Clink, clink, clink.
That sound you hear isn’t just the chipping away of pension plans.
Clank, clank, clank.
It also represents the slow erosion of retiree healthcare benefits in retirement.
The disappearing pension plan gets a lot of attention as financial services companies try to address the decades-in-the-making shift from defined benefit plans to defined contribution plans. But the scarcity of healthcare benefits in retirement shouldn’t be ignored.
According to the Kaiser Family Foundation’s 2019 Employer Health Benefits Survey, only 28% of large firms (200 or more workers) offer retiree health benefits. In 1988, it was 66%.1
In other words, today’s workers are being asked to fund their retirement and their health coverage. Yes, Medicare kicks in at age 65, but the average 65-year-old couple today can still expect to pay more than $363,000 in healthcare costs in retirement.2 (Transamerica Chief Marketing Officer Frank Sottosanti took a closer look at those costs in a recent blog.)
An essential cost
For the past few years, Transamerica has been championing the connection between Wealth + Health℠ and encouraging financial professionals like you to consider the impact of healthcare costs when helping your clients prepare for the future.
After all, healthcare costs have become an “essential” expense that deserves a place alongside housing, food, transportation, and utilities. The Silent Generation and Baby Boomers could rely on Social Security or pensions to provide guaranteed income to cover essential expenses. Then they’d use other savings and investments to cover discretionary expenses.
As you know, as pensions fade away, Social Security is the primary source of guaranteed income for most retirees. Unfortunately for your clients, Social Security only replaces about 40% of pre-retirement income for a middle class wage earner (when taken at full retirement age).
You also know that retirement accounts such as a 401(k) or IRA will help make up for the other 60%, but those accounts are subject to the whims of the stock market. And, those are largely beyond any one individual’s ability to predict.
Given all these factors, how can the vast majority of your clients fund healthcare coverage in retirement?
Indexed universal life insurance can allow them to build cash value to help pay for health care. Variable annuities offer living benefits that provide pension-like guaranteed income for life. Of course, always review the options and fees carefully to decide if a variable annuity is right for each individual’s situation.
Healthcare costs are a reality that must be accounted for in any long-term retirement strategy. And the sooner we all start preparing for it, the better.
1 “2019 Employer Health Benefits Survey,” KFF.org, September 2019
2 “2018 Retirement Healthcare Costs Data Report,” Healthview Services, 2018
Transamerica Resources, Inc. is an Aegon company and is affiliated with various companies which include, but are not limited to, insurance companies and broker dealers. Transamerica Resources, Inc. does not offer insurance products or securities. The information provided is for educational purposes only and should not be construed as, medical, insurance, securities, tax, legal or financial advice or guidance. Please consult your personal independent advisors for answers to your specific questions.