Research from Fidelity Investments' Retirement Savings Assessment study finds Americans are increasingly concerned about health care costs in retirement, with 84 percent of respondents wondering whether they will be able to cover them.
According to the study, the problem may be even greater than they think: almost three-quarters (71 percent) of respondents expect to have better-than-average health in retirement-an overly optimistic assumption for many, since the
Fidelity said that its research suggests many Americans greatly underestimate the amount of savings they may need to cover health care costs in retirement. A study last year of pre-retirees (ages 55- 64) found that nearly half (48 percent) of respondents believe they will need about
In addition to underestimating these costs, many people are unaware of the long-term financial impact that making positive health decisions can have. When asked which resolution is more important to keep-financial or physical fitness-a recent Fidelity study revealed that 53 percent of respondents said they'd prefer to keep financial fitness resolutions, compared to 43 percent opting for physical fitness. However, many don't realize the significant connection between the two-and the importance of focusing on both- especially when it comes to health care costs in retirement.
"Making smarter decisions about your health means you're making smarter financial decisions, particularly when it comes to retirement," said
Fidelity's Retiree Health Care Cost Estimate tells only part of the story. With longer life spans, medical costs rising faster than general inflation, declining retiree medical coverage by private employers and funding challenges for
For example, Fidelity estimates an individual with a pre- retirement income of approximately
To help plan for retirement healthcare costs, Fidelity suggests the following:
-If possible, increase your savings level. Set an annual total savings goal of 10-15 percent or more of your income (including individual and employer contributions). Contributing the appropriate amount to a retirement savings account is a key aspect of reaching your savings goals, whether through a workplace savings account, such as a 401(k) or 403(b), or an Individual Retirement Account (IRA), or both. Also, consider investing a portion of any raises, bonuses or tax refunds into savings and increasing contributions to savings plans by 1 percent every year to reach this goal.
-Make saving automatic. Think about putting savings on autopilot by signing up for automatic withdrawal plans through your financial services provider, or turning on the automatic increase program in your 401(k), if offered.
-Contribute to a health savings account (HSA). Individuals who are offered a qualifying high-deductible health plan (HDHP) through their employer should also consider saving in a health savings account. HSAs offer a "triple tax advantage," meaning contributions and investment earnings accumulate tax-free and continue to roll over from year to year if not spent. Distributions from HSAs for qualified medical expenses are not subject to federal taxes. Take advantage of all available company contributions to cover out-of- pocket health care costs, and invest any remaining balances for future qualified medical costs, including those in retirement. For questions about how much to save in an HSA or how to invest balances over the long-term, contact your provider for guidance.
For additional information, Fidelity said that it offers educational articles, including "Retirement roadmap: 12 rules of the road," which outlines key steps in planning this financial journey, "Five ways to protect your retirement income," providing rules of thumb on protecting savings and income for those approaching retirement, and a Retirement Roadmap special edition devoted exclusively to retirement planning. For additional information on Health Savings Accounts, Fidelity offers "Three Healthy Habits for Health Savings Accounts" and Fidelity's workplace education program, Plan for Life, provides HSA account holders with resources to assist them with contributions and investment guidance related to the product.
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