Beware the health care costs of living longer

Two American women, both 55-years-old. One is healthy. One has diabetes. Who will pay more in health care expenses throughout their golden years?

The answer—once life expectancy is factored in—is the healthy one.

Rethinking our ideas behind how—and how much—we need to save for health care in retirement is the main concern of Retirement Planning: Coping with Higher Health Care Costs,” recently published in the Journal of Financial Service Professionals, authored by Prudential’s Brett Berg, an Individual Life Insurance vice president focused on advanced markets, and Dr. Robert Pokorski, vice president and medical director, and an internationally renowned expert on longevity.

As advances in nutrition, medicine, and healthy living have extended our average lifespans, a new problem has metastasized—we are outliving the assets we put aside to pay for geriatric and end-of-life care.

“Longer lives, not disease, are driving up health care costs,” Pokorski says. “No matter how healthy we may be right now, aging and the declines that go with it are inevitable. More and more retirees are facing health challenges beyond the time horizon they envisioned in their prime earning years.”

While debate in the media and Washington, D.C., rages around health care coverage, the paper zeroes in on demographic changes and health care inflation that will put many 20- to 30-year-olds and Generation X-ers at future risk.

Pokorski and Berg cite statistics showing that today, most older Americans depend on family caregivers—73 percent of home health care assistance for chronically ill adults aged 65 and older is unpaid. However, as baby boomers make way for the smaller Generation X, fewer 45- to 64-year-olds will be available to care for their elders. That is, those who celebrated their 80th birthdays in 2010 had an average of seven caregivers, while those who turn 80 in 2050 will have only three. This looming “caregiving crisis” will almost certainly inflate the costs of chronic illness care, Pokorski says.

Health care inflation is already outpacing consumer inflation. In 2017, the average monthly Medicare Part D premium rose 9 percent for higher income retirees, with the corresponding deductible increasing 7 percent. Even at 3 percent a year, health care inflation would quickly erode a retirement nest egg. In 30 years, it would take $121,363 to purchase what $50,000 does today.

“Living longer means the conventional wisdom of maintaining a financially conservative portfolio in retirement falls short for many Americans,” Berg says. “Financial advisors and their clients may want to look closely at a growth-oriented investment strategy.”

Berg recommends three core objectives should be part of preparing for the health care cost shock: a predictable income stream for daily needs, portfolio growth for long-term needs, and flexibility to refine the plan over time. He suggests income annuities, health savings accounts and cash value accumulation life insurance to supplement traditional 401Ks and retirement accounts.

“Financial literacy, like many cognitive functions, begins to decline around age 60.” Dr. Pokorski says. “The time to prepare is now, not when you’re struggling to complete the crossword puzzle.”

Read or download “Retirement Planning: Coping with Higher Health Care Costs.”  To talk about the impact of health care costs on retirement planning, contact


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