March 29, 2020

Bucks Blog: Estimated Health Costs in Retirement Drop

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?

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Bucks Blog: Catching Up on Retirement Savings

Paul Sullivan writes this week in his Wealth Matters column about a defined-benefit plan aimed at small-business owners in their 50s who have saved little for retirement. The plan allows them to make annual contributions of as much as $255,000. The owners can then deduct that money as a business expense, resulting in a significant tax savings.

The plan works only if the business owner has a lot of money to put aside each year. But it certainly deals with an issue affecting a lot of people in their 50s and 60s who have not put aside a lot of money for retirement and are trying to figure out ways to catch up.

If you are among those people, what are your retirement saving strategies? Or are you simply planning to work a lot longer?

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Bucks Blog: The Annual Health Benefits Gamble

It’s soon to be open enrollment season for many workplace health plans, when employees choose their coverage for the coming year. And while this may be an annual ritual, many workers, according to a recent survey, have trouble determining which plan is right for them.

Choosing annual benefits is often a gamble, even if, like my family, you’re fortunate enough to be in good health and have pretty good insurance options. None of us has a serious chronic condition, and we use few prescription medications. So last year, after weighing our choices, we opted to keep our monthly premiums low by going with what we considered to be a substantial ($5,000 plus) family deductible. Everyone was reasonably healthy, we reasoned. Our children are well out of the phase when they catch every bug going around school, and we had enough emergency savings in case something pricey cropped up.

Essentially, we considered the odds and wagered that the coming year would be like the last year. And we pretty much lost that bet.

Illness happens, even to generally healthy people. For various reasons, our family ended up having unusually frequent visits to the doctor (not to mention the dentist, but that’s another issue). So we quickly exhausted the upfront health “credit” that our plan provides, to cover costs before the deductible must be met. We probably won’t top our deductible, but we’re still (ouch) a couple of thousand dollars out of pocket. Our overall bill at the end of the year would probably be lower if we had gone with a higher premium and a lower deductible.

So it’s no surprise to me that a survey from the health insurer Aetna found that consumers think health care benefits decisions are confusing, second only to retirement savings in complexity.

The Aetna Empowered Health Index Survey was conducted over the phone, including both land line and cellphones, by KRC Research in late July among 1,500 adults. The margin of sampling error was plus or minus 3 percent.

A quarter of Americans who have health insurance told the pollsters that they found it difficult to make the right health decisions. They said the available information was confusing and complicated (88 percent), there was conflicting information (84 percent), and it was difficult to know which plan is right for them (83 percent).

Also, 81 percent said they found it difficult to make decisions because they didn’t know the cost of various medical procedures.

It all sounds dishearteningly familiar, as we prepare to evaluate our choices again.

On the plus side, health plans this fall are required by the Affordable Care Act to provide a simple-language “Summary of Benefits and Coverage” form, to help consumers compare health plan options. Consumers Union, which helped test the format of the disclosure form before it was adopted by the federal government, offers a sample form online. It also includes a coverage example of how much certain events, like having a baby, would cost under the plan. You also can give your opinion on the form you receive online. The forms are available to people insured through employers, as well as those shopping for insurance on their own. If you don’t get such a form, you should contact your insurer or your employer, Consumers Union advises.

How do you make decisions about health benefits coverage? Does your plan offer helpful tools for making the choice?

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Bucks Blog: Pimco, Yoda and Some Big Retirement Savings Questions

The Jedi master Yoda in the 2005 film Star Wars: Episode III Revenge of the Sith.Lucasfilm/20th Century FoxThe Jedi master Yoda in the 2005 film “Star Wars: Episode III Revenge of the Sith.”

In this weekend’s Your Money column, I look at Pimco’s fledgling effort to break into the target-date fund segment of the mutual funds industry, an area dominated by Vanguard, Fidelity and T. Rowe Price, which sell these funds to administrators of 401(k) and similar workplace retirement plans.

Pimco’s RealRetirement funds are a different breed. Its managers are skeptical about stocks, so they don’t put as much money in them. They buy hedges of various sorts against large losses, which competitors mostly don’t do. And they have leeway to adjust the allocation of the assets a fair bit depending on market conditions.

Oh, and Pimco thinks you ought to be saving 20 percent of your income to give yourself a decent chance at replacing even half of your salary once you retire. (And a happy weekend to you, too!)

As Yoda put it (and as Pimco quotes him), “You must unlearn what you have learned.”

Or must you? Two big questions arise from all of this:

1. Are these folks running a hedge fund disguised as a target-date fund?
2. Who among you is managing to put away 20 percent of your earnings toward retirement savings?

Please discuss amongst yourselves.

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