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Current Retirees Need at Least $200,000 for Couples
Health Care
Fidelity estimate is a 5.3 percent increase over last year
March 17, 2006 If you are age 65, married, ready
to retire and have $200,000 available, you can probably pay for your
medical costs in retirement. That is the latest estimate by Fidelity
Investments that assumes no employer-provided retiree health coverage
and life expectancy of 17 years for a male and 20 years for a female.
Others say, however, this estimate is inadequate.
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By Robert Valentine,
Certified Senior Advisor
Feb. 27, 2006 - Time waits for no man Ancient
Proverb. That ancient quote is a great reminder how
important it is to start planning for your retirement. Whether we choose
to acknowledge it or not, retirement is creeping up on us. Even for
those who have just started their career, retirement planning is
essential to providing a secure future for themselves and their loved
ones. But that doesnt mean were defenseless against time. In fact,
with the proper planning, life after work can be the most rewarding
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As American employers continue to assess and reduce
their retiree health care benefits, the cost for retirees is climbing.
The 2006 estimate rose 5.3 percent from the 2005 estimate of $190,000.
Since Fidelity's initial estimate of $160,000 in 2002, the number has
increased an average 5.8 percent per year.
The retiree health care cost estimate is calculated
annually by Fidelity.
"As with any study, the devil is in the details,"
writes Robert Powell of MarketWatch. "For instance, Fidelity's estimate,
which assumes that Americans do not have employer-sponsored retiree
health care, includes expenses associated with Medicare Part B and D
premiums ($64,000), Medicare cost-sharing provisions such as
co-payments, coinsurance, deductibles and excluded benefits ($72,000),
and prescription drug out-of-pocket costs ($64,000). Fidelity's numbers
do not include other health expenses, such as over-the-counter
medications, most dental services and long-term care." (MarketWatch
report)
America is experiencing a double digit decline in
the number of companies offering retiree health benefits to their
employees, according to Kaiser Family Foundation and Health Research and
Educational Trust, Employer Health Benefits Survey, 2005.
This, combined with health insurance premiums that
are growing at a rate more than three times the growth of workers'
earnings and two-and-a-half times the rate of consumer inflation ,
creates an unprecedented situation for individuals who may now need to
account for more of their own health care costs in retirement.
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Wall Street Journal Says 'Inadequate" |
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The Fidelity estimate is inadequate,
according to many financial experts and other observers, the
Wall
Street Journal reports.
According to the
Employee Benefit Research Institute, retirees might require twice
the amount estimated by Fidelity based on longer future life expectancy.
EBRI estimates that 65-year-old couples who retire without
employer-sponsored health insurance will require $216,000 if they live
to age 80, $444,000 if they live to age 90 and $778,000 if they live to
age 100.
In addition to longer future life expectancy, financial experts
said that the Fidelity estimate did not include the cost of
over-the-counter medications, most dental care and long-term care or
expected increases in Medicare premiums (Wall
Street Journal, 3/11).
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"Today, health care costs have the potential to
significantly erode an individual's retirement savings," said Brad
Kimler, senior vice president of Fidelity Employer Services Company, a
division of Fidelity Investments.
"Knowing that these costs are only going to
continue to increase, all Americans, even those as far as 20 years away
from retirement, should be calculating and factoring life-long
healthcare expenses into their overall financial planning."
The 2006 estimate, which assumes that the
individuals do not have employer-sponsored retiree health care, includes
expenses associated with Medicare Part B and D premiums (32%), Medicare
cost-sharing provisions - co-payments, coinsurance, deductibles and
excluded benefits (36%) -- and prescription drug out-of-pocket costs
(32%). It does not include other health expenses, such as
over-the-counter medications, most dental services and long-term care.
To help equip employees to take a more proactive
approach toward managing their current health care costs, while also
saving for health care expenses in retirement, employers should consider
offering new solutions, such as Health Savings Accounts (HSAs).
These tax-advantaged accounts are used in
conjunction with a high-deductible health plan (HDHP) to allow eligible
individuals to pay for current qualified medical expenses while also
saving for future qualified medical and retiree health expenses on a
federal tax-free basis. HSAs are currently the only health care savings
vehicle to combine multiple features such as portability if an
individual switches jobs, a variety of investment options and
accumulation potential.
Approximately three million Americans currently
have access to HSAs; a number that has roughly tripled since March of
2005, according to America's Health Insurance Plans, Market Study, 2006.
In addition, to help employees better manage their
own health, and become smarter consumers of health care, employers
should consider providing employees with health guidance information and
tools that help educate them on leading healthier lifestyles, available
treatment options and ways to manage their healthcare expenditures.
About Fidelity Employer Services Company
Fidelity Employer Services Company provides
benefits and human resources administration, talent planning, payroll
solutions and stock plan services to approximately 20 million employees
in the U.S. as of December 31, 2005.
About Fidelity
Fidelity Investments is one of the world's largest
providers of financial services, with custodied assets of $2.4 trillion,
including managed assets of more than $1.2 trillion as of December 31,
2005. Fidelity offers investment management, retirement planning,
brokerage, and human resources and benefits outsourcing services to more
than 21 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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