This section helps you answer the question "why should I save for my health care costs in retirement?"
Changing times and rising costs
The ability to pay for medical expenses in retirement is rapidly becoming one of society's largest and most complex issues.
Increases in health care costs have consistently outpaced the general inflation rate and this current, rapid rise is expected to continue in the short term. Yet, research also indicates that few individuals contemplating retirement today are prepared to meet this burden, in addition to their day-to-day income requirements in retirement.
Concurrently, baby boomers are entering retirement and life spans are extending well past 85, putting pressure on medical systems and escalating insurance.
The impact on retirement savings
The problem has become even more overwhelming to retirement-eligible individuals who want to retire but have drastically underestimated what health care will cost. Within the higher education community, TSAs, 403(b), 401(k) and defined benefit plans, along with Social Security benefits, were intended to replace 70-80% of current income. Rising health care costs have skewed this equation, making it insufficient for many.
In a Fidelity Investments 2007 release, estimates showed that a couple retiring in 2007 at age 65 would require $215,000 in savings to cover medical costs over the next 15 to 20 years2. This estimate included the Medicare premium, expenses associated with Medicare cost-sharing provisions, and the cost of services not covered by Medicare. This estimate does not include the cost of long-term care (which can average $50,000 per year) except on a very limited basis.
To find out how much you may need to save to pay for your own medical costs in retirement, use the Retirement Health Care Cost Calculator.
What about Medicare and Medigap? ...Aren't they enough?
Medicare covers about 50–55% percent of the average retiree's total health care needs. At its inception, this federal program was never designed to cover all retiree medical costs. Benefits are limited—particularly for catastrophic illnesses and outpatient prescription drug expenses—and may expose individuals to potentially devastating medical expenses. It also does not provide coverage for long-term care.
Medigap, a system of supplemental insurance that individuals may purchase, is intended to help fill in some of the gaps of Medicare coverage. However, these Medigap plans are highly regulated and have their own shortcomings—most notably in the areas of prescription coverage and catastrophic protection.
What does this mean for you?
Quite simply, you might need to pay for more of your health care expenses from your own personal resources, especially in the event of a catastrophic illness.
The Emeriti Program is the solution. The Emeriti Program provides a tax-advantaged way for you to invest and accumulate assets while you are still working to pay for your insurance premiums and other medical expenses in retirement. Time is on your side if you start saving now! Click here to learn more about the power of compounding.
The Program also provides health insurance plan options during retirement, and a tax-free way to pay for other qualified out-of-pocket medical expenses. Click here for more information.
1 CCS procedure category 44, CABG (coronary artery bypass graft, procedure to restore blood supply to the heart muscle). Weighted national estimates from HCUP Nationwide Inpatient Sample (NIS), Agency for Healthcare Research and Quality (AHRQ), based on data collected by individual States and provided to AHRQ by the States.
2 Assumes no employer-provided retiree health coverage and life expectancies of 15 years for a male and 20 years for a female. Source: "Retiree Health Care Costs: Addressing the Growing Gap," Fidelity Investments, March 2007.
