Women face a unique set of challenges when it comes to planning for retirement. Increased longevity, lifetime income disparities, inadequate retirement savings, lower average Social Security disbursements (compared to men), rising divorce rates for those over 50,1 the potential death of a spouse (who would often handle financial planning), and dwindling employment opportunities later in life are some of the hurdles women must overcome to attain a level of financial security in retirement.
Financial advisors, plan sponsors, and millions of investors rely on income replacement ratios (IRRs) – a percentage of pre-retirement income – to estimate how much will be needed to maintain desired lifestyles in retirement. IRRs have provided advisors with a streamlined, top-down approach for assessing a client’s retirement readiness without having to calculate and project individual line-item expenses: a bottom-up strategy that is more comprehensive, but also time-consuming. A key assumption underpinning the use of IRRs is that pre-retirement income is a good basis for calculating income needs in retirement. Unfortunately, when it comes to health care this is not the case.
The Next Retirement Planning Challenge
At a time when many Americans are failing to save enough to achieve long-term financial security, retirement plans have little margin for error when it comes to unanticipated costs. Even though industry surveys reveal future retirees cite paying for health care as a primary retirement concern, this expense is not consistently incorporated into retirement plans.
HealthView Services’ 2015 Retirement Health Care Cost Data Report is derived from 50 million actual health care cases and a wide range of additional data sources. HealthView’s actuary and physician-reviewed cost-projection methodology compares year-end data sets between 2013 and year-end 2014, and the company’s rigorous bottom-up approach to calculating total retirement health care costs leverages the latest actuarial data for health care cost inflation. The Report also details specific components of lifetime health care expenses that will drive overall costs, and reveals how these projections align with government health care inflation forecasts.
Strategies To Reduce Medicare Income Surcharges
In terms of retirement planning, many Baby Boomers have done everything right. They have calculated future expenses, invested in IRAs and 401(k)s, and labored for decades to maximize their pensions and Social Security—all to generate the necessary income to enjoy a lengthy and financially secure retirement. They believe—and with good reason— they are ready to enjoy their golden years. Unfortunately, it still might not be enough.
Cost Management Strategies
There are a number of significant trends behind the emerging crisis in retirement health care costs. Foremost among them is health care cost inflation. While it is true that awareness and concern about retirement health care costs have been increasing, only a minority of financial advisors and their clients has begun to integrate health care costs into retirement plans. There are several reasons for this. For one thing, advisors have lacked the tools necessary to calculate the expected retirement health care costs for individuals.