10 May 2012

Aging Americans Spend More on Healthcare on Less Income

Story first appeared in USA Today.

The golden years are losing their luster as health care costs continue to outpace income and many Americans are not saving for retirement.

Retiree health care costs have increased an average 6% a year since 2002, according to a study by Fidelity Investments. A 65-year-old couple would need $240,000 to cover medical expenses during their retirement years, it estimates. That amount could eat up 35% of the couple's annual Social Security benefit. And it doesn't even include any long-term care costs.

Today's workers must understand that the cost of health care is expected to continue rising significantly in future years.

Even though American workers are worried about rising health care costs, that does not mean they are preparing by saving more for retirement. Nearly half of Americans (49%) say they are not contributing to any retirement plan, according to a new survey by LIMRA, an industry-sponsored group. And 56% of Gen Yers, ages 18 to 34, are more likely to not be saving.

That's forcing many Americans to plan to work beyond age 65. A number of people have had to postpone retirement simply because of their health care cost. Continuing employment is probably their best choice, as well as staying as healthy as possible.

A quarter of middle-class Americans even say they need to work until 80 in order to live comfortably in retirement, a November 2011 survey by Wells Fargo found.

Older Americans who have lost their jobs are unemployed for longer periods of time.

Many pre-retirees wrongly assume that when they reach 65 and can apply for Medicare it will cover most of their health care expenses. But Medicare is not as generous as most employer plans. For example, Fidelity calculated how the 65-year-old couple's $240,000 health care costs would be spent:

•23% for out-of-pocket costs for prescription drugs.
•32% for Medicare supplemental insurance.
•45% for out-of-pocket expenses, such as co-pays, co-insurance and deductibles.

This sheds a lot of light, because for many Americans, Social Security is a primary source of their income in retirement and they probably don't realize what a large percentage of it could go just for their health care services.

Americans need to take a harsh look at their retirement future and their options. In addition to saving more and working longer, they also may have to spend less.

They may need to cut back expenditures in some other category. If health care went up 6% but their income only went up by 2%, they have to make up that gap somehow.

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