Healthcare costs continue to rise — Americans planning to retire should prepare ahead of time.
The average 65-year-old couple retiring in 2022 can expect to spend $315,000 in retirement on healthcare alone, according to Fidelity Investments’ annual report on retirees’ healthcare planning — that’s a 5% increase from 2021 when it was $300,000 and nearly double from the first report in 2002 when it was $160,000. For single male individuals, that figure is $150,000 and for women, it’s $165,000.
The estimate includes Medicare Part A and Part B coverage, which covers doctors’ appointments, hospital visits and physical therapy, as well as Part D for prescription drugs. Those six figures do not include long-term care costs, however, which could be exorbitant when factoring in costs for nursing homes or in-home full-time care.
Americans don’t always expect to spend so much on healthcare in retirement. Couples retiring this year anticipate spending just $41,000 on medical expenses in retirement, according to Fidelity’s research. When survey participants heard Fidelity’s estimate was $315,000, 70% said they did not feel prepared to cover those costs in retirement.
People with a Health Savings Account felt more confident, Fidelity found. Almost half of those account holders said they felt ready, compared with 27% of the respondents who did not have an HSA. Not everyone has access to an HSA – they’re available with a high deductible health plan – and some who are offered this option can’t afford it because of the higher deductible their insurance provider requires.
Still, an HSA may be worth considering when available, Fidelity said. These accounts can provide triple tax benefits, because contributions, earnings and withdrawals are tax-free when used for medical expenses, and they can even act as an extra retirement account since participants are not required to spend down what they save and invest in an HSA in any given year.
Along with saving for healthcare in retirement, Americans planning their futures should explore long-term care options, including insurance or hybrid policies that provide some coverage. They may also want to talk these plans out with family members, who might become caretakers in the future – this could save both older relatives and their loved ones from additional stress during an emotionally taxing time.