Retirees may need nearly $186,000 for healthcare — and counting
Retirees may need nearly $186,000 for healthcare — and counting.
For retirees, healthcare is one of the biggest expenses — and the costs keep spiraling.
On average, a 65-year-old who leaves the workforce this year may need $185,500 in savings to cover out-of-pocket healthcare expenses throughout retirement, up 7.5% from last year's expectation of $172,500, according to Fidelity's annual survey of estimated healthcare costs in retirement published on Tuesday.
"That number can feel intimidating, but the goal is not to scare people," Chandler Riggs, a financial planner at Fidelity Investments, told Yahoo Finance.
While panic isn't the aim, the reality is that few retirees have budgeted for that kind of payout. Yet, roughly 15% of the average retiree's annual expenses will be health-related, per Fidelity.
"In our report published this spring, the expense that stood out for retirees was healthcare," Craig Copeland, director of wealth benefits research at the Employee Benefit Research Institute, told Yahoo Finance. "In fact, nearly 4 in 10 retirees said that these expenses were higher than they expected when they first retired."
And in a recent KFF poll , half of all Medicare beneficiaries aged 65 and older said they expect their healthcare costs to increase in the next year.
"The goal of the annual estimate is to help with planning," Riggs said. "People often think of retirement planning as saving enough to replace a paycheck, but healthcare is one of the major expenses that can shape how comfortable retirement actually feels."
While future costs vary from person to person depending on factors such as your gender, health, where you live, and how many years you have left to live, Fidelity's gauge is jarring.
The estimate assumes enrollment in traditional Medicare (Parts A and B) and Medicare Part D, including premiums, copayments, and other out-of-pocket costs for medical care and prescription drugs.
This year, for example, the monthly Part B premium rate is $202.90, an increase of $17.90 from last year. And the annual Part B deductible, which most people must pay before their Medicare coverage begins, rose by $26 this year, to $283.
Fidelity's evaluation does not include long-term care expenses, over-the-counter medications, and most dental services.
An apartment in an assisted-living facility can top $70,000 a year, according to the National Investment Center for Seniors Housing & Care — and costs go up as residents age and need more care. Units for dementia patients can run more than $90,000.
But most people will not face that onerous expense. "Despite the scary headlines about long-term care expenses, typical stays in a nursing home last a month or less, not a year," according to Philip Moeller, a Medicare and Social Security expert.
That said, overall healthcare bills eat up roughly a third of a typical retiree's Social Security income and almost a quarter of total income, according to a report from the Center for Retirement at Boston College.
Have a question about retirement? Personal finances? Anything career-related? Click here to drop Kerry Hannon a note.
Worried about healthcare costs in retirement? Here's how to prepare.
"Our healthcare system is very expensive, and costs will continue to rise until our country decides to fix the problems," Carolyn McClanahan, a certified financial planner and physician, told Yahoo Finance. "It's disheartening."
"Until that time, retirees must become an engaged patient. If a test is ordered, and you aren't sure why, ask the doctor," she said. "How is the information from that test going to affect the decisions your doctor makes about your care? If they can't answer why, is that test really necessary?"
