Nearly 70% of pre-retirees said the cost of medical care in retirement is one of their biggest financial concerns, found a recent Fidelity Investments study. So those nearing retirement should be glad to hear this news.
The projected amount of money a 65-year-old couple retiring this year will need to pay for medical expenses in retirement dropped 8% from last year, according to estimates from Fidelity’s Benefits Consulting business, which helps assess and design workplace benefits programs.
Last year’s estimate was $250,000. This year it was $230,000. That’s the first time the figure’s decreased since Fidelity starting estimating healthcare costs in retirement back in 2002.
Until now, the estimate has increased by 6% on average every year.
Two reasons for the $20,000 decrease this year:
- A mandate in the healthcare reform law requires pharmaceutical companies to offer a 50% discount on brand name drugs that fall into Medicare’s “donut hole.” An individual’s prescription drug costs fall into the donut hole when they hit the initial coverage limit of $2,840 and haven’t yet accumulated enough to qualify for Medicare’s catastrophic coverage, which kicks in when drug costs hit $4,550.
- A provision in the Health Care and Education Reconciliation Act will phase out the donut hole by 2020.
Since the reduction in retiree healthcare costs was spurred by 2010 law changes, it’s expected to be a one-time drop.
Even so, these figures could serve as a jumping-off point to get workers thinking about medical expenses in retirement — and give your company another opportunity to tout the programs it offers to help employees save for medical care in retirement, like a 401(k) and a health savings account (HSA).