Employees who don’t factor health care costs into their retirement planning could be in for a rude awakening.

A couple, both aged 65 and retiring this year, can now expect to spend an estimated $245,000 on health care throughout retirement, up from $220,000 last year, according to data from Fidelity.

Longer life expectancies and anticipated annual increases for medical and prescription expenses fueled the increase, said Fidelity. The estimate assumes retired couples over the age of 65 will enroll in Medicare but does not take into account long-term care or the cost of living in a nursing home.

Also see: Boosting benefits enrollment with technology

“The sticker shock of $245,000 hopefully reinforces for many people that they need to act now, regardless of their age,” says Brad Kimler, executive vice president of Fidelity’s benefits consulting services. “For people offered a high-deductible health plan with a health savings account at work, choosing this option can really help them prepare, especially for millennials who have a long time to save.”

Fidelity’s 2015 Couples Retirement Study found that three-fourths of couples said that one of their main goals for retirement savings was to save enough to pay for unexpected health care expenses in retirement, but only 22% of couples had actually taken those expenses into account when determining how much they needed to save for retirement.

That survey also found that nearly half of couples had no idea how much they would need to save to maintain their current lifestyle in retirement and 47% disagreed about how much they would need.

Seventy-four percent of couples say they worry about being able to afford unexpected health care costs in retirement and 51% worry they will outlive their savings in retirement. Both of those percentages have risen since 2013.

Also see: Michelin, NIH see value in recruiting older workers

Despite these concerns, only 37% have considered the impact of potential health care costs on their retirement savings. Only 21% said they have developed a retirement plan to ensure they do not outlive their savings and the number who put off planning is on the rise, with 36%indicating they haven’t even thought about doing so yet.

Pre-retirees may want to consider private Medicare Advantage programs, even though they cost a bit more because a higher percentage of claims and prescriptions will be covered compared to Medicare, says Fidelity. This option can reduce costs over time, according to the company, which also recommends that individuals enroll in a health savings account now as a way to save for qualified health care expenses in retirement.

Paula Aven Gladych is a freelance writer based in Denver.

Register or login for access to this item and much more

All Employee Benefit News becomes archived within a week of it being published

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access