Comparing Recommended Health Care Savings Targets To Actual Savings

Introduction Recommended Savings Targets for Health Care Expenses in Retirement Comparing Recommended Health Care Savings Targets to Actual Savings Uncertainty about Savings for Future Health Care Costs Preparing for a Healthy Retirement About

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To better understand the degree to which current and future retirees are prepared for future health care costs, current and future retirees’ actual retirement savings were compared to recommended health care savings targets. The results are concerning, with a majority of current and future retirees having less in total retirement savings than what experts recommend saving for health care costs alone. 

Half (50 percent) of retirees age 65+ have saved $100,000 or less in total household retirement savings, including 30 percent who have saved only $20,000 or less for total household retirement expenses – far less than what is recommended for health care costs alone for a couple or single person in retirement. ^[16]
Similar to their retired counterparts, 48 percent of non-retired adults age 50 to 64 have $100,000 or less in total retirement savings, and 24 percent have saved $20,000 or less. These amounts are well below the estimated $465,000 that a 55-year-old couple will need in ten years to cover their health care costs alone during retirement. ^[17]

In contextualizing these savings gaps, it’s important to note the other financial obligations facing retirees, such as housing costs, debts, and other expenses, which make retirees’ savings shortfalls for increasing health care costs all the more dire. For example, according to one government study, retired Americans age 65+ carry a higher mortgage debt burden than retirees did ten years ago.[18] Similarly, a higher percentage of consumers over age 60 also have auto loans compared to five years ago, and the number of consumers age 60+ with student loan debt – mostly owed for a child or grandchild’s education – has quadrupled over the last decade, with the average balance growing from approximately $12,000 to over $23,000.[19,20]  

The preparedness of future retirees for health care expenses is also of concern, not only because of the low amounts currently saved but also because of changing dynamics in retirement planning. The percentage of private-sector workers enrolled in a defined benefit plan, (i.e., an employer pension plan), has dropped from 28 percent in 1979 to two percent in 2013, and the percentage of this population enrolled in defined contribution plans, such as 401(k) plans, has risen from seven percent to 33 percent over the same time period.[21] Given this shift in retirement plan participation, the next generation of retirees will be responsible for saving more on their own to cover expenses during retirement.

Perhaps in response to their low levels of retirement savings, more than half (53 percent) of adults age 50 to 64 report that they don’t plan to retire until they reach 66 years of age or older – with 16 percent reporting that they plan to keep working after age 70. This finding is consistent with other research that found American workers are slowly adjusting their expectations on retirement age upward.[22] However, since 2010 just about half of retirees have left the workforce earlier than planned, which suggests that many future retirees may retire – and begin drawing upon their retirement savings – earlier than they intend.[23]

[16] Employee Benefit Research Institute. Savings Medicare Beneficiaries Need for Health Expenses: Some Couples Could Need as Much as $350,000, p. 2. Employee Benefit Research Institute Notes. 2017;38(1). Accessed April 3, 2017. [17] HealthView Services 2016 Retirement Health Care Costs Data Report. HealthView Insights. Published May 2016. Accessed April 3, 2017. [18] Office for Older Americans. Snapshot of Older Consumers and Mortgage Debt. Consumer Financial Protection Bureau. Published May 2014. Accessed April 3, 2017. [19] Li, W and Goodman, L. Americans’ Debt Styles by Age and Over Time. Urban Institute. Published November 2015. Accessed April 3, 2017. [20] Office for Older Americans and Office for Students and Young Consumers. Snapshot of Older Consumers and Student Loan Debt. Consumer Financial Protection Bureau. Published January 2017. Accessed April 3, 2017. [21] Employee Benefit Research institute. FAQs About Benefits—Retirement Issues. Benefit FAQs. Accessed April 3, 2017. [22] Retirement Confidence Survey. 2016 RCS Fact Sheet #2: Expectations About Retirement. Employee Benefit Research Institute. Accessed April 3, 2017. [23] Ibid

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