A new report from the National Center for Health Statistics (NCHS) estimates that the average life expectancy for Americans in 2015 fell to 78.8 years. That is the first annual decline in more than two decades but it does not mean that funding retirement is going to get any easier. In fact, this popular statistic is misleading because it represents life expectancy from birth, whereas life expectancy after you reach a certain age can be much higher. If you are 65, for instance, then there is a 47 percent chance you or your spouse will live to at least 90, according to J.P. Morgan calculations using Social Security Administration data.
What is worse is that this latest decline in average life expectancy may actually imply that funding retirement will be more difficult going forward because the NCHS researchers said that the decrease was due to a broad rise in the rates of almost every leading cause of death. Worsening health problems in the United States were the main driver of the unusual upturn in death rates, not surprising with healthcare spending in this country surging by 5.8 percent in just the last year to $3.2 trillion, a new record, according to the Centers for Medicare and Medicaid Services. That equates to $9,990 per person but for older individuals, healthcare outlays can be significantly higher.
That is a problem because many Americans already struggle to regularly set aside enough money to cover their basic old-age expenses, and ballooning healthcare costs will only exacerbate any savings shortfalls. Just look at the recent Fidelity analysis which estimated that a 65-year-old couple retiring this year can expect to spend an average of $260,000 on medical expenses over the next 20 years, excluding nursing home costs, a 6 percent increase from 2015. Understandably, more than seven in ten Americans aged 50 or older surveyed by Nationwide said that they are “terrified” of what rising healthcare costs will mean for their retirement plans.
Such expenses are also a concern for 80 percent of business managers surveyed this month by Transamerica, and 84 percent cited “health benefits” as an important part of recruiting and retaining talented workers. That likely explains why a growing number of small- and medium-sized businesses are working with professional employer organizations (PEOs) that can help with the financial and administrative burdens associated with providing attractive healthcare benefits to workers. As for individuals, consulting with a financial professional can be quite helpful, and encouragingly 65 percent of respondents in the Nationwide study said that they intend to discuss healthcare costs when developing a retirement plan with their advisor.
Apart from the routine and emergency room healthcare needs that most people are familiar with, a related expense that more Americans must start to include in their retirement plan is long-term care. Indeed, long-term care has to do with the various services and supports necessary to meet health or personal care needs over an extended period of time, e.g. medical and non-medical care for people with a chronic illness or disability. Even underwriters seem ill-prepared for this growing problem, as evidenced by a recent Wall Street Journal report about two Pennsylvania insurers that are failing due to long-term care claims they cannot afford to pay because of flawed actuarial calculations.
Sources: NCHS, CDC, U.S. HHS, J.P. Morgan, CNBC, U.S. CMS, Fidelity, Benefits Pro, Nationwide Retirement Institute, WSJ, TCHS, NAPEOPost author: Charles Couch