BOSTON, MA-According to a study released by Fidelity Investments, a 65-year-old couple retiring in 2011 will need $230,000, on average, to cover medical expenses during retirement. The good news, according to the study, is that this figure is down from the $250,000 projection Fidelity made a year ago.

The total amount needed for retirees’ medical expenses had risen each year since Fidelity made its first calculation of $160,000 in 2002. Annual increases have averaged 6%. Fidelity attributes the reduced figure to President Barack Obama’s year-old health care overhaul, which will reduce many seniors’ out-of-pocket expenses for prescription drugs.

The projections are part of Fidelity's 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 premiums, 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 calculation was complicated this year by the health care bill that Obama signed into law in March 2010. Although its focus is expanding health care access to people under age 65, the law also will benefit many retirees by gradually closing what's known as the 'doughnut hole' coverage gap in the Medicare drug benefit.

Fidelity says that's the key reason why its projection is down this year. But that effect will run its course. Longer-term, retirees' cost savings aren't expected to offset other factors driving expenses up, such as new medical technologies, greater use of health care services, and more diagnostic tests. That's why Fidelity expects its calculation will eventually resume its historic pattern of annual increases.

"We expect that trend to continue when we look to 2012 and beyond," said Sunit Patel, a senior vice president for benefits consulting at Fidelity. Fidelity's estimate is a projection of what an average couple would need. Actual costs will vary widely, depending on a couple's medical needs and how long they live. The projection also doesn't factor in most dental services, or long-term care, such as costs from living in a nursing home.

Instant Insights /

Fidelity: Retiree health cost estimate falls, for a change

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