Couples Retiring in 2012 Need $240,000 for Medical Bills, $20,000 More if Obamacare Overturned: Fidelity
Senior citizens relying on Social Security to pay medical bills will have only 39% of payment left for other expenses
May 10, 2012 - A 65-year-old senior couple retiring this year is estimated to need $240,000 to cover medical expenses
throughout retirement, according to the latest retiree health care costs estimate calculated by Fidelity Investments. And, if the health care
reform bill – “Obamacare” – is overturned by the Supreme Court, seniors can add another $20,000 to their costs, according to a report by
The basic projection represents a 4 percent increase from last year, when the estimate was $230,000.
Fidelity has calculated an annual estimate of medical expenses for retirees for more than a decade. For many Americans,
health care is likely to be among their largest expenses in retirement. The estimate, which is calculated by Fidelity’s Benefits Consulting
business, does not include any costs associated with nursing-home care and applies to retirees with traditional Medicare insurance coverage.
The estimate has increased an average of 6 percent annually since Fidelity’s initial calculation of $160,000 in 2002,
with the exception of 2011 when the estimate declined $20,000.
That one and only decrease in the history of the estimate was due to a one-time adjustment driven by Medicare changes
that reduced out-of-pocket expenses for prescription drugs for many seniors. This year, health care expenses are rising once again.
“Today’s workers must understand that the cost of health care is expected to continue rising significantly in future
years,” said Brad Kimler, executive vice president of Fidelity’s Benefits Consulting business.
“Medical inflation is outpacing salary increases and cost of living adjustments for many people. Until that situation
changes, it is critical that individuals include health care costs in their retirement savings strategies today so they can be prepared to pay
their medical bills throughout retirement,” Kimler said.
Retirees Relying on Social Security to Pay Health Costs Should Adjust Expectations
Many retirees rely on Social Security benefits as their primary source of income. For a 65-year-old couple retiring this
year on a $75,000 annual household income, annual Social Security payments will be about $29,970.
Fidelity compared Social Security’s average cost of living adjustment (2.3 percent) against an assumed average annual
increase of health care costs for retirees nationally (6 percent). The comparison found that 65-year-old couples retiring this year with a
$75,000 household income should expect that 35 percent of their annual benefit (about $10,476) could be needed for health care expenses today.
In 15 years or by 2027, their allocation of Social Security benefits going to health care expenses is likely to almost
double to 61 percent of a $41,205 annual Social Security payment, or about $25,000 a year.
“Retirees relying entirely on Social Security to fund their health care costs will be faced with difficult challenges in
the future,” said Kimler.
“Today’s workers should plan to supplement their retirement income to cover their medical expenses. It is never too late
to begin utilizing all retirement savings vehicles available, including any 401(k) accounts, IRAs and Health Savings Accounts, to help build a
more secure retirement.”
Bloomberg Reports More Needed if Obamacare Overturned
The U.S. Supreme Court is expected to rule in June on the constitutionality of the Patient Protection and Affordable Care
Act and the Health Care and Education Reconciliation Act, both signed into law in 2010.
Fidelity’s estimate today assumes that the health care reform laws will remain in place unchanged. If some of the laws’
provisions are removed, Fidelity’s estimate for retiree health care expenses could change.
“Passage of the health law saved money for seniors who among other benefits gained additional coverage for prescription
drugs, said Sunit Patel, senior vice president for Fidelity Benefits Consulting, who led the project,” writes Alex Wayne, in Bloomberg.com.
“The cost of losing those benefits, should the court overturn the law, would be about $20,000, Patel said in an
to Bloomberg report)
Basic Assumptions for Study
Some of the basic assumptions for the projection -
1) The estimate assumes no employer-provided retiree health care coverage and life expectancies of 17 years for men and
20 years for women.
2) According to the 2010 Current Population Survey conducted by the US Census Bureau, households headed by those aged 65
and older have an average income of $49,000. Fidelity based its calculation on a higher than average household income so its customer base
would be represented better.
As in years past, the Fidelity Retiree Health Care Costs Estimate assumes individuals do not have employer-provided
retiree health care coverage, but do qualify for the federal government’s insurance program Medicare. The calculation takes into account cost
sharing provisions (such as deductibles and coinsurance) associated with Medicare Part A and Part B (inpatient and outpatient medical
It also 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.
Note from SeniorJournal.com - Fidelity Advice for Retirees
Below is advice for senior citizens contributed by Fidelity in promoting their investment products. SeniorJournal.com has
included it in this report, since it may be helpful to our readers.
Health Savings Accounts Are Efficient Vehicles to Save for Future Medical Expenses
In an effort to help ensure working Americans are prepared for retirement, many companies have adopted high-deductible
health plans (HDHPs) which can be less expensive for participants and employers to use than traditional health plans. Participation in HDHPs
qualifies users to establish Health Savings Accounts (HSAs) which allow individuals to pay for qualified medical expenses on a federal
tax-free basis. The savings can be used to pay for current qualified medical expenses or participants can accumulate their savings and use the
money to pay for qualified medical expenses in retirement.
In addition, the accounts are portable for individuals who change employers. On an annual basis, Fidelity HSA account
holders contributed an average of $2,677 in 2011.
Fidelity Encourages Employers to Adopt Culture of Health and Savings
In addition to offering savings vehicles such as HSAs, employers can help their workers manage health care expenses in
retirement by encouraging a healthy lifestyle during their working years. A recent Fidelity employer survey found that while most employers
(90 percent) believe there is some connection between personal health and financial wellness, less than half (46 percent) of the companies
surveyed have an established culture of both health and savings in the workplace.
“It is important for employers to be committed to both health and wealth initiatives for their workers,” said Kimler. “A
coordinated effort that integrates health benefits programs with retirement plans may be the best approach.”
Fidelity Offers Tools and Products to Help Workers Save for Health Care Costs
Individuals nearing retirement who want to increase their retirement savings beyond the maximum contribution limits of an
HSA ($3,100), IRA ($5,000) or 401(k) ($17,000) could consider purchasing an annuity.
Fidelity offers access to lower cost annuity products including Fidelity Personal Retirement Annuity, a deferred variable
annuity that allows individuals to save with no IRS contribution limits on a tax-deferred basis. Retirees could consider using certain types
of fixed annuities to cover their fixed expenses, including health care.
Workers with less than five years until retirement should assess their expected income needs and create a strategy to
help ensure their savings will last. The Fidelity Income Strategy Evaluator is an income-planning tool that can help investors identify and
test strategies to convert their savings to retirement income. Fidelity’s Retirement Income Planner is a tool that can help investors who are
more than five years away from retirement create an income plan to help ensure they are saving enough funds to support them throughout
About Fidelity’s Benefits Consulting
Fidelity’s Benefits Consulting business helps employers nationwide assess the effectiveness of their benefits programs.
The business provides a holistic approach to benefits design, strategy, funding, communications and delivery by looking at clients’ health
care and retirement plans before diagnosing business solutions. The group’s specialties include retirement and health care plan consulting,
custom data administration, compliance and employee communication. Benefits Consulting has offices in Boston, New York City, San Francisco,
Chicago, Raleigh, Dallas and Merrimack, N.H.
About Fidelity Investments
Fidelity Investments is one of the world’s largest providers of financial services, with assets under administration of
$3.7 trillion, including managed assets of $1.6 trillion, as of March 31, 2012. Founded in 1946, the firm is a leading provider of investment
management, retirement planning, portfolio guidance, brokerage, benefits outsourcing and many other financial products and services to more
than 20 million individuals and institutions, as well as through 5,000 financial intermediary firms. For more information about Fidelity
Investments, visit www.fidelity.com.
Fidelity Income Strategy Evaluator and Retirement Income Planner are educational tools.
Guidance provided by Fidelity is educational in nature, is not individualized and is not intended to serve as the primary
or sole basis for your investment or tax-plan
The retirement planning information contained herein is general in nature and should not be considered legal or tax
advice. Fidelity does not provide legal or tax advice. This information is provided for general educational purposes only and you should bear
in mind that laws of a particular state and your particular situation may affect this information. You should consult your attorney or tax
advisor regarding your specific legal or tax situation.
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