The Essential Health Care Boomers Won't Be Able To Afford In 10 Years
Baby boomers are entering their golden years in ever-increasing numbers. The youngest among this generation has now reached 60, just two years shy of the earliest they can start drawing Social Security checks. Older baby boomers are nearing 80, and have considerably different financial and social norms to most 60 year olds who generally still find themselves years out from retirement.
These golden years will ideally be marked by leisure and relaxation. There's always the budgetary math that goes into everyday living, but with a comprehensive retirement plan in place — started decades prior to your grand exit from work — this time doesn't have to be intensely stressful. With that being said, a growing health care concern among older Americans should loom large in the minds of baby boomers rapidly heading toward their retirement years. If you're already enjoying these work-free days, rethinking some parts of your financial strategy may be in order, while those still in the workforce might think about delaying their retirement for just a bit longer or shifting their priorities to account for this potential expense.
Long term care in a nursing home has become shockingly expensive
The expense in question is the cost of long term nursing care. 1.3 million older Americans live in nursing homes as of 2023, with over 800,000 more living in assisted living facilities. Over the last two decades the percentage of older Americans who rely on these care services has declined, but 70% of Americans are expected to require some kind of lifestyle assistance in the future.
The cost of assisted living and other round the clock health care services within this realm are astronomically expensive. Even for some of the less-invasive options, older Americans are looking at a substantial bill, while full time care in a nursing home can easily surpass $100,000 per year. Worse still, Medicare often won't cover much of the bill, leaving seniors and their family members to figure it out all on their own. This reversal of fortunes is a unique risk that can threaten a diligent saver's retirement solvency, but it also plays a role in unmooring their adult children's financial plans, too. Many older Americans lean on others for support in some way or another. There's no alternative in some cases, and parents have to move in with their adult children or get help financing their own support system quite often. The result is a continuously stressed financial picture that doesn't appear to be seeing much in the way of major overhaul.
Routine health care costs can become prohibitive, even without major complications
An older person that can no longer take care of themselves requires care. There's no getting around this fact, but support in an assisted living facility or nursing home isn't the only major expense that baby boomers will have to navigate with their retirement funds. Routine medical expenses are seeing their prices rise, too. Even with Medicare coverage in the mix, routine visits to the doctor and the cost to maintain prescription medication stocks at home are taking their financial toll with increasing ferocity.
Inflation and other economic factors continue to drive up prices across the board – acting as long term pressures that ebb and flow in intensity. The trouble for retirees is that their investment portfolio, aimed at funding a long-lasting retirement, may not be fully equipped to handle the continuous increases in the cost of living. Your Social Security checks receive an adjustment designed to account for inflation annually, but that's not enough on its own to manage the yearly uptick in medical care pricing. More pressing still, the older you get the more likely you are to need additional medical care. Expenses in this area "more than double between ages 70 and 90," according to research published in "Fiscal Studies." Even without complicating conditions that require increased medical attention, the routine needs of older Americans can become prohibitively expensive all on their own, leading an increasing number of people to make difficult financial choices to remain healthy in their older years.
Creating a robust plan to manage these potential needs is essential while you're still working
Fortunately, people who are still working can take steps to mitigate the rising costs of health care as they age. Many workers today are diligently following through on comprehensive retirement plans. Understanding the benefit amount you are set to be entitled to from Social Security and exploring how much personal savings you'll need to bridge the gap between that figure and your necessary retirement income is a great start. Experts suggest all manner of drawdown strategies, including the 4% rule and a flat 6% drawdown rate. These can act as quality starting points as you set long-term targets for how much you'll need to save (drawing at 6%, for instance, if you require $2,000 per month in personal contributions you'll want to hit a savings goal of $400,000). Boosting these savings targets without shifting your drawdown expectation can stretch your principal investment farther, allowing it to carry you through the potentially more expensive years later on in your retirement with greater ease.
Saving more today will give you enhanced flexibility to manage unexpected expenses. Similarly, retired people still need to maintain an emergency fund to handle sudden changes in financial circumstances. This can be a good way to protect yourself against rising medical costs. Inflation-protected annuities are also an option. These are annuity products that pay out a benefit that's adjusted alongside or above the level of inflation, just like your Social Security checks. This can protect a larger percentage of your retirement income from the effects of inflation, making that increase in health care costs a little easier to manage.