Many Americans are revisiting their retirement savings strategies due to the pandemic, but while savings may have declined or been tapped into, retirement expenses have continued to rise.
A 65-year old, opposite-gender couple retiring in 2021 will spend about $300,000 on health care and medical expenses during retirement, according to new data from Fidelity Investments. The estimated costs are $157,000 for single women and $143,000 for single men.
Those costs represent not only a new high but also a 30% increase from 10 years ago and a 1.7% increase from last year’s estimates, according to Fidelity Investments.
“While this past year has certainly made protecting our health today a priority, we need to do the same when planning for future health care needs,” Hope Manion, senior vice president at Fidelity Workplace Consulting, said in a statement. “Covering health care costs is one of the most significant, yet unpredictable, aspects of retirement planning.”
A survey conducted by the firm also found that people greatly underestimate how much they will need for retirement expenses.
Fifty-eight percent of current employees, for example, said they have spent almost no time thinking about what expenses they will have in retirement, while about half of people expected that they would need just $50,000 or less to cover health care costs.
And the pandemic has also altered the majority of people’s retirement plans. Twenty-two percent of people who are within 10 years of retirement say they will accelerate their plans to exit the labor force.
In order to be as prepared as possible, Fidelity Investments advises younger workers to save early and save often with the expectation that health care costs will continue rising into the future. It notes that utilizing workplace savings plans, like 401(k) and IRA accounts, as well as HSA plans can help workers boost their nest eggs.
Some workers may need to shore up their savings as they recover from the financial effects of the pandemic. The CARES Act allowed people to tap their retirement accounts for access to cash to cover near-term expenses, and according to one estimate about 25% of people said they did – or planned to do so. Many people also said they were saving less during the early months of the coronavirus outbreak as jobs were lost.
