Fidelity Investments has estimated the total amount a 65-year-old couple retiring this year can expect to spend on health care and medical expenses in retirement—and as you might expect, the number has gone up again.
In fact, the firm’s 21st annual Retiree Health Care Cost Estimate shows that a 65-year-old couple retiring this year can expect to spend $315,000 in health care and medical expenses throughout retirement. For single retirees, the 2022 estimate is $165,000 for women and $150,000 for men.
Designed to inform Americans on the importance of planning and saving early, Fidelity’s health care cost estimate was first calculated in 2002 to build greater awareness of the estimated health care costs as individuals approach retirement. This year’s estimate is up 5% from 2021 ($300,000) and has nearly doubled from its original $160,000 in 2002.
“Even as many Americans look to turn the page on the events of the last two years, staying informed on potential future health care costs should remain a top factor when planning for retirement,” explains Hope Manion, a senior vice president for Fidelity Workplace Consulting. “We understand the anxiety as health care issues can feel unpredictable. However, by planning early and saving consistently, people can put themselves in a much stronger position to retire how and when they want.”
The estimates assume both members of the couple are enrolled in traditional Medicare, which between Medicare Part A and Part B covers expenses such as hospital stays, doctor visits and services, physical therapy, lab tests and more, and in Medicare Part D, which covers prescription drugs.
HSA Benefits
This year’s analysis includes good news and bad news. The bad news: Fidelity found that Americans are generally out of sync with the expected total cost of health care in retirement. According to Fidelity’s research, on average, Americans estimate a couple retiring this year will spend just $41,000 on health care expenses in retirement—or $274,000 less than the firm’s analysis. Additionally, more than two-thirds of respondents (68%) are under the impression that associated costs will remain under $25,000.
Not surprisingly, once respondents were informed of Fidelity’s estimate, the vast majority (70%) say they feel unprepared to cover health care expenses during retirement.
The good news: People with HSAs feel better prepared—47% of HSA holders feel prepared for their health care retirement expenses, compared with just 27% of people who don’t have an HSA. Still, while HSA owners may feel more prepared, many still have misconceptions about HSAs and how they work:
- 51% are unaware they can invest their HSA, meaning for some, they are missing out on an opportunity for potential growth.
- 38% don’t know that to open an HSA, the person must be enrolled in an HSA-eligible high deductible health plan (HDHP), meaning they may not be taking advantage of this benefit.
- 44% of those who do not own an HSA mistakenly think money contributed must be used by the end of the year or it’s lost. (While true for flexible spending accounts, that is not the case for HSAs.)
HSA owners cite three features that prompted them to open an account:
- the combined health plan and HSA contribution from their employer offered the best value (56%);
- it helps reduce current health care expenses (53%); and
- their employer gives an annual contribution (50%).
“There continues to be an opportunity for additional education on the power of a health savings account, especially for younger people who likely have decades to save and invest before they retire,” emphasizes Manion. “Our research finds that the top health care concern for younger people is being able to afford unexpected health care costs, meaning an HSA could be an effective way to address this worry and these potential expenses.”
