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Retire Better

May 7, 2021, 10:54 a.m. EDT

Brace yourself — You’ll need $300,000 to pay for healthcare in retirement

Paul Brandus

Got an extra $300,000 lying around? 

That’s how much an average couple retiring at age 65 can expect to pay out of pocket for healthcare over the remainder of their lives. That’s the annual estimate courtesy of Fidelity Investments, and it’s up 1.7% from a year ago. 

Fidelity says single men retiring at 65 can expect to fork over $143,000 in retirement. Because women typically live longer, their figure is $157,000.  

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It’s the first time that Fidelity’s estimate has pierced the $300,000 level, and while the 1.7% jump from a year ago may appear relatively modest, it’s up 30% from a decade ago–a reflection of the steady climb, and steady burden, that healthcare places on retirees. 

Fidelity’s estimate assumes that both members of a couple are enrolled in traditional Medicare. This includes Medicare Parts A and B, which cover hospital stays, doctor visits and services, physical therapy, lab tests and more, and Medicare Part D, which covers prescription drugs.

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So  where does the $300,000 go ? Fidelity says that 42% goes toward out-of-pocket costs like copayments, coinsurance, and deductibles for doctor and hospital visits. Another two-fifths—39%—goes to Medicare Part B and D premiums, while the rest—19%—will typically be spent on drugs: generics, branded drugs and specialty drugs.     

It’s also important to remember that  lots of things aren’t covered by Medicare . This includes essential things like most dental care, eye exams, hearing aids—and one particularly expensive thing: Long-term care (also called “custodial care”). 

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Long-term care can cost a small fortune and there’s a good chance you’ll need it, probably in the latter stages of life. Says AARP: 58% of women and 47% of men over age 65 will need long-term care at some point. 

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What do I mean by  “cost a small fortune? ” Genworth, an insurance provider, says median costs for long-term care range from $1,603 a month for adult day healthcare to $8,821 a month for a private room in a nursing home. Median means that half of all people pay more than these figures while half pay less. Even the lowest figure mentioned—$1,603 a month—is more than the average Social Security benefit this year, which is $1,543 a month.

Some additional perspective. The 1.7% increase in Fidelity’s estimate this year may not sound like much, but it’s nearly one-half of a percentage point more than the cost-of-living increase that seniors got this year from Social Security. This means that seniors have fallen a bit further behind—again—in their quest to maintain living standards during their so-called golden years. 

There’s no question that these are daunting numbers. Adding to the problem, Fidelity says that most Americans are badly underestimating the financial challenges that may await them in retirement. “58% of current employees say they have spent little or no time thinking about what they need to cover in retirement,” today’s study warns, while “among those who have, 50% believe they’ll need just $50,000 or less to meet healthcare expenses.”

“While this past year has certainly made protecting our health today a priority, we need to do the same when planning for future healthcare needs,” says Fidelity senior vice president Hope Manion. “Covering healthcare costs is one of the most significant, yet unpredictable, aspects of retirement planning. By providing this estimate for retirees, we want to increase awareness among people of all ages to help them proactively get more engaged in saving and investing, so they can be better prepared in years to come.” 

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