Monday, March 13, 2006

Retiree Health Care Costs

A Fidelity Investments news release discusses health care costs in retirement:
Fidelity estimates that a 65-year old couple retiring today will need $200,000 to cover medical costs in retirement.

The retiree health care cost estimate is calculated annually by Fidelity Investments. The 2006 estimate rose 5.3 percent from the 2005 estimate of $190,000. Since Fidelity's initial estimate of $160,000 in 2002, the number has increased an average 5.8 percent per year.
It's also mentioned that most dental and long term care isn't included in this estimate.

In a related article, Fidelity says, in part:
US Department of Health and Human Services estimates that about 40% of people aged 65 or older have at least a 50% lifetime risk of entering a nursing home. The average stay is 2.4 years, and those with debilitating illnesses such as Alzheimer's or Parkinson's could require full-time care for much longer. In 2004, the average daily rate for a private room in a nursing home was $192 or $70,080 annually, but costs vary significantly from state to state.
So, health care in one's later years is likely to be a significant cost. The other companion observation is that fewer companies are offering retiree health benefits. The Fidelity article says:
America is experiencing a double digit decline in the number of companies offering retiree health benefits to their employees

The Fidelity article uses as a source the Kaiser Family Foundation and the Health Research and Educational Trust 2005 Annual Employer Health Benefits Survey 9/14/2005. I didn't review the Kaiser report in fine detail, but I didn't see this observation in the report. The report transcript does say on page 4 that:
Since 2000 the percentage of firms offering coverage has fallen from 69% to 60%.
But the Kaiser report didn't differentiate, as far as I could tell, between regular employee and retiree health care benefits. A more careful reader might agree with the Fidelity interpretation.

  • a lot of post retirement income and savings will go to health care
  • long term care issues will affect 50% of the population
  • companies have been reducing or eliminating health care benefits for at least their retirees, if not both the regular work force as well as retirees.

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