The Finance of Longevity

Health Care Costs for Retirees Rise to an Estimated $275,000

Employers Providing Help Through Education, Health Savings Accounts and an Expanding Focus on Total Well-Being

August 28, 2017 — BOSTON–(BUSINESS WIRE)–Health care is one of the largest costs for people in retirement, so planning for these expenses is a critical part of any retirement savings strategy.

To help people understand and plan for these costs, Fidelity annually estimates what a 65-year old couple, retiring in the current year, will need to cover health care and medical expenses throughout retirement. The 2017 estimate is $275,0001, a six percent increase over last year’s estimate of $260,000.

The six percent increase in 2017 reflects general market trends and expectations for health care costs across a variety of expenses an individual could face in retirement. These include monthly expenses associated with Medicare premiums, Medicare copayments and deductibles and prescription drug out-of-pocket expenses. It assumes enrollment in Medicare health coverage but does not include the added expenses of nursing home or long-term care.

Expenses only going up…

“With ongoing uncertainty across the health care landscape, it’s more important than ever for individuals to educate themselves on steps they can take to prepare for their health care needs in retirement,” said Adam Stavisky, senior vice president, Fidelity Benefits Consulting. “These expenses are only expected to increase in the future, so it’s critical that people include health care as a significant part of their retirement plan.”

While the 2017 estimate is only a 6 percent increase over the previous year’s estimate, it represents a more than 70 percent increase since Fidelity’s initial retiree health care cost estimate in 2002.

More Employers Offering HSAs, Total Well-Being Programs to Help Workers Manage Costs

Fidelity has found that employers are taking an increasingly active and broader role in helping employees manage health care expenses during their pre-retiree years, as well as providing benefits that can contribute to improved health – and possibly lower health care costs – in retirement.

For example, an increasing number of companies are offering health savings accounts (HSAs) as part of their benefits platform, which allow people to put aside money for today’s health care expenses while also investing for medical costs they may incur in retirement.

The number of clients on Fidelity’s HSA platform increased 38 percent in the last year, and the number of individual Fidelity HSA holders has increased 46 percent.2 HSAs are paired with high-deductible health plans (HDHP), which often have lower monthly insurance premiums than traditional health plan offerings, plus they include three key tax benefits: contributions go in tax-free, balances and savings can be withdrawn tax-free for medical costs3. However, a key step in maximizing the value of HSAs is ensuring that employees are investing their contributions, which will help them take full advantage of any tax-free growth.

A ‘Total Well-Being’ Approach

In addition, an increasing number of employers are looking across health and retirement benefits to see how they can best support their employees during critical life events that can have an impact both inside and outside of the workplace. Taking a “total well-being” approach, employers are looking to address their employee’s financial, work/life and physical health care needs. This focus on total well-being is expected to increase as more employers recognize how these programs, when coupled with education and targeted efforts to increase participation, can improve employee productivity, health and financial wellness. In fact, according to a recent Fidelity/National Business Group on Health survey4, 87 percent of companies surveyed are planning to continue or expand their well-being programs next year, with focus on programs such as student loan repayment, debt management, mindfulness training and subsidies for fitness wearables.

“As retiree health care costs continue to rise, it’s becoming increasingly important for workers to focus on saving enough to ensure these expenses don’t derail their retirement,” added Stavisky. “But workers can’t do it alone – employers need to find practical, innovative ways to help their employees understand the health care expenses they may face in retirement, as well as provide the tools and education to help employees save enough. While we’re encouraged that more companies are taking an active role in assessing the needs of their workforce, employers need to continue to find ways to improve the overall well-being of their employees during their working years and into retirement.”

t’s critical that people include health care as a significant part of their retirement plan

Fidelity offers several education resources to help individuals understand and prepare for health care costs during their working years and into retirement, including a Fidelity Viewpoints article with additional details on this year’s retiree health care cost estimate, a Viewpoints article with tips to make the most of an HSA and a podcast explains what to look for when considering a health savings account.




About Fidelity Investments
Fidelity’s mission is to inspire better futures and deliver better outcomes for the customers and businesses we serve. With assets under administration of $6.3 trillion, including managed assets of $2.3 trillion as of July 31, 2017, we focus on meeting the unique needs of a diverse set of customers: helping more than 26 million people invest their own life savings, 23,000 businesses manage employee benefit programs, as well as providing more than 12,500 financial advisory firms with investment and technology solutions to invest their own clients’ money. Privately held for 70 years, Fidelity employs more than 40,000 associates who are focused on the long-term success of our customers. For more information about Fidelity Investments, visit
1 Estimate based on a hypothetical couple retiring in 2017, 65-years-old, with life expectancies that align with Society of Actuaries’ RP-2014 Healthy Annuitant rates with Mortality Improvements Scale MP-2016. Estimates may be more or less depending on actual health status, area of residence, and longevity. Estimate is net of taxes. The Fidelity Retiree Health Care Costs Estimate assumes individuals do not have employer-provided retiree health care coverage, but do qualify for the federal government’s insurance program, Original Medicare. The calculation takes into account cost-sharing provisions (such as deductibles and coinsurance) associated with Medicare Part A and Part B (inpatient and outpatient medical insurance). It also considers Medicare Part D (prescription drug coverage) premiums and out-of-pocket costs, as well as certain services excluded by Original Medicare. The estimate does not include other health-related expenses, such as over-the-counter medications, most dental services and long-term care.
2 Internal Fidelity data, Q2 2016 through Q2 2017.
3 With respect to federal taxation only. Contributions, investment earnings, and distributions may or may not be subject to state taxation. The triple tax advantages are only applicable if the money is used to pay for Qualified Medical Expenses as described in IRS Publication 969.
4 Based on 2017 survey on corporate Health & Well-being from Fidelity Investments® and the National Business Group on Health® . The online survey was fielded during November and December 2016 among National Business Group on Health members and clients of Fidelity Investments.