A recent study by Fidelity Investments estimates that a 65-year old couple retiring in 2008 will need $225,000 set aside in order to cover medical expenses during their golden years. And yet 39% of Americans over age 55 have less than $25,000 in total retirement savings. This presents a troubling picture of the financial future of the vast group of Baby Boomers who will be retiring over the next few decades. In Colorado, 10% of the population is over 65 – nationally the figure is 12% – and the number is steadily rising as our population ages. The first wave of Boomers will turn 65 in just three years. The huge dichotomy between what people have actually saved and what experts recommend as far as retirement savings needed to cover medical expenses is sure to become more of an issue over the next several years. And the trend is only headed upwards – the amount that a retiring couple needs to have saved for medical expenses during retirement has increased by an average of 5.8% per year since 2002 when the first study was conducted.
The $225,000 estimate does not apply to people who will get retiree medical benefits from a former employer – although more and more employers are doing away with these benefits in an effort to cut costs. As fewer employers offer health insurance to their retiring workforce, more and more people will fall into the category that Fidelity looked at for this study. The study estimate includes expenses for Medicare premiums, copays, coinsurance, and deductibles, as well as out-of-pocket expenses for prescriptions and other treatments that are not fully covered by Medicare.
Retirement can be viewed as a well-earned reward for several decades of productivity. A 65 year old person will likely have contributed forty years to the workforce, and our system is currently set up to help take care of that person during retirement. Social Security will replace some lost income, and ideally Medicare should take care of most medical expenses that arise during the retirement years. But if a couple needs to have a quarter of a million dollars set aside just for medical expenses, it would seem that the health care safety net for elderly Americans needs to be a bit stronger.
The study raises some interesting questions. Obviously we are not saving enough for retirement as a nation – and not just for medical expenses. But how much of the responsibility should fall on individual shoulders and how much should people be able to expect in assistance from the government? The baseline retirement age has been 65 for decades, but life expectancy has steadily increased over the last century. A person who retires at 65 today can expect to live a lot longer than a person who retired at the same age in 1940. Should we expect people to continue working longer in order to make up for the longer lifespans we enjoy today? Or should we continue to view 65 as a good age for retirement, and bolster the health insurance benefits that retirees can expect to get from Medicare? Either way we look at it, it seems cruel to expect someone to work for 40 or 50 years and then face possible bankruptcy during retirement due to medical expenses. People should not have to become destitute in order to qualify for government assistance with nursing home care, nor should they have to spend the majority of their life savings on medical expenses during retirement.
