Retiree Healthcare Costs Soar, According to New Study

August 17, 2016
Jared Kaltwasser

A new report shows the expected healthcare costs for a couple retiring this year are 6% higher than the costs faced by a couple that retired last year.

The shadow healthcare casts over retirement is getting bigger.

A new report from Fidelity Investments finds a 65-year-old couple retiring this year can expect to have $260,000 worth of healthcare expenses during their retirement years. That’s a 6% increase from last year, when expenses were calculated at $245,000.

The estimate is based on a couple with traditional Medicare insurance. The total includes premiums, co-pays and deductibles, and out-of-pocket drug prices.

Though the total number is high, this year’s increase actually reverses a trend of slower growth in healthcare costs.

“In recent years, the healthcare industry has experienced a period of historically low spending levels, due to a period of slow economic growth,” said Adam Stavisky, senior vice president of Fidelity Benefits Consulting, in a press release. “Looking forward, we can expect healthcare spending to pick up from where it’s been in recent years, though less than what we’ve seen over the last few decades.”

Fidelity notes that the growth of Health Savings Accounts (HSAs) could prove beneficial when it comes to paying for healthcare in retirement years. There were about 16.7 million HSAs in the US last year, a 22% increase from 2014. Un-spent money in HSAs can be invested for the long-term and used to cover healthcare costs in retirement.

Fidelity also looked at the costs of long-term care for retirees. They found that the same 65-year-old couple would need $130,000 to insure themselves against long-term care expenses, based on a policy with an $8,000 maximum monthly benefit and an inflation adjuster of 3% annually.

“Long-term care is an increasingly important part of retirement planning, as a significant percentage of retirees will likely need some level of long-term care in retirement,” said Stavisky. “Unfortunately, recent Fidelity research on family finances has shown that less than half of parents surveyed have had detailed conversations about long-term care with their kids.”