Estimated healthcare costs for retirees in 2024 are $165,000: Fidelity
Health care remains one of the biggest expenses in retirement – and retirees need to plan for it, according to Fidelity, which just launched its 23rd annual report.rd Annual estimate of health care costs for retirees. It says retirees may need $165,000 to cover their health care costs – a 5% increase from 2023.
“Healthcare costs are one of the most unpredictable expenses, especially when it comes to retirement planning,” said Robert Kennedy, SVP, Workplace Consulting at Fidelity. “As we approach the fall enrollment period for health insurance benefits, it’s a good time for Americans to be proactive in their financial planning.”
According to Fidelity, many Americans continue to face a gap between what they actually expect to pay and what they expect to spend on health care in retirement. The average American estimates that the cost will be about $75,000 – less than half of Fidelity’s calculation.
“Managing health issues is undoubtedly a complicated matter, and the looming cost of care in retirement certainly doesn’t make it any easier from a planning perspective,” says Karen Volo, head of health and benefit accounts at Fidelity.
Fidelity’s estimate of $165,000 assumes a person is enrolled in traditional Medicare insurance – both Part A and Part B – which covers most hospital care and doctor visits, as well as Part D – which covers prescription drugs. However, retirees must pay for Medicare premiums, over-the-counter drugs, and dental and vision care themselves.
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Employers have an important role to play in helping their employees prepare for healthcare costs in retirement.
“Health care will be one of the largest expenses for many Americans in retirement, and we are seeing more and more cases where retirees do not have access to employer-sponsored health benefits,” Volo said. “This means that health care costs are a much larger portion of retirement budgets than in the past, so it is important that employers equip their employees with the tools and knowledge they need to make informed decisions about their health care, no matter what stage of life they are in.”
“Education is key – investing in intensive support during the annual enrollment period and beyond to ensure benefits information is clear and easily accessible is a great first step for employers. Things like educational webinars or hands-on training opportunities can greatly improve employees’ knowledge of their benefits options.”
Even if employers don’t offer health insurance to their retirees, they can still provide their employees with resources that will enable them to make informed decisions as retirement approaches. “There are several important pieces of information they can communicate – for example, ways to bridge health insurance between early retirement and Medicare eligibility,” Volo said. “This can be as simple as providing guidance on how long their insurance is available under COBRA, guidance on how to purchase private insurance, or a roadmap on whether they qualify for insurance through the public health marketplace.”
Employers also need to communicate the benefits of health savings accounts (HSAs), which provide a tax-advantaged way to save for short-term and long-term healthcare expenses. “HSAs can be a great tool to not only save for expenses in retirement, but also to maintain control of spending now thanks to their tax advantages: Money is put into the account pre-tax, no taxes are incurred while the money in the account grows, and employees are not taxed when they withdraw money to pay for qualified medical expenses,” Volo said.
Every employee’s situation is unique, so there’s no one-size-fits-all solution for the amount they should have in their HSA. Fidelity recommends that employees start by contributing at least up to the company match in their 401(k) plan and taking advantage of the benefits of a company contribution to an HSA, Volo recommends. Then consider maxing out the HSA to take advantage of the account’s tax benefits. “For 2024, the IRS limit for HSA contributions is $4,150 per year for individuals and $8,300 for families,” Volo said. “Employers should also keep in mind — and make sure their employees are aware — that those age 55 and older are eligible for an additional catch-up contribution of $1,000 per year.”
“Health care will likely be one of your top five expenses in retirement,” says Steven Feinschreiber, senior vice president of financial solutions at Fidelity, so workers should consider setting aside a portion of their 401(k) or IRA account along with the HSA to cover expected health care costs during retirement.”
