: The cost of covering health care expenses in retirement will hit boomers hard
By Allison Bell
Too many boomers who dream of traveling or working on their hobbies when they retire could end up struggling to pay for second-rate health care.
Saving to cover retirement living expenses is tough enough. But Karin Landry, managing partner at Spring Consulting L.L.C., Boston, says advisors had better be warning the conscientious boomer clients who are preparing for the future about another risk: the risk that the cost of health care, Medicare supplement insurance and the Medicare Part B physicians services insurance program will continue to go up.
The Employee Benefit Research Institute, Washington, has estimated that a typical boomer probably will need at least $297,000 in retirement health savings just to cover the cost of Medicare premiums, Medicare supplement premiums and routine out-of-pocket medical expenses through age 90.
That projection assumes an annual health inflation rate of only 3%. The projection that includes a 10% annual inflation rate shows that a typical boomer might need about $1.4 million in savings simply to cover basic retirement medical and retirement health insurance expenses.
Landry, who helps insurers and some large employers design and manage benefit plans, says she and her colleagues rarely lie awake at night worrying about the terrible plight that will face boomers who fail to set aside separate cash for retirement health expenses.
Thats what we do during the day, Landry says.
If the United States muddles along without enacting major new retirement health savings programs or tax incentives, retired boomers will have to have health care one way or another, Landry says.
But lack of retirement health savings might create a world where as many as 80% of elderly boomers will have to continue working past the official retirement age, Landry says.
Elderly boomers who must compete with other elderly boomers for the bare-bones package of care that the government offers poor retirees could end up dying a year or two earlier than retirees who can afford a better level of care, Landry says.
So, what help can advisors offer today?
Advisors should, of course, recommend that boomer clients use 401(k) plans, individual retirement arrangements, and annuity contracts and life insurance policies to maximize general retirement savings.
Clients who happen to be owners of companies that sponsor defined benefit pension plans can fund their own retirement health costs and other workers retirement health costs by contributing to 401(h) plans.