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-- Today's Retiring Couple May Need $190,000 Over 20 Years --
BOSTON, March 28, 2005 - As medical costs continue to escalate, Fidelity Investments now estimates that the average 65-year-old couple retiring today will need $190,000 to cover medical costs over the next 15 to 20 years1.
Fidelity's annual estimate increased 8.6 percent over last year's figure of $175,0002. The estimate includes approximate expenses associated with Medicare Part B and D premiums3, Medicare cost-sharing provisions - copayments, coinsurance, deductibles and excluded benefits -- and prescription drug out-of-pocket costs. It does not include other health expenses, such as over-the-counter medications, most dental services and long-term care.
"We know that medical costs are one of the most critical risks to eroding your retirement savings and the longer your retirement, the greater your risk," said Brad Kimler, senior vice president of health and welfare consulting for Fidelity Human Resources Services Company. "When planning for retirement, employees often fail to include this critical variable in their calculations. Fidelity believes that with this estimate, employees can make better decisions and more effectively plan for their retirement costs via IRAs, 401(k)s, 403(b)s and Health Savings Accounts."
Understanding the potential impact of future health care costs can be challenging. A recent Fidelity study4 revealed medical costs as the top concern among about 60 percent of pre-retirees as well as recent retirees. Furthermore, about one-third of both groups reported they did not understand what Medicare actually covers.
This table outlines the components of the $190,000 estimate:
| A Closer Look at the $190,000: |
| Medicare Part B&D Premiums |
31% |
Other (out-of-pocket)
-- Copayment, coinsurance and deductible for doctor office visits, out-patient services
-- Deductible/coinsurance for inpatient stays
-- Some preventative care
-- Routine eye exams and glasses/contacts
-- Routine hearing exams and hearing aids |
36% |
| Prescription Drugs (out-of-pocket) |
33% |
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Assumptions:
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Couple Age 65
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Retiring in 2005
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No employer-sponsored retiree health care coverage
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Excludes additional variable costs such as over-the-counter medications, most dental services and long-term care
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Life expectancy
-- Male: 15 years
-- Female: 20 years
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List of "Other Out-of-Pocket" expenses is just a sampling of the types of costs that fall into that category
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Other: Copayments, coinsurance, deductibles and other benefits not covered by Medicare
Assumes use of Medicare Rx Drug Discount Card in 2005 and Medicare Part D coverage in 2006
While rising health care costs will continue to increase the amount of savings workers will need to meet their health expenses in retirement, there are ways that both employers and employees can help mitigate the financial impact of spiraling costs.
"Employees, much like the companies they work for, have typically focused only on their short-term health care needs, managing health benefits on an annual basis without looking further down the road," continued Kimler. "However, there are financial risks to doing so. To reduce these risks, employees should lead healthier lifestyles, plan more aggressively for retirement, look for ways to cut their current health care costs, and take advantage of their working years to save more for their future health care needs."
About Fidelity Employer Services Company
Through its Workplace Services offering, Fidelity provides retirement, benefits and human resources outsourcing, workforce effectiveness, payroll solutions and stock plan services to over 19 million American employees and retirees as of January 31, 2005.
About Fidelity
Fidelity Investments is one of the world's largest providers of financial services, with custodied assets of $2.1 trillion, including managed assets of $1.1 trillion as of January 31, 2005. Fidelity offers investment management, retirement planning, brokerage, human resources and benefits outsourcing services to more than 19 million individuals and institutions as well as through 5,500 financial intermediaries. The firm is the largest mutual fund company in the United States, the No. 1 provider of workplace retirement savings plans, one of the largest mutual fund supermarkets and a leading online brokerage firm. For more information about Fidelity Investments, visit www.Fidelity.com.
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Fidelity Employer Services Company LLC
Institutional retirement products and services are offered by Fidelity Investments Institutional
Services Company, Inc., 82 Devonshire Street, Boston, MA 02109
1Assumes no employer-provided retiree health coverage and life expectancies of 15 years for a male and 20 years for a female.
2Based on Fidelity's 2003 Report: "Retiree Health Care Accounts: The Next Step Toward a Workable Solution."
3Assumes use of Medicare Rx Drug Discount Card in 2005 and Medicare Part D coverage effective in 2006.
4The Fidelity Investments Retirement Transition Study was conducted by Richard Day Research, Inc. (RDR) in November and December 2004 among 749 pre-retirees within one year of retirement and 755 retirees within three years of retirement who work for or have retired from an employer with more than 5,000 employees and hold a DC or DB plan from that employer.
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