Most Americans Face A Lower Standard Of Living In Retirement
I can’t say I’m too surprised about the following, especially when 62% of Americans expect to receive pensions, even though only 41% have them. Yesterday, CNN Money’s David Goldman talked about a report that was released Tuesday by the Center for Retirement Research (CRR) which said a majority of American workers will not be able to maintain their current standard of living after they retire. The center estimated 61% of households are “at risk” of being unable to live the way they would like and pay for their health care when they get old. CRR said consumers were at risk if the combined total of their savings, Social Security, and pension benefits was at least 10% short of the income needed in retirement to support the same standard of living they enjoyed while working. While previous reports assumed that less would be spent on consumer goods to cover health care costs, this study takes into account the idea that Americans want to keep on spending on the same amount of goods into retirement, while still being able to afford health care. Andrew D. Eschtruth, associate director for external relations at CRR, told CNN Money that:
People take the notion of health care for granted. The basic assumption of this report is that retirees think they will eat the same kind of foods, travel the same - or more - and buy the same clothes.
Goldman wrote:
If that’s the case, then there is cause for concern. Health care costs continue to increase dramatically, far outpacing wage increases year over year.
Additionally, out-of-pocket health care costs for most consumers rise significantly upon retirement. The report assumes that people recognize the burden of health care costs once they retire; however, those retirees to whom the added expense comes as a surprise will have to reduce their spending on consumer goods and spend much more on health care.
The CNN Money staff writer also noted that many workers do not have a realistic estimate of how much they will need to spend on health care when they retire, citing a 2007 study by the Employee Benefit Research Institute (EBRI). The EBRI report showed that 84% of employees estimated they and their spouse will need to accumulate less than $250,000 for retiree health costs, with 32% from this group thinking they would need less than $100,000. However, EBRI estimated that couples will need to save about $300,000 in retirement to cover health expenses, assuming they live to average life expectancy and Medicare benefits remain at current levels. For those who make it to age 95, this amount jumps to $550,000.
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