The unpredictable nature of health care costs can be one of the most frightening of all retirement worries, regardless of your age or income.
According to the annual Nationwide Retirement Institute survey, 69% of affluent pre-retirees said they are “terrified,” describing how they feel about health care costs in retirement. Yet, 52% had not discussed those concerns with anyone — not their spouse, not their children and not even their financial advisor.
And a new estimate from the Fidelity Retiree Health Care Cost Estimate shows that their concerns are very real. According to Fidelity, a 65-year-old couple retiring in 2016 will need $260,000 to cover health care costs in retirement, up 6% from last year.
“This is something that really bugs me,” says financial planner David Blackston of the Blackston Financial Group in The Villages, Fla. “Health care costs are going through roof. The cost of health insurance is going through the roof.
Fidelity says the 2016 estimate is the highest estimate for health care costs since the company began calculations in 2002. That number, based on a life expectancy of 85 for men and 87 for women, was $245,000 last year and $220,000 in 2014.
Those costs include traditional Medicare insurance coverage, expenses associated with Medicare premiums, co-payments and deductibles and out-of-pocket prescription drug expenses.
“I’m 62, and the family plan that I paid $650 a month went up to $1,500 a month,” says Blackston. “I had a $10,000 deductible, and it went to $12,500. That’s if you’re not retired.”
The Fidelity survey says long-term care insurance could add another $130,000 to the equation. And estimates are that seven out of ten Americans over 65 will need some form of long-term care in the next five years.
“We hope this number is a clarion call for people to be aware of the financial risk,” says Adam Stavisky, senior vice president at Fidelity Benefits Consulting. “For many people, health care will be biggest financial obligation to take into retirement. Being aware of those obligations is critical.”
Financial planners say a Health Savings Account, available for employees with high-deductible insurance plans, is a good way to save for health care costs in retirement.
But retirees need to also do a better job of fitting health care costs into their retirement planning.
“Ultimately, they are not prepared,” says Mitchell Katz, at CA Wealth Management in Bethesda, Md. “Health costs probably inflate 5% to 7%. People just aren’t ready to cover those costs. At 65 years old, their insurance may be $600. That will double in 20 years.
“In retirement, the two largest costs are their mortgage and their health care,” he adds. “They need to take a hard look at how they live and where they spend money. If they don’t have a plan to double or triple their money in retirement, to keep pace with health care, I would say they don’t have a plan at all.”
Lazetta Rainey Braxton, founder of Financial Fountains in Baltimore, says people also have to be honest about their own health and family medical histories. “This number can be affected by health conditions, like diabetes, other medical conditions,” she says.
“I frame it this way to clients in their 50s,” says Braxton. “I start with telling them that medical costs are the biggest cost for retirees, and the next is housing. You get this under control, your life is good.”