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Health care costs will rise during retirement

A 65-year-old couple retiring this year can expect to spend an average of $ 315,000 on health and medical expenses during their retirement, according to a new estimate from Fidelity Investments. That’s 5% more than last year’s estimate.

While much of this year’s increase comes from higher Medicare Part B premiums for Americans age 65 and older, healthcare costs are expected to remain high. .

“There is a lot of rising cost pressure on the healthcare system right now, due to the investments that providers have to make to prepare for the next pandemic, due to labor issues. especially hospital nurses, “said Hope Manion, senior vice president. Chairman and Acting Chief Health and Welfare Officer of Fidelity Investments.

Fidelity also found that most Americans have underestimated what health care expenses will be in retirement, and the average person expects the costs to be $ 41,000, a deficit of $ 274,000 compared to their estimate.

“People don’t realize that once they sign up for Medicare, they’ll still be waiting for a series of bills,” Manion said, adding that retirees have to pay premiums, over-the-counter and prescription drugs. and some medical devices.

High inflation will increase over time

If health care costs grow just 2 percent above consumer inflation over the next two years, a healthy 55-year-old couple could face $ 267,000 in additional medical costs when they retire at age 65, according to an analysis by HealthView Services.

This same couple could expect to spend more than $ 1 million on health care expenses over their lifetime, almost the same amount they could expect to receive on Social Security benefits.

“Whether you’re rich or middle-aged … when you look at your Social Security check, you pay for health care,” said HealthView Services CEO Ron Mastrogiovanni.

After paying premiums, Medicare covers about two-thirds of the cost of health services, with out-of-pocket spending accounting for about 12 percent, according to the Employee Benefits Research Institute (EBRI).

“Apart from housing, food and transport, [health care is] probably the most expensive item we’ll face in retirement, ”Mastrogiovanni said.“ Know what it is. Be ready.”

While fitness may help control some health care costs, experts say that planning ahead for longer-term medical expenses should also be considered in the equation.

Use health savings accounts with tax benefits

Health savings accounts are a way to save for future health care costs, but these require a high deductible plan and have annual contribution limits.

By 2022, the limit is $ 3,650 for single insured and $ 7,300 for families. For people over the age of 55, each of these limits is increased by $ 1,000 with “recovery” contributions.

Increased savings can now increase security later. Experts say you should consider adding more money to your 401 (k) plan or a Roth individual retirement account, if you have the requirements.

“The most important thing is that you start saving and start saving soon,” said Paul Fronstin, director of health benefits research at EBRI. “The sooner you do it, the better prepared you will be.”

There was a time when employers offered health benefits to retirees, but EBRI found that only 4% of businesses had those benefits. That’s less than 45% before a change in accounting rule in the late 1980s forced companies to put liabilities on their balance sheets.

“When they had to do this, it just didn’t look good on the balance sheet, so they started reducing the benefit to the point that very few workers will be entitled to that type of benefit in the future.” Said Fronstin.

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