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Retirement News
Senior Citizen Couples Retiring in 2007 Need
$215,000 to Cover Health Care Costs
Fidelity says rising health costs could consume 50%
of Social Security benefit
 March 28, 2007 Senior citizens retiring this year
better be able to get their hands on $215,000 to pay for their health
care in retirement. This estimate for a 65-year-old couple retiring in
2007 is from Fidelity Investments latest health care cost estimate. The
amount is 7.5 percent higher than the 2006 estimate of $200,000.
The estimate assumes no employer-provided retiree
health care coverage and life expectancies of 17 years for a male and 20
years for a female
The retiree health care cost estimate is calculated
annually by Fidelity Investments. Since the estimate first was computed
in 2002, the number has risen a total of 34 percent, with an average
annual increase of 6.1 percent.
The 2007 estimate assumes individuals do not have
employer-sponsored retiree health care coverage and includes expenses
associated with Medicare Part B and D premiums (32%), Medicare
cost-sharing provisions -- co-payments, co-insurance, deductibles and
excluded benefits (35%) -- and prescription drug out-of-pocket costs
(33%).
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It does not include other health-related expenses, such as
over-the-counter medications, most dental services and long-term care.
Social Security impact
Since many retirees rely on Social Security as
their primary source of income in retirement, Fidelity also calculated
the impact that a $215,000 health care liability would have on a
retiree's Social Security benefit.
It found that a 65-year-old worker
today, who is earning $60,000 and decides to retire at the end of the
year, should expect that 50 percent of his or her pre-tax Social
Security benefit will be used to pay for personal health care expenses
in the next 16 to 18 years.
"A significant amount of retirees told us their
state of health is not good, they are spending more in retirement than
they ever planned, and some were even forced into an early retirement
due to health problems," said Brad Kimler, senior vice president,
Fidelity Employer Services Company, a division of Fidelity Investments.
"But if today's workers act now to take greater advantage of the many
retirement savings vehicles available to them, they can create a more
secure and enjoyable retirement."
Fidelity recommends that the first step every
working American should take is to create an individual retirement plan.
In building a plan, workers can factor in their specific circumstances
such as current savings, anticipated income sources, lifestyle, expenses
and likely health care needs in retirement.
New Laws Make Saving For Health Care Costs
Easier
The Tax Relief and Health Care Act of 2006, enacted
last December, brought important changes to the rules governing
tax-advantaged Health Savings Accounts (HSAs). It created incentives for
both employers and employees to better utilize HSAs in their respective
efforts to help mitigate rising health care costs and save more for
health care needs in retirement.
The most significant changes include:
Elimination of contribution limits that were
previously tied to High Deductible Health Plan (HDHP) deductibles. In
2007, the new maximum contribution limits are $2,850 for individuals and
$5,650 for families.
The ability for employers to initiate a one-time
rollover of funds from an individual's health Flexible Spending Account
(FSA) or Health Reimbursement Arrangement (HRA) to an HSA.
Setting of annual statutory contribution limits
earlier in the year (June 1) so employers can better prepare for annual
enrollment.
As of January 4, 2007, there were an estimated 3.6
million individual HSAs and that number is expected to grow to over 15
million by 2010.
In addition to offering an HSA, employers should
consider providing health guidance information and planning tools to
their employees to help engage them in leading healthier lifestyles,
understanding their personal health risks, and to equip them with
strategies to better manage their current healthcare expenditures, while
also planning for future health care costs.
New Tool Helps Employees Better Plan for
Expected Costs
As of April 1, Fidelity will make available to
employers a new tool to help employees plan toward their future health
care liability. The tool enables employees to personalize, estimate and
project their retiree health care costs based on such factors as age,
expected retirement date, health conditions and available insurance
coverage.
Using this tool, employees can determine whether
they have saved enough to meet their estimated health care costs in
retirement and also run savings models to determine their optimal annual
HSA contribution amount. Employees can access this retiree health care
cost planning tool via Fidelity's NetBenefits Web site and it is also
available as part of the Fidelity HSASM.
About Fidelity Employer Services Company
Fidelity Employer Services Company (FESCo) is a
division of Fidelity Investments. FESCo provides defined contribution
and defined benefit retirement services, employer benefits and human
resources administration, and payroll services to more than 20 million
participants in the United States as of February 28, 2007.
About Fidelity Investments
Fidelity Investments is one of the world's
largest providers of financial services, with custodied assets of $3.0
trillion, including managed assets of more than $1.4 trillion as of
February 28, 2007. Fidelity offers investment management, retirement
planning, brokerage, and human resources and benefits outsourcing
services to more than 23 million individuals and institutions as well as
through 5,500 financial intermediary firms. The firm is the largest
mutual fund company in the United States, the No. 1 provider of
workplace retirement savings plans, one of the largest mutual fund
supermarkets and a leading online brokerage firm. For more information
about Fidelity Investments, visit
www.fidelity.com.
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