• SmartMoney

Health Care in Retirement Costs More Than Most Homes

Every year, Fidelity Investments calculates the amount a recent retiree will need to cover medical costs throughout retirement. And almost every, the number rises. This year is no exception. According to a news release Fidelity issued Wednesday, a 65-year-old couple retiring in 2012 will need an estimated $240,000 to pay their medical costs–up 4% from last year’s $230,000 estimate. For comparison, the median price of a U.S. home is $180,000.

Many assume that Medicare fully covers retiree medical costs. But those in the federal health care program must pay premiums for coverage under Medicare Parts B and D, which, respectively cover outpatient care and prescription drug costs. In addition, Medicare only covers a portion of the full cost of care. As a result, those in the program are liable for co-payments and deductibles. (That’s why many spring for a Medicare Supplement policy–which, of course, means they must pay additional premiums.)

In 2011, Fidelity says, the estimate of future healthcare costs declined slightly, due to a one-time reduction in out-of-pocket expenses for prescription drugs, driven by health care legislation. Here are some of the other highlights:

  • Estimated health care expenses have risen an average of 6% annually since Fidelity’s initial $160,000 calculation in 2002.
  • A 65-year-old couple retiring this year with a household income of $75,000 should expect to devote 35 percent of their annual Social Security benefit (about $10,476) to health care expenses.
  • Of the $240,000 in expected expenses, an estimated 23% will go to prescription drugs, 32% for Medicare Parts B & D premiums, and 45% for co-pays, co-insurance and deductibles.

Even more sobering: The estimates do not include any costs associated with nursing home care.

According to Fidelity, Social Security’s annual average cost of living adjustment is 2.3%, or far below the  6% increase in retiree health care costs.

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