Health care costs daunting for new retirees

With the oldest baby boomers turning 62 – that magic age when they can start collecting Social Security checks – the call to retire grows stronger.

A new study suggests they might want to ignore that voice in their heads. For one thing, Social Security checks are at least 25 percent smaller than if recipients wait until full retirement age to start collecting. And Fidelity Investments estimates that it would cost $225,000 to cover medical costs through retirement for a couple, aged 65, who retires this year. Retiring younger would raise that figure even higher.

Fidelity said in its report that the $225,000 figure is a 4.7 percent increase over Fidelity's 2007 estimate. The total increase is 41 percent since 2002, when Fidelity first issued its estimate.

"A lot of people don't realize that Medicare doesn't kick in until age 65," Bryan D. Beatty, a fee-based asset manager in Vienna, VA, told the Associated Press. Bridging the gap in coverage between 62 and 65 can be expensive, he said.

The Fidelity figure assumes that the couple doesn't have employer-sponsored retiree health care coverage and that the man would live for another 17 years while the woman would live for 20. The estimate also includes expenses connected with Medicare Part B and D premiums, cost-sharing provisions, co-payments, co-insurance, deductibles, and prescription drug out-of-pocket costs.

"With health care costs continuing to outpace wage increases and companies trimming retiree health benefits, financing health care has to be central to retirement planning," Brad Kimler, Fidelity executive vice president, said in a statement. "Given current economic conditions, this is especially true for those planning to retire in the next few years or before they qualify for full Social Security or Medicare benefits."

Ray Ferrara, a certified financial planner in Clearwater, FL, told the St. Petersburg Times that Fidelity's estimate may be low. He said recent studies show that the average 55-year-old has set aside less than $65,000 for retirement, which brings up bigger political issues.

"Those who don't have $225,000 are going to fall back on the government and society to take care of them," he said. "The solution is to cut benefits, raise Medicare deductibles or increase taxes. But those are not the kinds of things politicians want to tackle."

In fact, the Center for Retirement Research has estimated that 61 percent of households will not be able to maintain their standard of living in retirement because of medical costs, the Myrtle Beach Sun News reported. The estimate is based on cost projections from the Centers for Medicare and Medicaid Services, and current savings trends.

You may like these other stories...

By Deanna C. White Millennials may be incredibly savvy when it comes to using technology to research nearly every decision they make, but when it comes to determining their financial habits, a new survey suggests they...
By Deanna C. White A survey by the American Institute of CPAs (AICPA) indicates that many American parents are still reluctant to engage their children in significant conversations about money, with only 13 percent of...
By Jason Bramwell The percentage of higher education leaders who  are "very concerned" about their ability to maintain current enrollment levels is on the rise, according to the second annual Higher...

Already a member? log in here.

Upcoming CPE Webinars

Oct 9In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards.
Oct 15This webinar presents the requirements of AU-C 600, Audits of Group Financial Statements (Including the Work of Component Auditors).
Oct 21Kristen Rampe will share how to speak and write more effectively by understanding your own and your audience’s communication style.
Oct 23Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.