How much do you think the average 65-year-old couple
free from chronic disease can expect to spend on health
care in retirement? Two new studies provide us with
data on this important topic.
A report from Fidelity Investments states that a U.S.
couple retiring this year will need about a quarter of a
million dollars. That's up just more than 4% over last
year and a 56% spike compared to 2002, when Fidelity
first issued its Retiree Health Care Costs Estimate. Each
year Fidelity forecasts what a U.S. couple retiring at
age 65 would need to cover their health care expenses
during retirement, presuming they qualify for Medicare
and do not have an employer-sponsored plan.
Fidelity states that the increase in what couples must
save can be attributed to higher costs associated with
treatment costs --- such as new technologies and general
price inflation. The study also found that since
medical costs are expected to become a larger piece of
retirement expenses and many retirees are still
unprepared. In addition, 47% said that monthly
out-of-pocket costs and insurance premiums were higher
than they had anticipated.
Fidelity reported that average health care costs were
$535 a month, or one-fifth of a couple's total monthly
expenses of $2,842.
Fidelity’s study does not factor in long-term care, such
as costs from living in a nursing home. A 2008 study
by Fidelity estimated a 65-year old couple would need
$85,000 on average to cover insurance costs for
long-term care in retirement.
A report from the Center for Retirement Research at
Boston College tells us that health care costs -- not
including nursing-home costs – average $197,000, but can
exceed $311,000. The Center
report
underwritten by Prudential, adds that the hard part is
getting a handle on the risks of incurring unusually
high costs, especially nursing-home-care costs. For
instance: At age 65, a typical married couple free of
chronic disease can expect to spend $260,000 on
remaining lifetime health-care costs – including
nursing-home care. But and there is always a “but”,
there’s a 5% chance that health-care costs –including
nursing-home care – will exceed $570,000. However, just
15% of households approaching retirement have
accumulated that much in their nest egg.
Given what
this report tell us,what should the average American
do? Marketwatch.com suggests: “Save more? Invest more
aggressively? Spend less? Draw down their nest egg more
slowly? Work longer in a job that provides health care?
Marry a rich widow or widower? Die sooner?”.
Prudential
tells us that when people decide how much to save for
retirement, and how rapidly to draw wealth during
retirement, they need to consider the following:
-----What risks are you prepared to accept of having
their assets substantially depleted by health-care
costs?
----Whether you are above or below the average risk of
incurring exceptionally high costs?
----
Whether you should insure against health-care costs by
purchasing long-term care insurance.
Marketwatch state that the answers to those questions
will go a long way to helping you decide how much to
save for retirement or how much to draw down during
retirement.
However,
there are some other facts and figures and probabilities
for you to consider as well. The Center for Retirement
Research at Boston College study notes that about
one-third of individuals turning 65 in 2010 will need at
least three months of nursing-home care, 24% will need
more than a year, and 9% will need more than five
years. In 2008, by the way, the annual cost of a
nursing home was about $71,000 for a semi-private room
and $79,000 for a private room.
So, given
those odds and knowing that it’s hard to tell who will
and who won’t need nursing-home care, perhaps you should
take a look – see at what long-term care insurance is
worth.
The Center
for Retirement Research tells us that “In short, the
main risk involved in assessing potential health-care
costs is nursing-home care. Incorporating these costs,
households face a significant risk that could threaten
their retirement security.”
How about
you? Given what the Fidelity and the Center for
Retirement Research reports tell us what can – should –
are you doing that can help you with your retirement
health care?
Bill
Losey, a New York based financial planner states
"This statistic is going to scare people," says Losey,
"but maybe in a good way that forces people to get off
their behinds and eat better, exercise more, and
hopefully keep their health insurance costs in check."
