Here’s a cheerful title: “Will Health Care Costs Bankrupt Aging Boomers?”
Of course, it’s a fear shared by many baby boomers, but the Urban Institute has put some numbers on the problem with a new study examining premiums, deductibles, co-pays and “holes in benefit packages” that could inflate boomers’ out-of-pocket expenses despite Medicare coverage.
The report exposes one of the chief problems of preparing for retirement: incorporating long-term inflation averages could leave you short, as your personal inflation rate could exceed the average by a wide margin. The Consumer Price Index considers prices of thousands of good and services, but your retirement expenses may be heavily weighted toward medical outlays that go up faster.
The study uses the Medicare system’s own cost projections to conclude that between 2010 and 2040 annual out-of-pocket costs for people 65 and older will mushroom from $2,600 to $6,200, measured in inflation-adjusted 2008 dollars.
Growth in older Americans’ household income will be nowhere near as great, rising from $26,800 in 2010 to $34,600 in 2040. Those gains rely on a somewhat optimistic assumption that Social Security benefits will rise.
With costs rising faster than incomes, the percentage of income spent on health care will nearly double over 30 years, from 10% to 19%. If employers eliminate all health benefits for retirees by 2040, more than half of all older Americans will be spending more than a fifth of their income on health care, a level experts consider burdensome.
Obviously, conditions will be even worse if medical costs rise faster than in the past, as many experts expect.
So, what’s to be done about it? Barring a dramatic cost-controlling change in health care, it seems only prudent to save more and modify retirement plans.