Retirement healthcare costs: Not as scary, but still daunting

The remarkable recent lull in retirement healthcare inflation isn’t fading – not yet, at least.

A 65-year-old couple retiring this year will need to have saved $220,000 to meet healthcare expenses during their retirement, according to a report issued today by Fidelity Investments. It’s a daunting sum, but it’s unchanged from last year and comes on the heels of an 8 percent drop last year in Fidelity’s 2012 forecast.
Fidelity includes Medicare premiums, deductibles and co-insurance in its totals but excludes any long-term care you might need, over-the-counter medications and dental care. The forecast assumes 20 years in retirement for women, and 17 for men.

Fidelity has been gauging retirement healthcare costs since 2002, and the recent moderate figures reflect several positive trends in Medicare. Overall per capita Medicare spending rose just 0.4 percent in the government’s fiscal year 2012. And the Congressional Budget Office projects that inflation-adjusted spending per beneficiary will rise at an average annual rate of 1.5 percent in the coming decade, compared with 4 percent from 1985 to 2007.

Few experts are ready to say healthcare costs have been tamed , and many attribute the slow rate of growth to a weak economy. “We do think the cost trend will pick up speed again eventually, whether it’s next year or the year after that,” says Sunit Patel, senior vice president of Fidelity’s benefits consulting group.

Getting a handle on health care costs

At the recent Morningstar Individual Investor Conference, I joined a panel discussion of strategies for meeting health-care funding needs using Medicare, Medigap, long-term care insurance health savings accounts – and the Affordable Care Act.

My co-panelist was a top expert on the intersection of financial planning and health care – Dr. Carolyn McClanahan. Carolyn is the founder of Life Planning Partners, and a physician. Click here to view the video of our conversation.