|
 Rising
health care costs could consume as much as 50
percent of retirees' future Social Security
benefits
BOSTON, March 27,
2007 - A 65-year-old couple retiring in 2007 will need approximately
$215,0001 to cover medical costs in retirement2,
according to Fidelity Investments' latest health care cost estimate,
released today. This figure is a 7.5 percent increase over the 2006
estimate of $200,000.
The retiree
health care cost estimate is calculated annually by Fidelity
Investments. Since the estimate first was computed in 2002, the
number has risen a total of 34 percent, with an average annual
increase of 6.1 percent.
The 2007 estimate
assumes individuals do not have employer-sponsored retiree health
care coverage and includes expenses associated with Medicare Part B
and D premiums3 (32%), Medicare cost-sharing provisions
-- co-payments, co-insurance, deductibles and excluded benefits
(35%) -- and prescription drug out-of-pocket costs (33%).
It does not include other health-related expenses,
such as over-the-counter medications, most dental
services and long-term care.
Since many
retirees rely on Social Security as their primary source of income
in retirement4, Fidelity also calculated the impact that
a $215,000 health care liability would have on a retiree's Social
Security benefit.
It found that a
65-year-old worker today, who is earning $60,000 and decides to
retire at the end of the year, should expect that 50 percent of his
or her pre-tax Social Security benefit will be used to pay for
personal health care expenses in the next 16 to 18 years.
"A significant
amount of retirees told us their state of health is not good, they
are spending more in retirement than they ever planned, and some
were even forced into an early retirement due to health problems,"
said Brad Kimler, senior vice president, Fidelity Employer Services
Company, a division of Fidelity Investments. "But if today's workers
act now to take greater advantage of the many retirement savings
vehicles available to them, they can create a more secure and
enjoyable retirement."
Fidelity
recommends that the first step every working American should take is
to create an individual retirement plan. In building a plan, workers
can factor in their specific circumstances such as current savings,
anticipated income sources, lifestyle, expenses and likely health
care needs in retirement.
New Laws Make
Saving For Health Care Costs Easier
The Tax Relief
and Health Care Act of 2006, enacted last December, brought
important changes to the rules governing tax-advantaged Health
Savings Accounts (HSAs). It created incentives for both employers
and employees to better utilize HSAs in their respective efforts to
help mitigate rising health care costs and save more for health care
needs in retirement.
The most
significant changes include:
Elimination of contribution limits that were previously tied to High
Deductible Health Plan (HDHP) deductibles. In 2007, the new maximum
contribution limits are $2,850 for individuals and $5,650 for
families.
The ability for employers to initiate a one-time rollover of funds
from an individual's health Flexible Spending Account (FSA) or
Health Reimbursement Arrangement (HRA) to an HAS
Setting of annual statutory contribution limits earlier in the year
(June 1) so employers can better prepare for annual enrollment.
As of January 4,
2007, there were an estimated 3.6 million individual HSAs5
and that number is expected to grow to over 15 million by 20106.
In addition to
offering an HSA, employers should consider providing health guidance
information and planning tools to their employees to help engage
them in leading healthier lifestyles, understanding their personal
health risks, and to equip them with strategies to better manage
their current healthcare expenditures, while also planning for
future health care costs.
New Tool Helps Employees Better Plan for Expected Costs
As of April 1,
Fidelity will make available to employers a new tool to help
employees plan toward their future health care liability. The tool
enables employees to personalize, estimate and project their retiree
health care costs based on such factors as age, expected retirement
date, health conditions and available insurance coverage.
Using this tool,
employees can determine whether they have saved enough to meet their
estimated health care costs in retirement and also run savings
models to determine their optimal annual HSA contribution amount.
Employees can access this retiree health care cost planning tool via
Fidelity's NetBenefits Web site and it is also available as part of
the Fidelity HSASM.
About Fidelity Employer Services Company
Fidelity Employer
Services Company (FESCo) is a division of Fidelity Investments.
FESCo provides defined contribution and defined benefit retirement
services, employer benefits and human resources administration, and
payroll services to more than 20 million participants in the United
States as of February 28, 2007. |
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