Retiree Health Care Costs Jump After Brief Respite

Fidelity Investment’s 2022 Retiree Health Care Cost Estimate increased 5% from 2021, and the figure has nearly doubled since the initial $160,000 estimate in 2002.

For 2021, Fidelity’s health care cost estimate was $300,000. Hope Manion, chief health and welfare actuary at Fidelity Investments Benefits Consulting, says that health care costs are likely to continue rising.

“[T]he costs will continue to go up because of the nature of health-care consumption, where we have so much innovation and technology and improvements in care,” she explains. “We need to be bold and stand up to the reality and get prepared for it.”

For 2022, Fidelity estimates that a 65-year-old couple retiring this year can expect to spend an average of $315,000 on health care costs throughout retirement. The estimates for single retirees are $150,000 for men and $165,000 for women. For single retirees, the 2021 estimate was $157,000 for women and $143,000 for men.

“We did have a little bit of a leveling off, a bit of a break, in the last few years,” Manion adds. “What we’re seeing right now is a return to a as an acknowledgment that that trend is back in health care—there’s a lot of cost [and] inflation pressure that’s going to be happening short-term, [and] we need to be absorbing that into our estimate. Long-term, things should revert to a more normal health care cost trend, or annual increase.”

Fidelity’s estimate assumes that both members of the couple are enrolled in traditional Medicare, which between Medicare Part A and Part B covers expenses such as hospital stays, doctor visits and services, physical therapy and lab tests, and in Medicare Part D, which covers prescription drugs.

The health care cost estimate release also finds that “Americans are generally out of sync with the expected total cost of health care in retirement.” Fidelity’s research shows that, on average, Americans estimate a couple retiring this year will spend just $41,000 on health care expenses in retirement, and 68% expect that associated costs will remain under $25,000.

The nature of for-profit health care in the U.S. is one reason costs have increased, Manion explains. “This number is going to just keep increasing until we get some fundamental change to the U.S. health care system,” she says. “It’s a for-profit system.”

Fidelity promotes health savings accounts as a solution for expected health care costs in retirement. Individuals with access to a high-deductible health plan paired with a health savings account can benefit from the triple-tax advantages of the investment vehicle to save for future medical expenses.  

“There continues to be an opportunity for additional education on the power of a health savings account, especially for younger people who likely have decades to save and invest before they retire,” adds Manion. “Furthermore, HSAs are also a great way to cover current qualified medical expenses.”