The High Cost of Health Care in Retirement

The High Cost of Health Care in Retirement

Organizations should be accounting for rising health care costs in their financial wellness programs — particularly for employees approaching retirement.

The anticipated out-of-pocket health care expenses for a healthy 65-year-old couple retiring in 2018 is $280,000, according to CNBC. This high cost of health care is of greater concern for retirees due to their largely fixed budgets. Therefore, financial leaders need to help baby boomer employees be purposeful and incorporate these anticipated costs when planning for their retirement.

Health Care Costs — An Overview

According to CNBC, these expected costs don't include long-term care, dental care or over-the-counter medication. However, these costs do include co-pays and other similar out-of-pocket expenses, plus premiums. These numbers are based solely on the various Medicare plans available; therefore, they ignore any health care benefits that a firm may provide to its retirees.

According to the ADP white paper, Retirement Health Care Costs Projector, the anticipated costs during retirement will increase to just under $466,000 for a 55-year-old couple that plans to retire in 10 years. This number increases by nearly $24,000 when that couple lives two years beyond the average lifespan in the U.S.

These numbers could change. Health care costs have been rising faster than inflation, while the cost of living adjustment for social security recipients was only 0.3 percent in 2017.

Employ Financial Wellness Programs to Help Plan for Retirement

The best way to help ensure that these costs don't eventually lead to a stark reduction in living standards for former employees is to help employees plan for retirement and include all aspects of their spending in those plans. Employees often consider their regular household expenses but don't factor in health care costs that may currently be covered by their employer, unless those costs are high.

Offering employees financial wellness programs that focus on their current and future needs is one high-impact way that financial leaders can help affect employees' near-term and long-term financial well-being. The same thought processes and savings mentality that supports a six-month emergency fund and living within one's means also supports saving for retirement and the "what-ifs" that could occur, including a jump in the already high cost of health care.

The best financial wellness programs include in-person and online training on a wide variety of finance topics, because people learn differently in certain situations. These programs also include matching with a financial counselor or advisor, although financial leaders need to properly vet any outside entity to ensure they do not breach their fiduciary duty to employees. Finally, the inclusion of saving and cost projectors, such as the retirement health costs projector offered by ADP, will aid people in determining their anticipated personal costs and adjusting their savings accordingly.

Health Care and Working Longer

One way that some employees compensate for poor financial planning in the past is through working longer. If an employee truly enjoys their job and wants to delay retirement, the firm benefits from the knowledge base and high level of engagement of that employee. If an employee feels they must work just to pay bills, however, that person may be resentful and may have lower productivity.

Therefore, financial leaders reap benefits from helping employees save for retirement. Financial leaders can help their employees and their organizations by publicizing catch-up provisions, switching to opt-out from opt-in on their 401(k) or 403(b) plans and promoting the use of financial wellness programs.

For those employees nearing retirement, conversations with financial advisors who understand the high cost of health care and the impact on retirement may be optimum. Employees sometimes need a push to act. Employers can provide that impetus through warnings or notices included with paychecks or other HR-related mailings to employees nearing a certain age or tenure with the firm. By making one-on-one personal consultations readily available, financial leaders can increase the usage of the firm's financial management and retirement planning tools.

Stay Healthy

Finally, one overlooked means of reducing health care costs in retirement is to stay healthy. Firms can encourage baby boomer participation in wellness programs by publicizing the linkage between exercise and good health and lower costs in retirement. A good retirement planning projector also emphasizes this.