Fidelity Estimates Retiree Needs for Health Care Costs

An average 65-year-old couple retiring this year will need about $215,000 for health care costs for the rest of their lives, according to a Fidelity Investments estimate released on Tuesday, the AP/Houston Chronicle reports.

Fidelity calculated the estimate assuming that retirees had no employer-sponsored health coverage and that average life expectancies were 82 years for men and 85 years for women. The costs do not include over-the-counter medications, most dental services and long-term care. Fidelity estimated that about 32% of retiree health care spending would be on Medicare premiums for physician visits, outpatient hospital care and prescription drugs.

Thirty-five percent of the expenses would come from Medicare copayments, deductibles and other cost-sharing provisions. Out-of-pocket prescription drug costs would account for 33% of retirees' health care spending, according to Fidelity. Fidelity estimated that 65-year-old workers who plan to retire at the end of the year should expect that 50% of their pretax Social Security benefits will be consumed by health expenses within the next 16 to 18 years.

The latest estimate is 7.5% greater than the estimate released in 2006. Retiree health care expenses annually have increased by an average of 6.1% over the past five years. Fidelity projects health care costs will increase by about 7% per year, outpacing inflation.

Brad Kimler, senior vice president for Fidelity Employer Services, attributes the rising costs to higher-cost medical technologies and prescription drugs, and longer life expectancy. "We don't expect to see this number going down," he said (Jewell, AP/Houston Chronicle, 3/28).