Fidelity Estimates $200,000 Now Needed to Cover Retiree Health Care Costs
Posted on: Monday, 6 March 2006, 12:00 CST
As American employers continue to assess and reduce their retiree health care benefits, Fidelity estimates that a 65-year old couple retiring today will need $200,000(1) to cover medical costs in retirement(2).
The retiree health care cost estimate is calculated annually by Fidelity Investments. The 2006 estimate rose 5.3 percent from the 2005 estimate of $190,000. Since Fidelity's initial estimate of $160,000 in 2002, the number has increased an average 5.8 percent per year.
America is experiencing a double digit decline in the number of companies offering retiree health benefits to their employees(3). This, combined with health insurance premiums that are growing at a rate more than three times the growth of workers' earnings and two-and-a-half times the rate of consumer inflation(4), creates an unprecedented situation for individuals who may now need to account for more of their own health care costs in retirement.
"Today, health care costs have the potential to significantly erode an individual's retirement savings," said Brad Kimler, senior vice president of Fidelity Employer Services Company, a division of Fidelity Investments. "Knowing that these costs are only going to continue to increase, all Americans, even those as far as 20 years away from retirement, should be calculating and factoring life-long healthcare expenses into their overall financial planning."
The 2006 estimate, which assumes that the individuals do not have employer-sponsored retiree health care, includes expenses associated with Medicare Part B and D premiums(5)(32%), Medicare cost-sharing provisions - co-payments, coinsurance, deductibles and excluded benefits (36%) -- and prescription drug out-of-pocket costs (32%). It does not include other health expenses, such as over-the-counter medications, most dental services and long-term care.
To help equip employees to take a more proactive approach toward managing their current health care costs, while also saving for health care expenses in retirement, employers should consider offering new solutions, such as Health Savings Accounts (HSAs). These tax-advantaged accounts are used in conjunction with a high-deductible health plan (HDHP) to allow eligible individuals to pay for current qualified medical expenses while also saving for future qualified medical and retiree health expenses on a federal tax-free basis. HSAs are currently the only health care savings vehicle to combine multiple features such as portability if an individual switches jobs, a variety of investment options and accumulation potential. Approximately three million Americans currently have access to HSAs; a number that has roughly tripled since March of 2005(6).
In addition, to help employees better manage their own health, and become smarter consumers of health care, employers should consider providing employees with health guidance information and tools that help educate them on leading healthier lifestyles, available treatment options and ways to manage their healthcare expenditures.
About Fidelity Employer Services Company
Fidelity Employer Services Company provides benefits and human resources administration, talent planning, payroll solutions and stock plan services to approximately 20 million employees in the U.S. as of December 31, 2005
About Fidelity
Fidelity Investments is one of the world's largest providers of financial services, with custodied assets of $2.4 trillion, including managed assets of more than $1.2 trillion as of December 31, 2005. Fidelity offers investment management, retirement planning, brokerage, and human resources and benefits outsourcing services to more than 21 million individuals and institutions as well as through 5,500 financial intermediary firms. The firm is the largest mutual fund company in the United States, the No. 1 provider of workplace retirement savings plans, one of the largest mutual fund supermarkets and a leading online brokerage firm. For more information about Fidelity Investments, visit www.Fidelity.com.
Fidelity Investments Institutional Services Company, Inc.,
82 Devonshire Street, Boston, MA 02109
Fidelity Brokerage Services, Member NYSE/SIPC,
100 Summer Street, Boston, MA 02110
427207
(1)Fidelity Consulting, 2006.
(2)Assumes no employer-provided retiree health coverage and life expectancies of 17 years for a male and 20 years for a female.
(3)Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits Survey, 2005.
(4)Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits Survey, 2005.
(5)Assumes use of Medicare Part D coverage effective in 2006.
(6)America's Health Insurance Plans, Market Study, 2006.
Source: Business Wire
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