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The Cost of Early Retirement


Retiring just a few years before age 65 can incur extra healthcare costs of $17,000 per year, according to a new study from Fidelity Investments.

While most workers plan to retire at an average age of 65, recent retirees retired 3 years earlier on average. Those few years can incur a lot of healthcare costs, according to a new study from Fidelity Investments.

Often respondents who retired early did so by choice, but some had to stop working early due to health issues or physical limitations. Just over a third of recent retirees said they retired earlier than planned. As it is, a couple who retires at age 65 can expect to spend $220,000 in healthcare costs during retirement, and an extra few years will cost eve more.

The survey results found that 37% of pre-retirees thought they would spend less than $100,000 in healthcare costs as a couple. Only 10% estimated they would spend more than $200,000 as a couple.

Fidelity estimated that couples who retire at age 62 instead of age 65 can anticipate an extra $17,000 per year, or $51,000 overall, in healthcare costs during retirement. These extra costs come from health insurance premiums during the period before they are eligible for Medicare, as well as estimated out-of-pocket costs.

“Rising health care expenses are forcing people to make educated decisions now more than ever, ranging from the services they utilize to the age at which they choose to retire,” Brad Kimler, executive vice president of Fidelity’s Benefits Consulting business, said in a statement. “We understand some people don’t have a choice in when they retire. Sometimes health issues or someone’s occupation play a role. So it’s critical that people plan well in advance for the considerable cost of health care by adding it into their overall retirement planning discussions.”

Meanwhile, couples who hold off on retiring could be reducing costs by $10,000 for each year that they delay retirement.

While healthcare costs during retirement seem daunting, they have moderated in recent years, according to Fidelity, thanks to:

• Long-term prescription drug savings due to the gradual closure of Medicare Part D’s “donut hole” leaving retirees with a reduced, 25 percent co-insurance cost by 2020 where there was previously no coverage at all.

• The trend of slower Medicare spending per enrollee through 2022, as projected by the US Department of Health & Human Services.

• An increasingly cautious—and selective—healthcare consumer as ongoing economic uncertainty is leading to reduced utilization of discretionary healthcare services, such as elective surgeries.

“Even if couples make informed decisions, the only real prescription to prepare financially for health care costs in retirement is to plan well in advance to optimize health and wealth,” said Kimler.

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