Keep Working Or ...

From Fidelity Investments and CBS MarketWatch comes this forecast for retiree health care costs that doesn't seem to be lining up too well with trends in defined-benefit pension plans and the retirement savings plans that have replaced them for the working crowd.

After reviewing the data - rising life expectancy, soaring medical costs, and trends in retiree medical benefits - there seems to be only one sure way to fund medical care during retirement.

Keep working.

Better yet, keep working for a company with a generous health care plan.

This may come as an unpleasant surprise for middle-aged workers who are having difficulty making ends meet during their prime working years, often times borrowing against their homes to square the books.

But, there is little incentive to forego current consumption and save for the future, short-term thinkers that we are, as money seems to flow freely from real estate gains.

When you are 40, there is little appreciation for the different priorities associated with the quality of life at age 65, and the increasing number of seniors forced to use reverse-mortgages to fund their retirement weighs little on the younger crowd.

The numbers are sobering.

A 65-year-old couple retiring today will need on average a tidy $200,000 set aside to pay for medical costs in retirement, according to an annual Fidelity Investment study released this week.

Of course, as with any study, the devil is in the details. For instance, Fidelity's estimate, which assumes that Americans do not have employer-sponsored retiree health care, includes expenses associated with Medicare Part B and D premiums ($64,000), Medicare cost-sharing provisions such as co-payments, coinsurance, deductibles and excluded benefits ($72,000), and prescription drug out-of-pocket costs ($64,000). Fidelity's numbers do not include other health expenses, such as over-the-counter medications, most dental services and long-term care.

"It doesn't look hopeful," said Paul Fronstin, a senior research associate with the Employee Benefit Research Institute in Washington, D.C. and fellow at TIAA-CREF Institute whose research shows medical costs in retirement to be even higher. "It's a massive problem especially in light of what happens to Medicare over the next 14 years."
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So what are some of the best ways retirees can pay for or reduce the cost of health care in retirement?

Keep working, especially for a company that provides health care. For many preretirees and retirees, the hard reality is this: Many will have to keep working out of need. Either they didn't save enough to pay for health care expenses so they need the income to pay for such costs. Or they need to work for a company that provides health care coverage.

They go on to suggest, among other sensible things like maintaining a healthy lifestyle and not stepping on any sidewalk cracks, that you could work for the government for five years and benefit from "Uncle Sam's rich retiree health care plan".

Hmmm...

This is a topic that has been considered here before, but now that it has come up at MarketWatch, it's time to do a couple of quick calculations.

We've wondered for a while now what kind of savings could be achieved if federal, state, and local governments adopted the same sort of painful cost-saving measures that private businesses are currently foisting upon an unwilling workforce in the name of global competition and the bottom line.

Now, governments clearly have a different idea about what a bottom line should look like, and it gets worse as you get closer to the Potomac River, but it's time someone started thinking about this.

There are roughly 22 million government workers out of a total workforce of over 130 million, and there are likely millions more workers at private companies which are dependent enough on government contracts that their benefits don't suffer from the same competitive pressures that drive decisions for commercial companies.

So, suppose there are a total of 30 million government or "government-like" employees, all with 1970s era retirement plans and health care promises still intact.

Reducing these generous benefits by just a few thousand dollars a year, to be more in line with the rest of the workers in America could dramatically improve the nation's fiscal position.

Think of the possibilities - 30 million times $5,000 is $150 billion a year, which is about half the "official" budget deficit and about a quarter of the annual increase in U.S. government debt.

Oh Senator! Here's an idea for how to balance the budget.