According to a recent survey from Fidelity Investments, retirement could be a pipe dream for many Americans, as healthcare costs continue to rise out of control. Instead of spending retirement savings on travel and entertainment, today’s retirees could see their retirement savings decimated by healthcare costs.
A 65-year old couple retiring in 2017 will need $275,000 to cover their healthcare costs throughout retirement. The $275,000 figure does not include dental care, nursing home fees, or long-term care costs.
This figure is six percent higher than it was last year. For a single person retiring this year, the number would be about half. Women will need to save a bit more than men since they live around two years longer.
Expected healthcare costs for a healthy 63-year old woman retiring in 2017 (and living to the age of 89), are projected to be $362,607 (in future dollars). That’s nearly 30% higher than a 65-year old male ($279,176) will need.
The six percent jump in health care estimates echoes the average annual 5.5% price inflation rate of medical services. That’s almost triple the U.S. inflation rate from 2012-2016 and more than annual projected Social Security cost-of-living adjustments.
Thanks to the compounding impact of healthcare inflation, healthcare costs will be one of the biggest expenses in retirement.
Case in point: in 2017, the average couple retiring will need 59% of their lifetime pre-tax Social Security benefits to cover total lifetime retirement healthcare costs, compared to 57% in 2016. A 55-year-old couple will need 92% (compared to 88%), and a 45-year-old couple 122% (compared to 116%).
These increases reflect the increasing gap between healthcare inflation and Social Security cost of living allowances.
Since Fidelity started reporting on estimated healthcare retirement costs in 2002, the number has soared 70%.
Unfortunately, because of these rising healthcare costs, the majority of Americans will never be able to fully retire. According to a report from the Economic Policy Institute, the mean retirement savings of all working-age families (between 32 and 61 years old) is only $95,776.
That number sounds better than it actually is, because many families in the U.S. have zero savings. If anything, the $95,776 figure benefits from those who are wealthy and good at saving. The median for all working-age families in the U.S. is just $5,000.
And it’s become even more difficult than ever for Americans to save for retirement. President Trump canceled the “myRA” program, an Obama-era program that created savings accounts to help more people save for retirement, especially those who did not have access to a workplace savings plan.
In July, the Treasury Department deemed the program too expensive, even though only 30,000 people had participated. Those who were enrolled were told they could roll the money into a Roth individual retirement account.
Since the program started in 2015, 20,000 accounts were opened, with $34.0 million in total contributions. The median account balance was $500.00. An additional 10,000 accounts were opened but owners had not yet made any deposits.
“Health Care Costs for Retirees Rise to an Estimated $275,000 Fidelity Analysis Shows,” Fidelity Investments, August 24, 2017.
“2017 Retirement Health Care Costs Data Report,” HealthView Services, last accessed August 24, 2017.
“The State of American Retirement,” Economic Policy Institute, last accessed August 24, 2017.
“myRA Phasing Out,” U.S. Department of the Treasury, last accessed August 24, 2017.