NCPA - National Center for Policy Analysis

EXPERTS DISAGREE ON RETIREE HEALTH-COST ESTIMATE

March 14, 2006

Fidelity Investments says that a 65-year-old couple retiring now without employer-provided health benefits will need $200,000 for out-of-pocket health-care expenses during retirement, according to data it released this past week. Yet many financial planners and other observers think that is way too little.

The Employee Benefit Research Institute, a research organization in Washington, estimates that people could need twice as much as Fidelity predicted because it based its numbers on life expectancies of 82 years for men and 85 for women.

  • EBRI estimates that a couple without employer-provided retirement health-care coverage would need $216,000 if they live to 80.
  • That number climbs to $444,000 if they live to 90 and $778,000 if they survive to 100.

Most people underestimate how long they will live, said EBRI President Dallas Salisbury:

  • A 65-year-old man today has a 50 percent chance of being alive at age 85 and a 25 percent chance of making it to 92, according to data from the American Society of Actuaries.
  • A 65-year-old woman has a 50 percent chance of being alive at 88 and a 25 percent chance of living to 94.
  • The numbers are even higher for couples; if both are 65, they have a 50 percent chance of one living to 92 and a 25 percent chance of one surviving to 97.

The Fidelity prediction, which is updated annually by the financial-services firm, includes expenses associated with Medicare premiums and copays for exams and prescription drugs. It doesn't include the cost of over-the-counter medicines, most dental care or long-term care.

It also doesn't take into account that the premiums for Medicare are expected to rise, especially for high earners.

Source: Jilian Mincer, "Experts Disagree on Retiree Health-Cost Estimate," Wall Street Journal, March 11, 2006.

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