1. Headline
  1. Headline

Video: How to afford insurance and save for retirement

By
updated 5/9/2012 10:29:46 AM ET 2012-05-09T14:29:46

Couples retiring this year can expect their medical bills throughout retirement to cost 4 percent more than those who retired a year ago, according to an annual projection released Wednesday by Fidelity Investments.

  1. Stories from
    1. Oops! EPA Tweets Link to Download Kim Kardashian's App
    2. Olivia Palermo Designs Super-Chic Shoes for Aquazzura - See the First Sketches!
    3. Beyoncé, Jay Z & Solange Enjoy a Family Dinner in New Orleans
    4. Sherri Shepherd to Retain Physical Custody of 9-Year-Old Son
    5. Jennifer Aniston, Robert Downey Jr., Reese Witherspoon Headline the Toronto International Film Festival

The estimated $240,000 that a newly retired couple will need to cover health care expenses reflects the typical pattern of projected annual increases. The Boston-based company cut the estimate for the first time last year, citing President Barack Obama's health care overhaul. Medicare changes resulting from that plan are expected to gradually reduce many seniors' out-of-pocket expenses for prescription drugs.

But Fidelity says overall health care cost trends are on the rise again, so it's raising its cost estimate from last year's $230,000 figure.

"As long as health care cost trends exceed personal income growth and economic growth, health care will still be a growing burden for the country as a whole and for individuals," says Sunit Patel, a senior vice president for benefits consulting at Fidelity, and an actuary who helped calculate the estimate.

However, this year's 4 percent rise is relatively modest. Annual increases have averaged 6 percent since Fidelity made its initial $160,000 calculation in 2002.

The projections are part of Fidelity's benefits consulting business. The study is based on projections for a 65-year-old couple retiring this year with Medicare coverage. The estimate factors in the federal program's premiums, co-payments and deductibles, as well as out-of-pocket prescription costs. The study assumes the couple does not have insurance from their former employers, and a life expectancy of 85 for women and 82 for men. The estimate doesn't factor in most dental services, or long-term care, such as the cost of living in a nursing home.

This year's estimate could change significantly. Next month, the U.S. Supreme Court will decide whether to strike down part or all of the 2010 health care law, including its centerpiece requirement that nearly all Americans carry insurance or pay a penalty.

If the ruling requires significant changes, Fidelity may update its estimate, Patel said.

Although its focus is expanding health care access to people under age 65, the law also is intended to benefit many retirees by gradually closing what's known as the 'doughnut hole' coverage gap in the Medicare drug benefit.

But longer-term, retirees' cost savings aren't expected to offset other factors driving expenses up, such as new medical technologies, greater use of health care services, and more diagnostic tests.

Fidelity's findings illustrate the importance of factoring in health care alongside housing, food and other expenses in retirement planning. If medical costs continue to rise faster than personal incomes, many retirees will have to adjust their household budgets so they can cover medical costs, Patel says.

"It's a fixed liability for the majority of folks, and it doesn't vary up or down like food or clothing costs can," he says.

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Discuss:

Discussion comments

,

Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments

More on TODAY.com

  1. Courtesy Aldrich Family

    ‘Extraordinary’ 8-year-old boy finishes triathlon with his disabled brother

    7/22/2014 4:35:28 PM +00:00 2014-07-22T16:35:28
  1. Feds ban airlines from flying to Tel Aviv airport

    Federal aviation officials issued an order to airlines prohibiting them from flying to and from Tel Aviv’s Ben Gurion International Airport for 24 hours after a rocket struck near the airport earlier Tuesday.

    7/22/2014 5:43:01 PM +00:00 2014-07-22T17:43:01
  2. Dutch collect DNA to match with MH17 victims
  1. Pool / Reuters

    Prince George's birthday: The royal tot's 10 cutest moments

    7/22/2014 1:11:51 PM +00:00 2014-07-22T13:11:51
  1. Khakimullin Aleksandr / Shutterstock / Khakimullin Aleks

    The 5 best exercises for tank top-worthy arms

    7/22/2014 8:56:50 PM +00:00 2014-07-22T20:56:50
  1. Coke is a stain remover? 6 surprising cleaners in your home

    From those annoying white deodorant stains on your little black dress to rust stains in the commode, some stains just won't go away — until now. With help from some savvy experts, we put together surprising tips to banish these stains once and for all.

    7/22/2014 4:48:22 PM +00:00 2014-07-22T16:48:22
  1. Robyn Beck / AFP - Getty Images

    Chris Pratt wows us — and his wife — on 'Guardians' red carpet

    7/22/2014 7:16:22 PM +00:00 2014-07-22T19:16:22