the estimate in 2002, the company said.

The number is important as Fidelity has found that most people don’t take into account health care when planning for their retirement, and because the number of companies offering health benefits to retirees is declining, Kimler said.

Health-care costs have the potential to significantly erode retirement savings, he said.

“This is the one most frequently overlooked by people when they’re doing their retirement planning,” he said.

The amount people will need in retirement to cover out-of-pocket health costs will vary because of the medical needs they may encounter, he said. Being healthy before retirement will likely lesson medical costs later, he said.

Fidelity at first didn’t provide an estimate for individuals but later said the cost for males would be $90,000 over 17 years, and $110,000 for females over 20 years. The estimate for health-care costs assumes that retirees do not have employer-sponsored retiree health care, but includes three typical costs: expenses associated with Medicare part B and D premiums, Medicare cost-sharing provisions — co-payments, coinsurance, deductibles and excluded benefits — and prescription drug out-of-pocket costs.

It does not include other health expenses, such as over-the-counter medications, most dental services and long-term care.