Opinion Column

Baby Boomer Retirement: The News Gets Worse

Baby Boomers are tragically unprepared for financing their health and long-term care costs as they age. And some important new studies show their circumstances may be much worse in the wake of recent carnage in both the economy and financial markets.

One study by the Employee Benefit Research Institute shows that in 2008, the average 401(k) balance of 50-somethings was just $113,000, and for those in their 60s it was barely $125,000. These 401(k) plans and Social Security represent the vast bulk of most Americans’ financial nest eggs in retirement.

But even these grim statistics mask the depth of the problem for many. Only one out of every six of those in their 60s have 401(k) assets of more than $100,000. Many have less than $50,000.

Housing, of course, is the other major asset retirees can use to help pay for medical or long-term care costs. But many Boomers borrowed heavily against their home equity during the housing bubble, then suffered a big decline in their home values during the bust. The combination, according to the Center for Retirement Research at Boston College means that many of those entering retirement lost as much of a third of the equity they had in their homes at the peak of the market.

The Boomers potentially have one other resource to get them through health and long-term care crises in old age-insurance. But the news there is also bad. Retiree health coverage, once a mainstay for the aging, is fast disappearing. According to a new report by the Kaiser Family Foundation and the Health Research and Educational Trust, just 29 percent of employers even offered retiree health benefits to their workers in 2008. That was just a fraction of the nearly two-thirds of companies that provided this coverage 20 years ago.

That leaves Medicare, which faces an untenable financial future. Medicare premiums, especially for high-income retirees, will skyrocket in coming years without significant efforts to contain costs. As I noted in a recent column, many can expect to pay as much as $5,000 a year in combined premiums for Medicare Part B and Medicare Supplemental (Medigap) within a decade.

In yet one more study, EBRI looked at a 65-year-old whose former employer does not subsidize his retiree health insurance. A man in that situation will need $186,000 in savings in order to have just a 50 percent chance of paying his medical costs a decade from now. A woman must have $266,000.

Then, there are long-term care expenses. The annual cost of a nursing home stay is nearly $80,000 and can easily be more. The average cost of a home health aide is nearly $20 per hour. A typical senior will need to put aside nearly $50,000 to fund long-term care, and some will need far more. About 20 percent are expected to require care for five years or more.   

However, only seven million Americans have private long-term care insurance and few show any interest in buying the product as currently designed. They will have to turn to yet another government program, welfare-like Medicaid. Yet it too faces immense financial pressures. The Congressional Budget Office estimates that, by mid-century, the federal share of Medicaid will absorb more than 16 cents of every tax dollar. States, which pay half the program’s costs, will face a similar burden.

To review the bidding, remember the average 401(k) balance for those in their 60s at the end of last year was $125,000. But they’ll need well over $200,000 in savings just to pay their medical bills.

And, of course, health care is just a fraction of a retiree’s living expenses. Where will the money come from for transportation, food, rent, utilities, and taxes? Try to pay all those bills on a Social Security check that averages about $1,200 a month.

The only good news in these studies is that they looked at the nest eggs of near-retirees at the end of 2008-which was close to the bottom of the collapse in stock prices. The market has already recovered some of those losses and, over the years, may recover more.  

Yet the basic story will remain the same. We are not ready for healthy retirement, and we are desperately unprepared for the costly medical and long-term care we are likely to need in old age. 

Taken together, these studies should be a wake-up call. They scream for change-in the way we save, in the Medicare and Medicaid programs, and in the way we finance long-term care.   

Howard Gleckman, a senior research associate at the Urban Institute, is author of “Caring For Our Parents” and a frequent writer and speaker on long-term care issues.