Do You Have Enough for Retirement?
By Dave VerWoert, Executive Vice President, Employee Benefits, TrueNorth Companies, Linn County LIVING WELL Magazine
A recent story in the “Milwaukee Journal Sentinel” (5/21, Boulton) reported, “Women who retired last year will need an average of $93,000 in savings to pay for healthcare expenses in retirement,” and men will need an average of $65,000, according to an estimate by the Employee Benefit Research Institute. An “estimated 24% of the people who retired last year will need more than a year of nursing home care, and 9% will need more than five years of care, according to the Center for Retirement Research at Boston College.” The article noted, “Premiums for supplemental insurance, or Medigap, cost $2,160 to $2,700 a year in the Milwaukee area for someone who is 75. Medicare Part B, which covers physician fees and other services, runs $1,157 this year.” And, in Wisconsin, Medicare Part D averages $528 this year.
It’s interesting to note that costs in Iowa are lower than our neighbors in Wisconsin. In Iowa the best supplement (Plan F) from Wellmark would cost a 75 year old $2,227 this year. Part B costs are the same in all states, $1,157 per year. Part D in Iowa averages $420 this year.
In this short article, we’ll focus on the Medicare piece as long-term care/nursing home care will be addressed in a future article.
I agree with the author of the article that healthcare costs are underestimated as a “retirement planning expense.” As we all plan for retirement at some point, I would argue that the savings amount suggested above is on the low side. My “evidence” to debate that would be to have you go to www.socialsecurity.gov and read their own actuarial report on the financial status of the Medicare program. If you just want the answer, the Medicare program has been spending more in benefits than premiums received every year since 2008. Hey, no worries, we have a trust fund to take care of temporary setbacks. That is projected to be exhausted in less than 15 years. Another problem not commonly discussed: the Medicare program is financed solely through payroll taxes, 2.9% on every dollar with the employee and the employer picking up 1.45% each. But what about the slow economy and the high unemployment rate? That translates into lower payroll tax receipts, thus quickening the disappearance of the “trust fund” and widening the gap between annual benefits paid out and payroll taxes received.
More evidence you say? Since its inception in 1965, Medicare eligibility generally begins at age 65 (exceptions are if you’re disabled prior to age 65, or suffer from end stage renal failure). Consider the increase in life expectancy in the U.S.; from 70.2 years in 1965 to a rising 78.7 years in 2009 (World Bank). Along with that, consider the advancements in medicine, technologies, pharmaceuticals and many wonderful options for increasing the length and quality of our lives. More Americans are turning 65 every day than ever before (Baby Boomers). All of those things are awesome, but relating it to the Medicare program requires us to re-think how the program is structured to ensure sustainability.
I’m glad not to be in politics, there are some hard and unpopular decisions that need to be made soon regarding the Medicare program. In the meantime, as we plan for a rewarding and fulfilling retirement, keep in mind that our future medical expense budget amount probably needs plenty of cushion.
Author Dave VerWoert is executive vice president of employee benefits for TrueNorth Companies.
