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Published: Friday, 3/26/2010

Retirees' costs for health care increase 4.2%, estimate says

ASSOCIATED PRESS

BOSTON - Relief to seniors facing high prescription drug costs is one of the first changes to come under the new health-care overhaul.

But that won't offset the relentless increase in retirees' medical expenses.

A couple retiring this year will need $250,000, on average, to cover medical expenses in retirement, according to a study released yesterday by Fidelity Investments.

The estimate is up 4.2 percent from Fidelity's projection last year. The Boston financial services company has updated its estimate annually since 2002 as part of its business helping employers design workplace benefits programs.

The study is based on projections for a couple of 65-year-olds retiring this year with Medicare coverage. The estimate factors in the federal program's premi-ums, co-payments, and deductibles, as well as out-of-pocket prescription costs. The study assumes no employer-provided insurance in retirement and a life expectancy of 85 for women and 82 for men.

The estimate has risen 56 percent from Fidelity's initial $160,000 projection in 2002. The average annual increase has been 5.7 percent, so this year's 4.2 percent rise is modest.

But with broader inflation now near zero amid a recession, health-care costs continue to rise faster than other expenses, said Sunit Patel, a senior vice president at Fidelity.

The findings illustrate the importance of factoring in health care alongside housing, food, and other expenses in retirement planning.

The increase in this year's estimate was relatively small because a surge in patent expirations for brand-name drugs meant many cheaper generic versions reached the market, Mr. Patel said. That helped limit out-of-pocket prescription costs.

Fidelity's estimate doesn't factor in most dental services, or long-term care, such as costs of living in a nursing home.

The study did not account for the health-care overhaul that President Obama signed into law Tuesday.



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