In its annual update of retirees’ medical costs, Fidelity Investments reports that its estimate of those expenses for a 65-year-old couple has dropped by about $20,000.

But don’t break out the Champagne just yet. While the overall estimate of money needed for medical care through retirement for couples retiring this year without any employer-based health coverage may have fallen 8 percent from last year’s calculation, it’s still an eye-popping $220,000.

“While lower, this year’s estimate is still daunting for many retirees, and it will consume a considerable amount of a couple’s retirement savings,” Brad Kimler, executive vice president of Fidelity’s benefits consulting business, said in a statement.

The estimate applies to a couple with traditional Medicare, the government-sponsored health plan for the elderly, and assumes life expectancies of 17 years for men and 20 years for women. (The estimate would be lower for those with employer-provided benefits to help cover health costs in retirement, or for those who choose a Medicare managed-care plan, which bundles services for a lower cost for patients who use a defined network of doctors.)

The estimate fell for several reasons, Fidelity said. People have cut back on medical care due to the sluggish economy, and increases in payments to doctors, hospitals and health plans have slowed, due to the Affordable Care Act. Plus, more baby boomers are retiring and becoming eligible for Medicare. Since they are younger and generally use less care, they lower the per-person cost of coverage.

While the slower growth of costs is welcome, said Sunit Patel, senior vice president in Fidelity’s benefits consulting group, it’s uncertain how long that will last. “I don’t think we’ve crossed a hurdle to permanently lower rates of increase,” he said.

The estimate includes Medicare premiums, deductibles and co-insurance — the portion of medical costs paid by the patient — for medical care and for prescription drugs. It also factors in services that may not be covered by Medicare, like vision and hearing tests, and items like eyeglasses and hearing aids.

The estimate doesn’t, however, include costs for most dental care, over-the-counter drugs or, significantly, long-term care. (For a look at the rising costs for long-term care, see this article in Wednesday’s special Retirement section.)

Overall, costs in retirement break down like this: About a third (33 percent) goes to monthly premiums for medical and drug coverage under standard Medicare plans; about 44 percent goes to out-of-pocket costs through co-payments, co-insurance and deductibles, and for benefits that Medicare doesn’t cover, like vision and hearing exams, eyeglasses and hearing aids; and roughly a quarter (23 percent) goes for prescription drug costs not covered by Medicare Part D.

Although Fidelity’s annual estimate has exceeded $200,000 since 2006, many people underestimate the amount they’ll need for medical care in retirement. In a survey Fidelity conducted in February, nearly half of people ages 55 to 64 said they expected to need just $50,000 for health care costs in retirement.

How are you planning for medical costs in retirement?

Article source: http://bucks.blogs.nytimes.com/2013/05/15/estimated-health-costs-in-retirement-drop/?partner=rss&emc=rss