When it comes to factoring health care costs into overall retirement planning, nearly 75 percent of workers said assistance from employers would be at least somewhat helpful in figuring this out. (Photo: Getty)
Retirees' overall confidence in their ability to continue to cover basic expenses is on the decline, as more expect medical expenses to increase while the federal government wrestles with the impending insolvency of Medicare, according to the Employee Benefit Research Institute's Retirement Confidence Survey.
Less than half of retirees surveyed by EBRI are confident that Medicare will continue to provide benefits equal to today's into the future.
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Last year, the Medicare Trustee annual report projected the government program that provides health insurance for 57 million retirees will be insolvent by 2029. Actuaries at the Congressional Budget Office project the Medicare Hospital Insurance (Part A) trust fund will run dry by 2026.
The prospect of future coverage restrictions and higher premiums is clearly weighing on retirees, EBRI says. But even absent higher out of pocket costs in the near term, retirees are already feeling health care cost's pinch. More than four in 10 retirees report that their health care expenses are higher in retirement than they planned for.
Escalating Medicare premiums are already absorbing what little retirees have seen in Social Security's cost of living increases, noted Craig Copeland, senior research associate at EBRI and a co-author of this year's Retirement Confidence Survey, in a press call.
Social Security's "hold harmless" provision prevents increases in Medicare Part B premiums from reducing existing Social Security Benefits.
But new enrollees to Medicare are exposed to premiums increases. And Social Security's 2 percent COLA increase for 2018 will result in higher Medicare Part B premiums, which are taken out of Social Security checks, for many retirees. About 40 percent of retirees will see their Part B premiums grow to $134 a month this year as a result of the COLA increase.
More than any other category of expenses, health care costs have taken retirees by surprise, according to EBRI's report. The 44 percent that say health care costs are higher than they planned for compares to 26 percent that said housing costs are higher than they planned for. And 27 percent said their overall expenses are higher than planned for.
The weight of health care costs on retirees suggests that not enough people are adequately factoring the expense as they prepare for retirement, said Lisa Greenwald, executive vice president of Greenwald & Associates and a co-author of EBRI's survey.
"Accounting for health care cost is a blind spot in retirement planning," Ms. Greenwald said. "It's a critical step in retirement planning, one I think too few are doing."
Only 40 percent of retirees said they have calculated how much money they need to cover health care costs. And only 20 percent of non-retirees said retirement medical expenses were part of their retirement planning, according to EBRI.
Can employers do more to educate workers?
Overall retiree confidence has tended to track with the economy's performance. In 2009, as the economy was climbing out of recession, only 20 percent said they were very confident in their ability to survive retirement comfortably. The number peaked in 2016 at 39 percent.
But this year the number of very confident retirees dropped to 32 percent, in spite of record equity markets and GDP tracking at its highest levels in a decade.
EBRI's report suggests health care concerns explain the drop in overall confidence. Last year, 77 percent of retirees were somewhat confident they could cover medical expenses throughout retirement. The number dropped to 70 percent this year.
Both retirees and non-retirees expressed interest in help from employers in factoring health care costs into overall retirement planning. Nearly 75 percent of workers said assistance from employers would be at least somewhat helpful. And 57 percent of retirees said they could have benefited from assistance through the workplace.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
