Saturday, April 20, 2024

How Much Would Health Care Cost If You Retired Today?

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There is some good news about health care costs in retirement, although it might not look so terrific at first blush.

The average couple retiring this year, both at age 65, can expect to spend $315,000 on health care expenses during retirement, according to Fidelity’s 22nd annual Retiree Health Care Cost Estimate.

While that is a huge amount of money, it is actually the same total that was estimated last year. This marks the first time in almost a decade that such costs have remained flat year over year.

A single 65-year-old retiring this year can expect to spend an average of $157,500 on such care, which also is flat year over year.

In a summary of Fidelity’s findings, Hope Manion, senior vice president and chief actuary of Fidelity Workplace Consulting, explains what is behind this year’s lack of movement in health care expenses:

“Our analysis finds that limits on how much retirees can spend on prescriptions covered by Medicare Part D from the Inflation Reduction Act are likely to temporarily offset the overall inflationary trend of health care costs for retirees.”

Still, that relatively good news cannot hide the steady rise in health care costs that has occurred over the years. For example, Fidelity notes that retirement health care costs for single retirees have nearly doubled from $80,000 in 2002.

Fidelity’s annual estimate assumes that retirees are enrolled in traditional Medicare and in Medicare Part D, which covers the cost of many prescription drugs.

With this year’s study, Fidelity noted that it is shifting its annual estimate away from couples and toward individual retirees. Fidelity notes that since 1960, the nation’s share of solo households has doubled.

How an HSA can boost your retirement

While Fidelity’s annual estimate always gets plenty of media attention, it is worth noting that others have suggested that retiree health care expenses are likely to be more manageable. For more on that, check out “Do Retirees Really Need $300,000 for Health Care? Probably Not.”

Still, if you are concerned about rising health care costs, opening an HSA is a great way to boost your retirement. As we point out in “5 Reasons This Is the Best Type of Retirement Account“:

“A health savings account’s huge selling point is the fact that it is triple tax-advantaged:

  • You get a tax deduction during the year of contribution.
  • The money grows tax-free.
  • You withdraw the money tax-free when it’s used for qualified health expenses.

In essence, if you use HSA money to pay for health care expenses, it’s never taxed. Never.”

To be eligible for an HSA, you must have a high-deductible health insurance plan and otherwise qualify.

You will also have to choose an HSA provider, such as Money Talks News partner Lively. MTN contributor Miranda Marquit talks about her experience with Lively in “3 Ways a Health Savings Account Can Improve Your Finances.”

For more on HSAs, check out:

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