June is a truly beautiful time of year. Mild weather makes afternoon walks more enjoyable; my golf game continues to decline, and there are plenty of family gatherings to celebrate different events –specifically graduations. In fact, I have attended multiple parties this month. Christopher graduated from Suffolk University, and Nicole and Ed Jr. both graduated from high school near the top of their respective classes.
While these are certainly joyous times for the students and their families, I can’t help but feel a sense of unease for today’s graduates considering the current price tag of a college education.
So what was the most expensive school (in 2015)? Harvard? Columbia?
I’d wager a sleeve of Titleist golf balls that no one reading this will guess.
Harvey Mudd College: $67,255 annually – or put a different way – over a quarter of a million dollars for a four-year degree.
And that doesn’t even include books.
Now obviously, not everyone will be attending this small, prestigious California college that specializes in math and science – or New York University, or the University of Chicago – which are also in the top 10.
It should be noted that the majority of attendees do receive some form of financial assistance. Regardless, a four-year college experience is a pretty expensive endeavor these days. According to 2012 statistics, college tuition and fees increased 1,120 percent since 1978, far outpacing household incomes and the price inflation of consumer goods, medical expenses, and food.
Public schools are certainly a viable option. In Massachusetts, Salem State’s tuition is only $9,246, but tack on room, board, and books, and the cost jumps to almost $24,000 per year. Boston Mayor Marty Walsh has provided some relief for next year, as all Boston Public School students can now receive free tuition to Bunker Hill or Roxbury Community College (as long as they have at least a 2.2 GPA). This should open some doors for kids who may not be able to afford the cost of a college education.
Now let’s change gears for a moment and try to make a connection between the rise in college expenses and my industry: health care costs.
When I tell people how much their health care outlays are going to be in retirement, they often raise a skeptical eyebrow; however, over the past two decades, people have not only accepted the outrageous cost increases for a four-year degree, but also adjusted their lifestyles and savings plans to compensate. Perhaps many people assume that Medicare will take care of most services in retirement. Maybe parents have accepted the notion that planning for a child’s college education is simply part of the evolving American family. Also, college is a tangible cost, as every website distinctly outlines tuition, room, board, and fees. Unfortunately, retirement health care costs vary by state, coverage, and modified adjusted gross income (MAGI). Need a supplemental policy? There are up to ten different types to choose from, and the cost for the exact same policy may differ by as much as 50% depending on state of residence.
This kind of fuzzy math makes people pretty uneasy.
Whatever the reason, there is a pretty serious dichotomy between how Americans have adjusted to the rising cost of college, but still fail to recognize that health care is going to consume a significant portion of their household budgets.
Back in 1970, when I graduated high school, the average cost of a private four-year institution was $1,561 – not exactly pocket change, but a manageable total that did not require families to remortgage their houses. The idea of putting money into a specific college investment product, such as a 529 or U Plan, would have seemed silly at the time.
Fast forward to 2016. According to HealthView’s latest data, retirement health care cost inflation is expected to rise 5% – 7% annually for the foreseeable future.
So isn’t it possible (actually, probable) that health care costs will escalate similar to college tuitions?
Here’s something to ponder.
According to CollegeBoard data, the average tuition and fees for a four-year private university in 2015 is $134,600. Projected 18 years into the future, that same degree will cost $323,900, an increase of 241%. Today, the average annual health care costs for a 65-year-old male is $9,715 based on living 22 years in retirement. Eighteen years from now, the average annual cost will grow to $26,058 – a jump of 268%.
A 65-year old retiring in 2016 will incur cumulative premium costs of $213,738 while someone retiring 18 years from now will be responsible for $573,273 in health care premiums.
My suggestion for all of you lifelong students out there: do your homework and do not ignore the cost of health care in retirement.