A typical 65-year-old couple will need to save nearly $400,000 to pay for out-of-pocket medical care and long-term care in old age, according to new estimates by the Fidelity Benefits Consulting. That is $60,000 more than a typical couple’s entire savings at retirement, including equity in their home.
Fidelity estimated an older couple will need to put away an average of $260,000 (in today’s dollars) for their out-of-pocket medical costs, even if they have Medicare. And they’d need to save an additional $130,000 to insure themselves against the need for long-term supports and services, in nursing homes or at home. It is important to think about the two costs together since we often think about only one or the other.
Fidelity’s estimate of medical costs is $15,000 higher than last year. And it may underestimate true expenses. It includes Medicare premiums, deductibles, and coinsurance, but excludes such non-covered costs as over-the-counter medicine and dental care.
This is the first time that Fidelity’s annual estimate includes long-term care. Fidelity’s projection reflects the total lifetime premiums a typical 65-year-old couple would pay for a fairly generous long-term care insurance policy (about $260-a-day for three years with three percent annual inflation protection).
Fidelity’s long-term care estimates are consistent with the work of others, including my Urban Institute colleague Melissa Favreault. Melissa has projected that an average individual 65-year-old (not a couple) would need to set aside $69,500 to pay all her long-term costs over her remaining lifetime. And remember, that’s the average. One in ten seniors will have to put aside at least $200,000 at 65 to pay for their long-term care.
By focusing on couples, Fidelity did not show the big differences between men and women. Melissa found that a 65-year-old man would need to save an average of about $47,000 for long-term supports and services while a woman of the same age would need to put away more than $90,000. Women also spend more than men on medical care (mostly because they live longer) but the gender differences are much smaller—perhaps only 10-15 percent.
The big take-away, though, is that most Americans have saved far too little to pay for their medical and long-term care costs in old age. There are many reasons: Many middle-income people live on what they make and have little discretionary income available for savings, they do not understand what benefits Medicare does—and does not—provide, and they are in denial about their need for long-term care in old age.
Half of Seniors Will Need a High Level of Care
In case you were wondering, two-thirds of all 65-year-olds will need some long-term supports and services before they die. And half will need a high enough level of care that they could claim long-term care insurance benefits (if they had long term care insurance, which they probably don’t).
And these are not the only costs they will incur. They also have to pay for food, utilities, transportation, taxes, and the like.
Of course, most older adults also have some income in retirement, from sources such as pensions and Social Security. But a 2015 report by the Kaiser Family Foundation found that half of Medicare beneficiaries have $25,000 or less in annual income. Only 4 percent have $100,000 or more.
What will those typical couples do? They’ll spend down their assets until they go broke and go on to Medicaid (about one in five middle income seniors will end up on Medicaid). They’ll borrow against credits cards and home equity, leaving few resources for a surviving spouse. Or, they will do without medical and personal care—until they land in a hospital emergency room. It is, sadly, a grim picture.