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."
