Aug. 9, 2016 — This is the second post in a four-part series exploring how the various generations are preparing for healthcare costs in retirement. In the first installment, we highlighted the plight of baby boomers. This post examines the challenges faced by Generation X, those born between the early 1960s (slight overlap with baby boomers) and early 1980s.
While baby boomers entering retirement are facing realities not encountered by previous generations, the 65 million Americans known as Generation X (GenX or GenXers) may not be any better positioned. A 2015 report by the Transamerica Center for Retirement Studies (TCRS) indicates this group is in “retirement jeopardy.”
The TCRS survey showed that while GenXers have inched closer to retiring, they have grown increasingly less interested in planning for it. Of the surveyed workers, 45 percent prefer not to concern themselves with retirement investing until getting closer to the actual date. In a similar survey by Allianz Life, 46 percent of participants said they’d “just figure it out when I get there.” And 44 percent believe it is “useless to plan for retirement when everything is so uncertain.”
A 2014 study by Weber Shandwick revealed GenXers are addressing their health today by focusing on diet and exercise in order to prepare for later years. Despite their focus on health and wellness, very few have considered how they will finance healthcare after their retirement. In essence, health is a concern, but paying for it is a lesser concern. Survey respondents actually revealed a kind of paralysis because they don’t expect government funded programs such as Medicare will exist when they hit retirement.
Sometimes referred to as the “sandwich generation” (as children of baby boomers and parents of millennials), GenXers are supporting both their kids (with high student loan debt) and parents (who face stagnant Social Security income and potentially costly diseases). In addition, the economic impacts of the 2007‒2008 recession continue to affect their financial behaviors and attitudes toward financial matters. Certainly, they are strapped in the savings landscape.
However, as healthcare expenses continue to rise and as GenX ages, this head-in-the-sand approach to their feelings of uncertainty and futility is a mistake.
The cost of healthcare in the United States is increasing every year. According to the 2015 Milliman Medical Index, the cost of health care for a typical American family of four covered by an average employer-sponsored preferred provider organization (PPO) plan was $24,671. Healthcare costs for this typical family have more than doubled over the past decade.
Previous generations were able to think about how to spend their “nest egg” when turning 65 and what they’d do with their leisure time. But before they plan their golf trip or Alaskan cruise, Generation X needs to put an eye toward building a foundation for their future nest.
There are options GenXers can consider to prepare for future healthcare costs:
• Start a health savings account (HSA). In addition to tax advantages, an HSA could be an investment option for medical costs in retirement and might be useful in paying bills or for long-term care.
• Buy a long-term policy. This may be a better option to paying for long-term care. The HSACenter.com savings comparison chart shows the pros and cons of different savings vehicles.
• Rethink Medicare plans when retiring. At age 65, most people are automatically enrolled in Medicare, with hospital insurance (Part A), medical insurance (Part B) and prescription coverage (Part D). But it doesn’t cover everything, and participants are subject to deductibles and co-pays. Retirees may decide to receive all their healthcare services through a provider organization under Part C, known as Medicare Advantage. Determine which is a financially better option.