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Health Care Retirement Expenses - Estimates


Man, this morning (April 19th) was rough.  First, I woke up feeling like I hadn’t slept as I had a bunch of weird dreams.  Then I went to the gym and saw plow trucks out salting. After swimming I came outside to a car covered in snow.  Did I mention it is April freakin’ 19th!  Finally, I saw an article from Fidelity with updated Health Care costs in retirement.  Not good news but something in need of my attention.

As some background, Fidelity has been doing this study since 2002 to estimate health care expenses for retired couples aged 65 and above. The first estimate was $160,000. 2018’s estimate is now $280,000!  While the increase was only 2% above 2017’s number, it is a 75% increase from 2002.

Oh, if you are wondering what the costs are based on gender, I have that information. The estimate is $133,000 for men and $147,000 for women, due to a longer lifespan. Or maybe it has something to do with a pink tax, but I digress.

Now, Fidelity will be the first to admit their estimates are susceptible to “shifts in the economic landscape and changes in government regulations.” So, if the economy is strong, prescription drug prices don’t jump too much, and Medicare premiums stay under control then the estimate costs increase a little slower.

Fidelity’s data includes looking at people between the ages of 50-64 who had retired in the last three years.  36% of retirees pay more than $500 a month in health care premiums.  Many of these people retired due to a health issue, either for themselves or a spouse. Half of them are accessing personal savings to pay their health care expenses.  Additionally, just under half of them believe they will need less than $100,000 in retirement.

Their article summarizing their findings ended with a sales pitch (would you expect less).  It was for using Health Savings Accounts (HSAs) through them.  Now, I have written and even did a video on HSAs.  I think I titled it something catchy like “Triple Threat” or “Triple Crown.”  Regardless, HSAs are one of the best retirement planning tools.  Heck, I think it is more beneficial than 401ks for quite a few people.  As a reminder, money goes in before taxes, grows without taxation, and as long as you take it out for qualified medical expenses there are no taxes.  Hence, the triple tax benefit.  The two big drawbacks for HSAs are you must be in a high-deductible plan to qualify and the admin costs for many HSAs are rather high, but I expect that to continue to come down.

Not a whole lot else to add.  We all know health care in retirement will not be cheap.  There are a few points I want to stress.  First, do your best to estimate what it will cost you in retirement.  Next, if you have resources such as HSAs available, take advantage of them! Finally, good weather will soon be here and that always makes people feel healthier.