A 65-year-old couple retiring in 2012 will need about $240,000 to pay for health care expenses during retirement, according to a survey by Fidelity Investments.
The finding is part of Fidelity's annual study of retiree health care costs. The company's benefits consulting business makes the calculations, which do not include costs associated with nursing home care, and which also assume the retirees will participate in traditional Medicare coverage.
During more than a decade of Fidelity health care calculations, costs have risen an average of 6 percent annually and fell just once -- in 2011-- when projected costs sank by an average $20,000. The 2011 decline was attributed to a one-time adjustment triggered by changes to Medicare that cut costs of out-of-pocket prescription drug expenses for many seniors.
Annual inflation of medical costs exceeds both salary increases and cost-of-living adjustments for many workers, says Brad Kimler, executive vice president of Fidelity’s benefits consulting business.
"Today's workers must understand that the cost of health care is expected to continue rising significantly in future years," Kimler said in a press statement.
Retirees will face especially difficult choices if they depend on Social Security for a large portion of their retirement income.
Fidelity compared Social Security’s average cost of living adjustment (2.3 percent) against projections that health care costs will continue to increase at 6 percent annually. In such a scenario, a 65-year-old couple retiring in 2012 with a $75,000 household income can expect to earmark 35 percent of their annual benefit (about $10,476) for health care expenses today.
By 2027, the percentage of Social Security benefits devoted to health care expenses is likely to almost double to 61 percent ($25,000 of a $41,205 annual Social Security payment).
"Retirees relying entirely on Social Security to fund their health care costs will be faced with difficult challenges in the future," Kimler said.