Aug. 27, 2016 — This is the third post in a four-part series exploring how the various generations are preparing for healthcare costs in retirement. The first installment highlighted the plight of baby boomers. The second examined the challenges faced by Generation X. This post discusses millennials (Generation Y), typically those born between the early 1980s and late 1990s.
There’s a prevailing stereotype that millennials don’t think about retirement. Studies by the Insured Retirement Institute (IRI) and the Transamerica Center for Retirement Studies (TCRS) both disprove this notion. Both groups report that millennials are saving or investing. The TCRS study shows that the 70 percent who are saving got an impressive head start at the median age of 22.
At the same time, the IRI study underscores that millennials’ retirement plans are not well-formed. “Millennials are not doing enough to prepare for retirement,” says IRI President and CEO Cathy Weatherford. “Bottom line, Millennials will need to do more if they want to have a financially secure retirement. It all starts with right-setting expectations, determining a goal, and building a plan to get you there.”
So what are they doing to prepare? Reducing debt and investing in a 401(k). Contrary to previous generations who expected and relied on some form of a pension for retirement, millennials don’t see this avenue in their future. Nor do they believe Social Security will provide them with any meaningful income.
To be fully prepared, however, millennials must consider the cost of health care when planning for retirement. The IRI and TCRS studies showed that when asked how much money they’d need for retirement, answers revealed that millennials are terribly unaware of the reality of what retirement costs. Numbers cited were far below (30 percent less than the current national average of spending) what realistically will be needed. Fifty-two percent of the TCRS study participants who provided an estimate of their savings needs guessed at what the figure should be. If they’re clueless about today’s prices, they’re in for a big surprise at how much higher the cost of living will be when they’re finally ready to retire. And it’s a safe bet then that they have no notion how healthcare costs would – or should – factor into their savings needs.
Healthcare costs have outpaced inflation and wages for over 15 years, according to the Kaiser Family Foundation. Healthcare spending increases with age. With Americans living longer and the future of Medicare and Social Security so uncertain, millennials must re-examine their game plans and find strategies other than working longer to help offset medical expenses and long-term care.
The fear of never being able to retire would be daunting. But millennials have the power of time on their side. Taking tangible action now can help better position them for the future so they can actually enjoy their golden years, rather than work through them.