Baby boomers not giving health care costs enough attention in time of change

As baby boomers, we are the next generation in line for major health care. Can we afford it? Have we saved enough? Are we ready? Writer and CPA Donald Liebenson says there’s a gap between those of us who say we’ve given it some thought, and those who actually feel confident that they’re prepared, financially.

Baby Boomers are not giving health care costs serious enough thought according to a new AARP health care costs survey.

A majority of respondents said they have not taken steps to plan for managing health care costs in retirement. Just over one third of Baby Boomers aged 50-59 (35 percent) have money set aside to cover health care costs, compared with 40 percent of boomers ages 60-64.

retirement_concerns_chartThere is a gap among Baby Boomers between those who say they have given thought to health care costs in retirement and those who are confident they will be able to afford them. Two-thirds of respondents have thought about the matter “at least somewhat,” but only 52 percent are confident they will be able to afford the costs. The survey finds that only 16 percent are “very confident” that will be able to afford the costs of health care in retirement.

healthcare_2Even the wealthiest households view health care costs as a threat to their retirement security. Most high net worth investors feel that they have saved enough money to live comfortably in retirement, but close to two-thirds feel that their retirement security could be derailed by health care costs, according to a survey conducted earlier this year by Spectrem’s Millionaire Corner.

High net worth investors with investable assets of at least $5 million rank health care costs as the biggest threat to their retirement security, (64 percent). Taxes rank a distant second (52 percent), followed by inflation.

What do Baby Boomers forecast their health care costs to be in retirement? The AARP survey finds that estimates vary significantly. More than four-in-ten (42 percent) of Boomers ages 50-64 believe they will need to accumulate less than $100,000 to cover out-of-pocket health care expenses throughout their retirement years. Nearly one-fourth (24 percent) believe they will need more than $200,000, while 16 percent believe it will cost less than $50,000. Fifteen percent said they simply don’t know.

How much will they actually need? According to the Employee Benefit Research Institute (EBRI), a senior-age couple with median prescription-drug expenses who retire this year will need $295,000 to enjoy a 75 percent chance of being able to pay all their remaining lifetime medical bills, and $360,000 to have a 90 percent chance.

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