Healthcare Costs in Retirement Increase

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A 65-year-old couple retiring in 2016 will need an estimated $260,0001 to cover health care costs in retirement, according to Fidelity’s Retiree Health Care Cost Estimate. This is a 6% increase over last year’s estimate of $245,000 and the highest estimate since calculations began in 2002.

The estimate applies to retirees with traditional Medicare insurance coverage and provides a general idea of the monthly expenses associated with Medicare premiums, Medicare co-payments and deductibles, and prescription drug out-of-pocket expenses.

The 6% 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.

This year, Fidelity also examined the costs associated with long-term care, which could impact seven in 10 Americans who reach age 65 in the next five years.

While Medicare covers many health-related expenses in retirement, long-term care costs are only covered by Medicare in limited circumstances. 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% per year.

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