January 2009 Edition
Rising health care costs will have a dramatic effect on the postretirement incomes of an increasing number of people in the United States, according to a study by the Center for Retirement Research (CRR) at Boston College.
The study found that when factoring in health care costs, 61% will be unable to maintain their current standard of living and support increased health care costs—even if they work until age 65 and exhaust all of their financial resources, according to data in the 2008 National Retirement Risk Index.
The CRR study underscores the impact of health care costs on the amount of money Americans have saved for retirement—and how these costs will affect retirees’ incomes as they grow older and face more health complications associated with age.
CRR Researchers found that retirees will face the majority of their health care expenses for the following:
- physician and outpatient hospital services,
- drug-related expenses,
- Medicare copayments, and
- expenses that are not covered by Medicare.
According to CRR, the need for more retirement income is due to the following factors:
- declining Social Security replacement rates,
- rising cost of insurance,
- rising costs of medical care, and
- increasing life expectancy.
“When we saw how much health care impacted retirement readiness, it became even [more clear] that the retirement crisis is very real,” said Alicia H. Munnell, director of CRR. “There is no denying that fiscal fitness is linked to physical fitness.”
A recent survey by Nationwide Better Health, a health and productivity management company, found that health care expenses will consume the greatest part of retirees’ income, with nearly 40% of people in the United States struggling to afford health care.
What Can Employers Do?
Employers could have a big impact helping employees successfully navigate increased health care costs. Nationwide Better Health says that employer-offered customized health and wellness programs, as well as savings and investment education options and HSAs, can help employees reduce and lessen the strain of higher health care costs as they grow older.
Nationwide Better Health also outlines these solutions for employees to reduce the strain in its study:
- working more years past retirement,
- investing in retirement savings plans such as 401ks, and
- exercising more often.
“Good health is one of the most valuable assets that we have for retirement,” said Holly Snyder, president of Nationwide Better Health. “It’s easy to see how better health can lead to increased wealth for [U.S.] workers, both today and when entering retirement. By assisting employees … employers can reduce the likelihood that health care costs will drain their employees’ retirement savings and hurt their own bottom lines.”
More research and white papers are available on CDHC Solutions Online, a free resource. Logon to www.CDHCSolutionsMag.com, your source for information about the rapidly changing health care benefits industry.