As people live longer and medical costs increase, peoplenearing retirement worry that paying for health care will wipe outtheir savings.
Close to a third of people 50 and older are not confidentthey will be able to pay for health care and long-term care inretirement, according to the AARP's 2005 The State of 50-plus Americareport.
Health is a key budget challenge, said Jules Lichtenstein,AARP senior policy adviser.
An unexpected ailment late in life is a wild card that canderail the best of retirement plans.
Some people are forced to adjust their lives to retain or payfor health care, including working past retirement age, burning throughsavings, or going into debt.
"There are people who will need to work, people who will beeconomically strapped," said Helen Dennis, a specialist on aging,employment and retirement who lectures at the University of SouthernCalifornia.
One of the things that will keep people working isuncertainty over whether they will have complete health care coveragein retirement, Dennis said.
Retirees often rely on company-provided healthcare plans.
Even those who qualify for Medicare often use company plansto pay for things Medicare doesn't.
Free Medicare hospital insurance is available for those 65and older. Fewer future retirees may have the option of health carecoverage from their former employers.
About 36 percent of large employers offered health benefitsto their retirees in 2004, down from 66 percent in 1988, according to aKaiser Family Foundation report. Often the cuts are tied to higherhealth care costs. "If it's a choice between providing existing workers withbenefits or retirees with benefits, they're probably going to decide togive it to existing workers," Lichtenstein said. "That's a realproblem." Michelle Strollo, senior policy analyst with the KaiserFamily Foundation, said most companies try to protect their currentretirees even if they cut benefits for future retirees. But even thosewho have coverage can be affected by increased premiums, co-pays ordeductibles. That means workers should be planning for healthcare expensesin retirement, either with or without employer-provided coverage,Strollo said. Retirement Health Care Statistics Among people 50 and older, 27 percent are not confidentthey will be able to pay for health and long-term care in retirement. Health insurance premiums rose 11.2 percent in 2004. A typical worker who retired at age 65 in 2004 would pay$2,244 a year in premiums, 27 percent more than a worker who retired in2003. Among those 65 and older, 22 percent said medical bills,including prescription drugs, were a financial problem. Among those 50 and older, 26 percent said they cut back ondiscretionary spending, such as a dining out, because of medical bills;19 percent used savings not intended for medical bills; 7 percent cutback on food or housing; 9 percent borrowed or went into debt becauseof their medical bills; and 1 percent filed for bankruptcy. Among companies with 200 or more employees, 36 percentoffered healthcare coverage to retirees in 2004, down from 66 percentin 1988.Sources: The State of 50-plus America report, AARP;"Current Trends and Future Outlook for Retiree Health Benefits," KaiserFamily Foundation.
Common Retirement Investment Terms Pension: A fund set up and overseen byan employer or union to provide retirement income for workers. Workersdon't have control over the fund's investments. IRA: An individual retirement account,created through a bank or brokerage firm, that allows pretax deposits.Earnings are taxed at withdrawal, which generally assumes a lowerincome tax bracket for an individual at retirement. Roth IRA: A private retirement accountthat uses after-tax dollars, but grows tax-free and is withdrawntax-free. 401(k): An employer-sponsoredinvestment program that allows employees to contribute pretax money toinvestment accounts. Employers often match a certain percentage ofemployees' contributions. Employees generally have a menu of investmentchoices and can move money to a different program if they changeemployers. Annuity: A contract with a privatefirm that guarantees monthly or annual payments for life. An examplewould be a 20-year annuity that is purchased for a lump sum and willprovide payment for life, or to heirs for any remainder of the 20years. Annuities generally do not collect further interest after thewithdrawal period, but can be used as a savings device beforeretirement. Defined benefit plan: A plan,otherwise known as a pension, provides a specific benefit for retiredemployees, either as a lump sum or as income for the rest of theirlives. The pension amount usually depends on the employee's age atretirement, final salary, and the number of years on the job. All thedetails are spelled out in the plan. Defined contribution plan: A pensionplan in which the employer makes regular contributions of a specifiedamount of money. In contrast to a defined benefit plan, it does notpromise employees any specific amount of retirement benefits. Theemployee's retirement benefit will depend on how much was contributedto his or her account, and how the plan's investments performed overthe years.Source: Ventura County Star.Powered by Yellowbrix.
