The Good News About the Crushing Costs of Retiree Health Care

When is a looming bill for $220,000 good news? Only when it could be a lot worse.

The runaway inflation in health-care costs of the last decade has slowed way down. That means planning for retirement may be just a little bit easier, as a new Fidelity Investments study shows.

Each year Fidelity estimates how much a 65-year-old couple retiring will need to cover out-of-pocket health care costs. That includes Medicare premiums and co-pays, but not most long-term nursing home care. The answer last year: $220,000. The answer this year, even as retirement accounts swelled thanks to rising markets: $220,000.

This year's pause in health-care cost increases is courtesy of slowing Medicare costs, as well as the fact that Medicare didn't raise Part B premiums this year, Fidelity says. Retirees will also spend less on drugs as Medicare gradually closes a gap in its coverage of prescription drugs, also known as the "donut hole," by 2020.


Retirees today can expect to spend $30,000 less on health care over their lifetimes than they did four years ago. But Fidelity is betting health care inflation will eventually speed up again. Its $220,000 estimate includes a quicker pace of inflation by assuming 5.5 percent annual cost growth for the remainder of a retiree's life, says Sunit Patel of Fidelity Benefits Consulting.

Also, that $220,000 is just an estimate. Costs will vary widely based on an individual's health, insurance choices and longevity. Fidelity assumes men live to the age of 82 and women reach 85. If the man reaches 92 and the woman 94, their expected lifetime health care costs rise to $355,000. Long life has its benefits -- but cheap it ain't.

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