Fidelity Releases 2022 Retiree Health Care Cost Estimate: 65-Year-Old Couple Retiring Today Will Need an Average of $315,000 for Medical Expenses

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Hope Manion, senior vice president, Fidelity Workplace Consulting

BOSTON– Fidelity Investments® today announced its 21st annual Retiree Health Care Cost Estimate, revealing that a 65-year-old couple retiring this year can expect to spend an average of $315,000 in health care and medical expenses throughout retirement1. The 2022 estimate for single retirees is $150,000 for men and $165,000 for women. Fidelity’s estimate assumes 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.

“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,” said Hope Manion, senior vice president, Fidelity Workplace Consulting. “At Fidelity, 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.”

Designed to inform Americans on the importance of planning and saving early, the Fidelity Retiree 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.

This year’s analysis generates both “good” and “bad” news. First, the bad: Americans are generally out of sync with the expected total cost of health care in retirement. In fact, according to Fidelity research, on average, Americans estimate a couple retiring this year will spend just $41,000 on health care expenses in retirement. This is $274,000 less than Fidelity’s analysis. Additionally, more than two-thirds (68%) are under the impression that associated costs will remain under $25,0002.

Once respondents of the research were informed of Fidelity’s estimate, a staggering 70% of respondents say they feel unprepared to cover health care expenses during retirement.3 However, there is still good news: the number of people who feel prepared increases when the person has an HSA. In fact, nearly half (47%) of HSA holders feel prepared for their health care retirement expenses, compared to just 27% of people who do not have an HSA.

An HSA can be a powerful way to save and pay for health care, as it allows account holders to pay for qualified medical expenses in a tax-advantaged way, now through retirement. HSAs offer a “triple tax advantage1” meaning 1) contributions are tax-deductible, 2) account money can be spent tax-free for qualified medical expenses, and 3) any potential growth is tax-free too.

Americans Misunderstand HSAs: Separating Fact from Myth
While HSA owners may feel more prepared for health care expenses, many Americans still have misconceptions about HSAs and how they work.

  • Fact: Contributions to an HSA can be invested. More than half (51%) of Americans don’t know they can invest their HSA, meaning for some, they are missing out on an opportunity for potential growth.
  • Fact: To open an HSA, the person must be enrolled in an HSA-eligible health plan / High Deductible Health Plan (HDHP). Nearly four-in-ten (38%) don’t know this, meaning when they are enrolling in employer benefits, they may have the option to enroll in an HDHP and open an HSA, but they aren’t taking advantage of this benefit.
  • Fact: HSA contributions remain with the account owner year-over-year. Forty-four percent of people who do not own an HSA think money contributed into an HSA must be used by the end of the year or it’s lost. While this is how contributions made to a Flexible Spending Account generally work, it’s not the case for HSAs.

“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,” added Manion. “Furthermore, HSAs are also a great way to cover current qualified medical expenses. 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.”

For those people who own an HSA, the top three features they cite most often that prompted them to open an account include: 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%).

Older Americans Better Understand Medicare, But Still Opportunity for More Education
For older people approaching retirement and Medicare eligibility age – it’s critical they understand the potential costs they may face in retirement, as well as how Medicare can help them. Fidelity’s research identified opportunities to better educate on Medicare.

  • Fact: Medicare enrollment age is 65 years old4: Nearly six-in-ten (57%) Baby Boomer (ages 58-76 years old) respondents incorrectly think a person can elect to enroll in Medicare at age 62 and receive reduced benefits. Medicare gives people a 7-month time frame to sign up/enroll. For those who are eligible when they turn 65, that 7 months begins 3 months before the month they turn 65 and ends 3 months after the month they turn 65.
  • Fact: Without supplemental Medicare coverage, there is no limit on out-of-pocket expenses. More than four-in-ten Baby Boomer respondents (41%) answer this incorrectly, as they assume there are out-of-pocket limits for Medicare Coverage. In reality, retirees need to enroll in Medicare Supplement (Medigap) in order to limit their out-of-pocket expenses.
  • Fact: Medicare does not cover nursing home / long-term care. Among Baby Boomer respondents, 40% answer this incorrectly, as they think Medicare will pay for them to stay in a nursing home when they can no longer take of themselves (e.g. feed/dress/bathe). However, Medicare doesn’t cover long-term care (sometimes referred to as custodial care) and most nursing home care is custodial care meaning help with everyday activities like bathing, dressing and bathroom use.