A newly retired couple will need an estimated $240,000 to meet their health care expenses over the course of their lives. Fidelity Investments releases their estimate every year and the mutual fund giant reports that health care costs are increasing again, after dipping slightly last year. This year’s total is up about 4 percent from a year ago. Annual increases have averaged about 6 percent since Fidelity published its first estimate in 2002.
How the Fidelity report was conducted
The study is based on projections for a 65-year-old couple retiring this year with Medicare coverage. The estimate includes Medicare’s premiums, co-payments and deductibles, and out-of-pocket prescription costs. The study assumes the couple does not have any other insurance, and then incorporates a life expectancy of 85 for women and 82 for men.
This estimate does not factor in costs of dental services or long-term care, which could include the expense of living in a nursing home.
Fidelity says that the number is not meant to scare retirees, but it shows “the importance of factoring in health care alongside housing, food and other expenses in retirement planning”, according to the report.
If medical costs continue to rise faster than personal incomes, many retirees will have to adjust their household budgets so they can cover medical costs.
Health care costs are up about 50 percent in the past ten years. The housing component of the Consumer Price Index is about 22 percent over the past ten years, too. Costs for food are up about 32 percent over that time, using the food component of the CPI. These trends are likely to continue. Retirement planning needs to account for rising costs, period.
Financial planners have long recommended that individuals save for retirement and use a balanced portfolio with exposure to stocks and perhaps gold to keep up with inflation. Traditional financial planning advice relied on income from bonds.
The problem with those assumptions is that in the past ten years, stock prices are virtually unchanged and interest rates have fallen from more than 5 percent to less than 2 percent. Retirees following this traditional approach to retirement may find that their portfolios hasn’t keep up with their expenses since at least 2002.
More recent research, which we would be happy to share with you or your financial planner, shows that a reverse mortgage can help to ensure financial security in retirement. With the cost of living in retirement continuing to rise, it makes sense to explore all of your financial options. Your home could be the key to meeting these large expenses.