With healthcare costs rising, retirees will need to amass $280,000 to cover their medical expenses during their golden years, according to a new analysis by Fidelity. According to the Boston-based fund company, the $280,00 for a couple aged 65 who are retiring this year marks a 2% jump from last year and a 75% increase from 2002 when Fidelity issued the first estimate. Back then, a couple needed $160,000 to cover healthcare costs. For individuals retiring in 2018, Fidelity estimates that a male will need $133,000, while a female will need $147,000. Women tend to live longer than men, which is why they require more funding.
"Despite this year's estimate remaining relatively flat, covering healthcare costs remains one of the most significant, yet unpredictable, aspects of retirement planning," said Shams Talib, executive vice president and head of Fidelity Benefits Consulting, in a press release. "It's important for individuals to educate themselves and take steps while working to ensure that they are prepared to address these costs. Otherwise, people risk having to dip into more of their savings than originally anticipated, potentially impacting their overall retirement lifestyle."
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According to Fidelity, the 2% increase is the smallest uptick since 2014, implying that a lot of the out-of-pocket medical costs like prescription drugs and Medicare premiums have remained flat year over year. At the same time, Americans are increasing their savings in their 401(k) accounts managed by Fidelity, with the average savings rate increasing almost 10% since 2013.
While Fidelity's projection assumes that the couple retires at age 65 and that both are eligible for Medicare, many people opt to retire before 65 for health or work-related reasons or because they are ready to start their retirement years. Fidelity surveyed those aged 50 to 64 who retired and found that 56% said they retired earlier than they expected, while 30% retired early because of a health event that affected them or their spouse.
Of those that retired early, nearly all of them had healthcare coverage, with 36% paying $500 each month for the protection. The insurance doesn't appear to be enough, with almost half saying they have had to tap their savings to cover healthcare expenses, while 24% are relying on Social Security benefits and 15% are using money set aside for retirement. Almost half of the survey respondents thought they would need less than $100,000 for healthcare in retirement, while 33% said they had no clue.
"Individuals who are faced with the prospect of retiring early, regardless of the reason, will need to educate themselves on the options available to bridge the gap to Medicare eligibility to help pay for the extra healthcare expenses they're likely to incur during this period," said Talib in the press release.