A study by HSBC released earlier this year found that more than a quarter (27 percent) of surveyed pre-retirees said that they fear they will be worse off financially in old age, and 28 percent reported similar concerns about their health. Those two responses could be related because new research from the Employee Benefit Research Institute (EBRI) found that half of surveyed U.S. workers said that they had experienced an increase in their healthcare costs over the past year.
Twenty-eight percent of those same respondents reported that they decreased the contributions to their retirement plans as a result. Moreover, 12 percent said that they have taken a loan or withdrawal from a retirement plan because of their greater healthcare expenses, and 30 percent already delayed retirement due to the financial setback. Forty-eight percent of respondents said that they even had to reduce their short-term savings rate because of the uptick in healthcare costs, and an alarming 27 percent reported that they were forced to deplete “all or most” of their savings to cover the new expenses.
What is worse is that healthcare’s financial burden only increases as people age and become more likely to need medical attention. In fact, an earlier EBRI analysis estimated that the amount of savings Americans will need to have accumulated by the age of 65 in order to achieve a 90 percent chance of having enough money to cover their old-age medical expenses rose by as much as 21 percent just between 2014 and 2015. That estimate did not even factor in the savings needed to cover long-term care expenses, another growing outlay for many retirees.
As a review, 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. The U.S. Department of Health & Human Services (HHS) estimated that around 70 percent of Americans turning age 65 can expect to use some form of long-term care during their lifetime, and according to projections from the Congressional Budget Office (CBO), total long-term care expenses could more than double from 1.3 percent of U.S. gross domestic product (GDP) in 2010 to 3.0 percent of GDP by 2050. Long-term care costs can be significant and a survey conducted by the National Association of Plan Advisors (NAPA) found that only 18 percent of Americans are “very confident” about their ability to handle such expenses.
Sources: HSBC, EBRI, U.S. HHS, CBO, NAPAPost author: Charles Couch