The year 2011 begins on the heels of a stock market that finished strong in December. The S&P 500 finished 2010 with a 15.06% increase, after posting its best December performance in 19 years. The NASDAQ increased 16.91% over 2009, to reach a three-year high. The Dow increased 14.06% for its second annual rise in a row, its fourth in five years.
At the time of publication, the Dow stood at 11,977.19. The S&P and the NASDAQ were at 1,291.18 and 2,719.25 respectively.
Now that the investment year is off to a good start, let’s address an important issue: your health care costs.You have probably noted that overall the markets have done pretty well this year.
PAYING FOR YOUR MEDICAL EXPENSES
Even though the new health reform law will reduce some health costs in retirement for many people, retirees will still need a significant amount of savings to cover their out-of-pocket health expenses when they retire, according to a report released by the Employee Benefit Research Institute (EBRI). The report, “Funding Savings Needed for Health Expenses for Persons Eligible for Medicare,” published last December online at www.ebri.org, states that women retirees in particular will need more savings than men because they tend to live longer.
Men: Men who retired in 2010 at age 65 will need $65,000–$109,000 in savings to cover their health insurance premiums and out-of-pocket expenses in retirement. “They’ll need that level of savings,” an EBRI news release says, “if they want a 50–50 chance of being able to have enough money.” To improve the odds to 90%, they’ll need $124,000–$211,000 for health expenses.
Women: Women who retired in 2010 at 65 will need more. For a 50% chance of having enough money, they’ll need $88,000–$146,000 in savings. If they want a 90% chance of having enough, they should set aside $143,000–$242,000.
Couples: To achieve a 90% chance of being able to pay all their bills, the amount increases to $271,000 for retired couples; $210,000 for a 50% chance. While these numbers are down from 2009 estimates following the health-care reform, a substantial amount is still required just for health care alone (beyond expenses of everyday living).
Near retirees: Persons currently at age 55 will need even greater savings when they turn 65 in 2020. The needed savings for men retiring in 2020 range from $111,000 to $354,000, while needed savings for women range from $147,000 to $406,000 (in 2020 dollars).
The ranges provided relate to one’s health insurance coverage, employer subsidies, prescription drug use, and comfort level with having a 50%, 75%, or 90% chance of having enough savings to cover health insurance premiums and out-of-pocket health care expenses in retirement.
These estimates are for Medicare beneficiaries age 65 and older. Anyone retiring early, before age 65, would need even more savings to care for out-of-pocket health expenses. Also, the analysis deliberately does not factor in the savings needed to cover long-term care expenses or account for the fact that many people retire prior to becoming eligible for Medicare.
COSTS SHIFTING TO MEDICARE BENEFICIARIES
The EBRI report detailing how much savings individuals and couples will need to cover Medicare and out-of-pocket health care expenses in retirement updates its earlier simulation results from 2008. Some prior estimates have been significantly revised downward as a result of changes to Medicare Part D (prescription drug) cost sharing that will be phased in by 2020 due to the recently enacted health reform law, the Patient Protection and Affordable Care Act of 2010 (PPACA).
However, EBRI found that retirees will continue to need a substantial amount of savings to cover their health care expenses in retirement, and that uncertainty related to health care use, prescription drug use, and longevity will still play a major role in planning for retiree health care.
“Because employers are continuing to scale back retiree health benefits, and policymakers may soon begin to address Medicare’s funding shortfall, more of the financial costs of health care will be shifted to Medicare beneficiaries in the future,” said Paul Fronstin, director of EBRI’s Health Research and Education Program, and a co-author of the report.
REVIEW YOUR PLAN
The EBRI estimates are also worrisome in light of recent concerns that retirees won’t be able to depend on Medicare forever.
Indeed, an Associated Press–GfK Roper poll conducted last November showed that most Americans over the age of 65 are worried about the reliability of their future Medicare benefits. When asked “How likely it is that you will be able to rely on Medicare benefits to provide for your basic health care needs throughout your entire retirement?” 43% responded that it was “not too likely” or “not likely at all.” Thirty-seven percent felt it was “somewhat likely.” Only 18% felt they “likely” could rely upon Medicare benefits during their retirement.
If you are concerned about the amount of income you may need to cover various medical expenses during retirement, contact our office today for a review.
