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Retired couples may need $240,000 for health care

Couples retiring this year can expect their medical bills throughout retirement to cost 4 percent more than those who retired a year ago, according to an annual projection released Wednesday by Fidelity Investments.

The estimated $240,000 that a newly retired couple will need to cover health care expenses reflects the typical pattern of projected annual increases. The Boston company cut the estimate for the first time last year, citing President Obama’s health care overhaul. Medicare changes resulting from that plan are expected to gradually reduce many seniors’ out-of-pocket expenses for prescription drugs.

But Fidelity says overall health care cost trends are on the rise again, so it’s raising its cost estimate from last year’s $230,000 figure.


“As long as health care cost trends exceed personal income growth and economic growth, health care will still be a growing burden for the country as a whole and for individuals,’’ says Sunit Patel, a senior vice president for benefits consulting at Fidelity.

However, this year’s 4 percent rise is relatively modest. Annual increases have averaged 6 percent since Fidelity made its initial $160,000 calculation in 2002.

The study is based on projections for a 65-year-old couple retiring this year with Medicare coverage. The estimate factors in the federal program’s premiums, copayments, and deductibles, as well as out-of-pocket prescription costs. The study assumes the couple does not have insurance from their former employers, and a life expectancy of 85 for women and 82 for men.

This year’s estimate could change significantly. Next month, the Supreme Court will decide whether to strike down part or all of the 2010 health care law, including its centerpiece requirement that nearly all Americans carry insurance or pay a penalty. If the ruling requires significant changes, Fidelity may update its estimate, Patel said.

Although its focus is expanding health care access to people under age 65, the law also is intended to benefit many retirees by gradually closing what’s known as the doughnut hole coverage gap in the Medicare drug benefit.


Fidelity’s finding of a 4 percent increase in long-term medical costs for retirees is in line with recent data from the Employee Benefit Research Institute, said Paul Fronstin, director of health research and education for the private nonprofit organization.

In its latest annual estimate released last August, EBRI projected that a couple with median drug expenses - meaning half of the population would have higher, and half lower - would need $166,000 for a 50 percent chance of having saved enough to cover health care expenses in retirement. They’d need $287,000 for a 90 percent chance.

The findings illustrate the importance of factoring in health care alongside housing, food, and other expenses in retirement planning.

Mark Jewell writes for the Associated Press.