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Posted: July 01, 2008

Old-Age Care Costs Soar: Study

As if today’s economic pressure were not enough, tomorrow’s needs for old-age care may leave us staggering. That’s the assessment of research predicting that today’s 65-year-old will need nearly a quarter of a million dollars to cover their elderly medical costs. 

The figures are part of a study by Fidelity Investments looking at the impact of health care costs, including long-term care costs, can have on a retiree’s health as they age. The bottom line: the costs are significant and getting more so.


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The study finds that many baby boomers will need $85,000 just to cover insurance costs in their later years, while today’s new retiree will be faced with about $225,000 in out-of-pocket costs to handle their old-age healthcare expenses – an amount not many Americans have in their retirement nest egg.

Fidelity, a Boston-based financial services firm, said the nearly quarter-million dollars is just to cover continuing expenses such as Medicare premiums, co-payments and deductibles, and out-of-pocket expenses for prescription drugs.

The $85,000 insurance figure is in addition to the $225,000 for other health care needs. It is intended to cover the cost of long-term care insurance, which can be used to pay for everything from regular visits to a home by a professional caregiver to living in a nursing home, Fidelity said. Current nursing home care for a private room for one year is estimated on average at $76,000.

“Most long-term care policies do cover home care, so that would enable a person to stay in their home longer, and I think a lot of people don't realize that that's an option that's out there for them,” said Joan Bloom, a Fidelity senior vice president.

“They can range from a minimum of $1,000 a year, all the way up to $7,000, and it's dependent on the age you buy the policy as well as your current health at the time you buy the policy,” she added.

About 5 million Americans are covered by long-term care insurance, a number that has remained basically flat over the last 10 years, Bloom said. While some employers provide benefit programs offering long-term care coverage, the cost generally isn’t subsidized by employers.


Bloom recommends people consider buying long-term care insurance when they’re in their 50s, as policies generally cost less the earlier in life they’re purchased.


For its study, Fidelity surveyed insurers offering long-term care policies to come up with the estimate that a couple aged 65 this year can expect to need $85,000 to cover annual premiums for long-term care coverage throughout retirement. (Fidelity, which deals primarily in mutual funds, does distribute long-term care insurance issued by an unaffiliated firm, Genworth Financial.)


The survey also looked at the cost of elder-caregiving on younger, employed family members.  “We estimate that it can cost the person, the caregiver, up to $140,000 in lost income and benefits over their lifetime,” said Bloom.


Bloom based her comments on a 50-year-old earning $50,000 per year who provides four years of long-term care to a family member. She said this person stands to lose more than $140,000 in wages, retirement savings and Social Security over their lifetime.


This is the first year that Fidelity conducted its survey.

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