Newly-published data shows that healthcare costs for retirees will increase significantly in the coming years.
Healthcare costs are already a significant cost for retirees and they will only increase in the coming years, more than projected inflation rates and higher than expected benefit increases.
Retirees or those nearing retirement need to be prepared and have enough money saved to cover those increased costs, otherwise they may find themselves having to make some tough choices.
Why Healthcare Costs Are Rising
There are several significant drivers behind the rise in healthcare costs. First among them is the fact that most people receive their healthcare through health insurance. Insurance leads to moral hazard, the idea that one need no longer take proper preventive measures because insurance will be there to fix all your problems when something goes wrong. Rather than taking preventive measures to ensure that they live healthy lives and won’t need to go to the doctor, many people expect insurance to be there as a safety net to protect them from the consequences of unhealthy lifestyles.
Because most people receive healthcare through health insurance, it also masks the true costs of healthcare. People see the upfront costs of healthcare premiums, copays, and deductibles, but they are insulated from the actual costs of the healthcare they receive. Therefore they have a tendency to go to the doctor more than they otherwise would. That’s what was behind the introduction of copays, which are intended to make the patient bear at least a little direct cost so that they don’t overburden the healthcare system every time they have a sniffle.
The masking of costs also leads doctors in many instances to prescribe too many procedures to remedy ailments. Because the patient isn’t paying for the procedure directly, doctors have no problem running patients through a battery of tests and procedures to try to figure out what’s wrong. But that ends up driving up costs to insurers, which respond by hiking rates for everyone.
Medicare and Medicaid help drive up costs because hospitals bill the government for services. Since the government is paying for those procedures, there is no incentive for doctors or patients to economize. That increases costs, which are paid on the back end through higher taxes.
Obamacare has also driven up costs because it has required insurers to offer health insurance to people who previously were too expensive to cover. That increased cost has drive up health insurance premiums across the board.
Finally, the American population is aging. The Baby Boomer cohort is already in retirement, and with life expectancies longer than ever, it is only natural that people will end up spending more for healthcare as they live longer.
How Much Can You Expect to Spend
Healthcare costs for retirees are expected to increase by 5.5% per year over the next decade. Compare that to the cost of living adjustments (COLA) for Social Security, which are only expected to increase by about 2.6% per year. Those increased costs mean that a couple retiring today at age 65 can expect to spend over $600,000 on healthcare($400,000 in today’s dollars) over the course of their retirement.
For younger couples that number jumps significantly. A couple currently in their mid-50s and expecting to retire at 65 can expect to spend over $1 million in healthcare costs in retirement, while a couple in their mid-40s and retiring at 65 can expect to spend nearly $2 million on healthcare in retirement.
Those rising costs make it all the more important to have enough money saved up for retirement. That requires, first of all, a solid pattern of saving throughout your career. But it also requires making the right investments throughout your career to make sure that your nest egg grows faster than the expected rise in costs while you’re working and contributing to your retirement accounts, and continues to maintain its value during retirement.
How Much Do You Have Saved?
The average family between the ages of 56 and 61 has $163,577 in savings, which is significantly less than the $211,885 that similarly-aged families had saved in 2007. That reflects a drop in assets due to the financial crisis. Fortunately, catch-up regulations allow those closer to retirement to add additional funds to their retirement accounts.
Of course, averages are pulled up by a small number of high-income savers. Only 15% of all Baby Boomers have more than $500,000 in retirement savings, with an additional 9% having between $300,000 and $500,000 in savings. That means that at most one quarter of Baby Boomers have enough money to even get close to paying for their healthcare in retirement, forget about food and housing. The other three-quarters will receive a rude wake-up call when they reach retirement.
The reality is that around half of American households have no retirement savings at all. No 401(k)s, no IRAs, no money in the bank. They may expect to rely on Social Security for their retirement savings, but Social Security payments will only get smaller in the future as the system runs out of money.
Social Security is a transfer system, not a defined benefit program, so Social Security recipients receive money that is paid into the system by the Social Security taxes paid by current employees. At current rates, Social Security funding will be exhausted in less than 20 years. Those who are relying on Social Security for their retirement income will face tough choices, especially since they may not have enough money to pay for medical care.
Make Your Investments Work for You
If you’re nearing retirement and looking to maintain your standard of living, you’ll have to make sure that your investments can provide for your food, housing, and healthcare while still being able to match the increase in costs over time. With healthcare changes currently being debated in Congress, 5.5% annual increases may actually be conservative. And who knows what the increases will look like after that. Your retirement savings should continue to work for you in retirement, growing to cover those rising costs.
That’s where gold comes in as a solid choice to protect your retirement savings. Since the closing of the gold window in 1971, the dollar value of gold has seen an average annual increase of 7.6%. That’s enough to cover the increasing cost of healthcare, with a little extra growth on top. Gold maintains its value against inflation better than any other asset, and has been trusted for ages as a safe haven and store of wealth. Gold doesn’t suffer from stock market crashes – in fact, it often performs better when stocks and bonds are doing poorly. That makes it a safer and more reliable investment choice in retirement.
And with a Gold IRA you can get the tax-deferral benefits of conventional IRAs while still enjoying the wealth protection that gold offers, ensuring that your retirement assets last you as long as you need them.
Rising costs are the reality that will be faced by retirees today, and gold provides the ultimate protection to safeguard you and ensure that you can maintain your standard of living throughout retirement.
Trevor Gerszt is America's Gold IRA Expert, CEO of Goldco Precious Metals, and holds a position on the Los Angeles board of the Better Business Bureau.
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