Fidelity Investments $245,000 health care cost estimate is less than truthful and they know it

Fidelity Investments is at once again at it in terms of espousing healthcare wisdom. They announced their new projections on what retirees can expect to incur as costs for their health coverage in retirement, and it seems more than a little disturbing, especially when little things like facts and math are figured in… But hey, why let the truth get in the way?

According to Fidelity, a couple aged 65, retiring today with average life expectancies of 85 years for a male and 87 for a female, should expect to incur roughly $245,000 in health costs.

That number is based on the assumptions that this couple will incur costs including the coverage of all co-pays, deductibles, and even “out-of-pocket costs, as well as certain services excluded by Original Medicare”, which could be defined as having a Supplemental MediGap Plan F policy.

Fidelity even goes so far as providing an inflation rate pegged between 4% and 5%, while having this couple’s life expectancies at “85 for a male and 87 for a female”.

The problem with what Fidelity is giving the financial industry and the investing public is that it does not stand up to the smell test once this magical thing called math is applied, but apparently when numbers are concerned, not only does Fidelity not care, it would seem not one financial advisor does either.

The real costs, per order of Medicare or the federal government, in 2015 are as follows:

  • Medicare Part A – no premium, with all other costs covered by a MediGap Plan policy.
  • Medicare Part B – premium of $104.90 per month or $1,258.80 a year per person, with all other costs covered by a MediGap Plan policy.
  • Medicare Part D (prescription drug coverage) – according to Medicare, Q1Medicare.com and Jester Financial, the average national premium for retirees in 2015 is $53.19 a month, or $638.28 a year per person.
  • MediGap Plan F policy – according to Weiss Ratings and Jester Financial, the national average premium for males is roughly $193.00 per month or $2,316.00 annually, and for females the average premium is roughly $178.00 a month, or $2,136.00 annually.
    • It should be noted that there are alternatives to the MediGap Plan F policy, as retirees can choose a lower costing plan to cover some of the out of pockets, but not all.
  • Total costs per couple in 2015 – $8,246.16.

If simple mathematics are applied, meaning we take what is known as a price, $8,246.16, and inflate it at the lowest inflation rate used by Fidelity, 4%, through each person’s life expectancy, the figure is actually $282,317.70. And at a 5% inflation rate, the expected costs are projected to be $317,580.50. If you couldn’t tell this is a wee bit higher than what Fidelity will tell you, but as stated before, do they really care?

In order to reach Fidelity’s unicorn number of $245,000, the healthcare inflation rate in the United States  would need to remain at just over 2.75% for over 20 years which happens to fly in the face of every known inflation rate in the country when it comes to health costs, but again what does Fidelity care?

But, the rabbit hole unfortunately doesn’t stop there, as Fidelity, when behind closed doors and speaking for other financial professionals, often tells the truth as it is quite fond of using its presentation titled, “Planning for Health Care in Retirement”.

On slide 2 of this magnificent and entirely not-inaccurate-at-all presentation, Fidelity highlights the fact that, according to the Centers of Medicare and Medicaid Services (CMS), the “projected annual growth in health care spending through 2022” is expected to be 6.2%. This, also, is quite a bit higher than what Fidelity uses when speaking to you the investor.

At this inflation rate, with what is known as a cost for health coverage, $8,246.16, in 2015 the total costs look more like $367,000 which appears to be somewhat higher than what Fidelity is telling people.

And the hits don’t stop there, as Fidelity also goes on further in its presentation on slide 15 to break down the costs as follows, and surprise it is really telling the truth:

  • Medicare Part A- $0 – covered by MediGap Plan F.
  • Medicare Part B – $1,259 for premium – deductible and coinsurance covered by MediGap.
  • Medicare Part D – $1,780 for premium and deductibles.
  • MediGap – $2,124 for premium.
  • Annual total – $5,163 per person or $10,326 per couple.

It would appear that even Fidelity understands what the real costs are, especially when they are behind closed doors, and in order to reach the amount of health costs they are telling people, $245,000, the inflation rate for all aspects of health coverage must be at 0.71% for over 20 years which should be deemed anything but accurate!

So, how does a financial firm, who clearly understands the information, still publish a number that can’t possibly be accurate? Is it because they really want you to brush aside the largest cost you will face so you can give more of your dollars to them?

The problem with Fidelity publishing this number, which is regrettably being echoed by financial newspapers such as Forbes, Market Watch, and Investment News who also seem to take this math thing with a grain of salt, is that the financial industry (which will quote this number), is playing with people’s greatest asset: their health. And in your old age, when the bills mount up due to improper planning, who will be there to pick up the pieces?

The only real alternative (and it’s a scary one) is that the federal government will eventually have to step in to ensure that those planning for or already in retirement, get sound financial advice when their health is on the line.

If not firms like Fidelity will never tell you the real truth as it seems to get in the way of their own story, which is all about taking from you!

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