Will People Who Work Longer be Able to Retire Comfortably?

Posted on Monday, July 08, 2019

To maintain their employer-provided health coverage, about half of American workers said they plan to work longer than they had originally intended. However, this may be unrealistic, according to one study. The study -- which focused on employees and health insurance -- showed only about 20% of retirees who plan on working longer to keep their health benefits will be able to do so.

The same study indicated a large number of older Americans would like to retire sooner, if their health coverage would remain intact. Back in 2003 a similar study was done which revealed about 15% of respondents would retire earlier than planned if they could still enjoy health coverage. By 2012, the number had almost doubled.

What About Health Care Reform?

When asked about the federal health care law, experts said they believed it will alter the dynamics of the labor market for aging people. The Patient Protection and Affordable Care Act is expected to allow all retired individuals to purchase health coverage from exchanges. They will also receive other reforms meant to blend with exchanges. A few of the benefits included in this are:

more health plan choices
guaranteed issuance
modified community rating
and cost sharing subsidies for qualified individuals

Since these benefits are expected to exist under the Affordable Care Act, some employers will likely drop their health packages. However, experts say this will lower workers' enthusiasm about their current jobs.

Health care expenses are important components of retirement spending. A study completed back in 2009 showed health care accounted for almost 20% of expenses among people age 85 and older. People between 75 and 84 spent about 15% of their money on health care, and for those 65 to 74, the figure is slightly more than 10%. People over the age of 65 who were receiving Medicare paid more than 10% of their medical costs during the same period (up to age 74).

While Medicare covered about 60% of expenses, private insurance companies paid about 15% of costs. It is important to remember, medical expenses were never meant to be paid in full by the Medicare program for the elderly.

How Much Should You Have Saved?

Based on the expected medical costs for older people, research shows the following:

A married couple around 65 years of age with average prescription expenses would need more than $160,000 saved to have a 50% chance of being financially prepared for upfront health expenses (the study was based on costs in force back in 2012). This figure does not include the cost of long-term care after retirement.
To have a 90% chance of being able to pay medical expenses, the same couple would need to have $283,000 saved (also based on 2012 costs).

Every person should understand how much he or she must save to retire comfortably. The factors involved may be more complex than they seem. This is why it's a good idea for anyone hoping to retire in the next decade or so to sit down with professional advisers and set realistic savings goals. When it comes to retirement funding, the earlier you make these determinations the better.

Posted in Tax Topics For Individuals

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.