Our current economic expansion is only three months shy of becoming the largest in US history. Our current bull market, having started in 2009, right at the trough of the global financial crisis, has set the record for the longest-ever recorded bull market in the US.
You’d think that with the equity markets soaring and with the overall health of the economy in good standing, that the situation for American retirees would have been gradually improving over the course of the last decade.
You’d think that retirement portfolios would have provided record-level growth, significantly increasing retirees’ wealth across the country, certainly enough to keep them from having to work during retirement.
But the data that the Bureau of Labors and Statistics (BLS) compiled since 1996 tells us a different story.
More retirees age 65 and older have had to work in order to maintain the increasing costs of their retirement.
- In 1996, 3.8 million Americans age 65 and over were working through retirement.
- In 2006, that number increased to 5.4 million American retirees.
- In 2016, well into a record-breaking economic expansion and bull market, 9.2 million Americans had to work during retirement.
- In 2026, the BLS projects that an astounding 14.6 million American retirees over age 65 will still be stuck in the workforce.
In short, the record-breaking economic expansion and bull market did virtually nothing for most American retirees.
In fact, retirees just got poorer and poorer as the economy appeared to have gotten stronger and stronger.
Among several factors behind this phenomenon is the rapid rise in healthcare costs, which historically has outpaced the rate of inflation.
If you and your spouse are retiring this year, and if both of you are over the age of 65, you can count on spending approximately $285,000 in healthcare and medical expenses throughout your retirement, according to a report published by Fidelity Investments.
If you retired last year, your expected cost would have been $280,000, or $5,000 less than the current figure.
This may be a mere 1.7% increase. But on a personal level, forking over an extra $5,000 can mean a lot of money for many retirees.
For single retirees, the cost estimate for men is around $135,000, and for women, it is $150,000.
The rate of costs increases also varies–the past two years have seen a rise of 3.6%, while the period between 2015-2017 saw an increase of 12.2%.
Yet despite the variance in the rate of growth, many of the seniors were surprised nevertheless, as even a modest increase in costs can make a significant financial hit.
So, not only has the rise of healthcare costs outpaced inflation, its rate of growth has been unpredictable, a variable factor that most retirees looking for stability have difficulty facing.
The Importance of Growth and Purchasing Power
If you are nearing retirement or in the early planning stages years before retirement age, the last thing you will want to do is rely solely on Social Security or fixed-income alternatives such as annuities.
First, if neither Social Security nor fixed income assets will keep pace with inflation, then there’s absolutely no chance they will keep pace with the rising costs of healthcare, which historically outpaces inflation at an impressive rate!
The only way to prevent the dismal scenario of running out of money during retirement is to generate income growth to keep pace with rising costs.
Hence, many American retirees work. But there is another way: portfolio growth.
Holding a portfolio geared for growth and purchasing power preservation may be the only alternative solution to having to find a job past the age of 65.
This leaves you with two asset classes: Stocks provide growth to help keep pace with inflation, and precious metals–gold and silver–can provide growth when stocks cannot, plus they also rise when the value of the dollar sinks, which necessarily preserves purchasing power.
Takeaway: the general economy, however strong it has become, hasn’t helped many American retirees. Neither has the bull market. Financially thriving through retirement requires making smart investment decisions. Fortunately, the solution is quite simple: you need growth, capital preservation, and income. In short, you need an all-weather portfolio that can provide all three.
You don’t have to make any major changes to what you already have. Simply diversify your portfolio. One solution is to hold an equal share of every asset that you might need: 25% stocks, 25% investment-grade bonds, 25% cash, and 25% gold/silver.
It’s simple. But more importantly, it’s smart.
Fidelity said out-of-pocket Medicare costs have leveled for retirees, but many Americans are still not educated on what Medicare does and does not cover.
Fidelity said the data should be a call-to-action to younger generations, a reminder of sorts to take advantage of the investment opportunities available to them. It pointed out that a 35-year-old couple today could potentially save $285,000 in 30 years by investing $2,820 annually in a health savings account.
Fidelity offered these tips for pre-retirees who don’t have 30 more years to save:
• Get up to speed with Medicare: Many Americans assume Medicare is free and covers all their retirement health care expenses. That’s not true, and could be a harsh wake-up call.
• Maximize tax-advantaged savings accounts: Most pre-retirees are already familiar with a 401(k) or 403(b), and this year’s contribution limit for both accounts is $19,000. Those age 50 or older can contribute another $6,000 in catch-up contributions.
• Consider deferring Social Security benefits: Generally speaking, the closer to age 70 an individual can wait to take Social Security benefits, the more they can collect, assuming they live a long life.
• Meet with the employer’s human resource department: While still employed, pre-retirees should find out what health-care benefits, if any, their employer may offer in retirement. Even having access to group coverage or professional support in choosing a Medicare product can be valuable benefits.
• Talk with a financial professional: Long-term care needs are difficult to predict and are not included in Fidelity’s retirement health care cost estimate, so it’s recommended that pre-retirees meet with a financial professional to discuss potential long-term care needs based on their current health, family history, and other personal factors.
The report, conducted annually and titled Retiree Health Care Cost Estimate, also said for single retirees, the health-care cost estimate is $150,000 for women and $135,000 for men.
The report noted that the past two years combined have seen a slower rise, 3.6 percent, than in 2015 to 2017, which saw the estimate grow to $275,000 from $245,000—up 12.2 percent. Even without the same rate of growth, some retirees are still surprised by today’s cost of health care, the report said.
“Paying for health care—before and in retirement—continues to be top-of-mind for Americans, and understandably so as it’s a cost that can vary significantly by individual and is difficult for many to predict,” Hope Manion, senior vice president at Fidelity Workplace Consulting, said in a prepared statement.