The Future Of Retirement In 3 Charts

With all members of the Baby Boom generation nearing or already past the traditional age of retirement, many financial and healthcare professionals are seeking to discern the strategies, products, and services that will ensure the physical, behavioral, and financial well-being of millions of older Americans.

Planning for retirement, at both the individual and society levels, is complicated. The details will matter for the solutions to the many upcoming challenges.

But retirement life in the years ahead, as well as the approaches to solving retirement challenges, will be shaped and constrained by three major macro trends. ?

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Longer Lifespans

Already there are about 100 million Americans over the age of 54, with more than 56 million over 64. By 2030, these totals rise to 112.2 and 73.1 million, respectively. Between now and 2035, the number of people 65 and over is expected to grow more than 6 times faster than the number of those under 55. In 2035, there will be more people in the U.S. over the age of 65 than under 18 for the first time in our history.[i]

The reason of course is longer lifespans. Life expectancy for a man born in 1930 was 58 years and about 61 for a woman. Today, a typical 60-year old man can expect to live another 23 years, a woman 25 more years.[ii] In little more than a generation, we have gone from most people not living much past 60 to many living to 85, 90, or more. For people born in the first half of the 20th century (or earlier), retirements tended to be short. Most people did not work, let alone live, much past 65. ?Now “retirements” for many people will last at least 20 years, and often more.

Costly healthcare

Per capita spending on health care in the US has increased roughly six-fold in inflation-adjusted terms since 1970.[iii] While the cost increases of some medical treatments have slowed in recent years, healthcare costs as a whole are expected to continue to grow at or above the rate of inflation for most other products and services for the foreseeable future. This is especially true for pharmaceutical products. A recent study conducted at Brigham and Women’s Hospital in Boston concluded that the median launch price for new drugs, after rebates to insurers, increased from $1,376 in 2008 to $159,042 in 2021. Which means that new drug prices have been growing by almost 20% annually for over a decade.

It is not uncommon for some drug treatments to cost over $25,000.[iv] Sixty percent of cancer patients spend more than $5,000 out of pocket to treat (a single) cancer, with 20% spending more than $20,000. This does not include travel expenses, lost wages, or in-home care expenses.[v] A 65-year-old couple retiring in 2022 will spend an average $315,000 in health-care and medical expenses in their retirement, according to Fidelity Investments. Medical advances in recent decades have helped millions of people live longer. But it’s costing us – big time.

Cognitive decline

About 11% of Americans over 65 are living with Alzheimer’s, while an additional 3% suffer from other dementias, like vascular or frontotemporal dementia.[vi] So roughly 14% of adults 65 and older in the US have dementia. Many older adults also suffer from what is called Mild Cognitive Impairment, or MCI. MCI is different than dementia and “describes a level of cognitive decline that requires compensatory strategies and accommodations to help maintain independence and perform activities of daily living (ADL)”.[vii] ?An estimated 15% of adults over 65 in the US suffer from mild cognitive impairment (MCI).[viii]

Together, the estimates for the prevalence of dementia and MCI suggest that about 30% of adults 65 and over in the US suffer are already having difficulty making financial and other decisions. These figures cover all adults over 65, and like many diseases, likelihood of having dementia or MCI increases with age. In other words, the chances that a 65 year-old adult has dementia or MCI is less than 30%, while that of an 80 year-old is greater than 30%. And since many of us will live to 80 and beyond...

Implications

These three trends have far-reaching implications for individuals, families, and our society as a whole. For most of us, it means that:

·????????Our “retirement” will be long – likely 20 years or more

·????????It will be expensive

·????????Our ability to make sound financial and other decisions on our own will decline, often precipitously, as we get older

Which means that health and wealth will become even further intertwined in the years ahead. For older adults, the two will inseparable. Strategies for managing health will need to take financial considerations into account. Similarly, financial planning will become by necessity increasingly focused on managing the health and long-term care costs that will dominate household balance sheets for the foreseeable future.

Notes:

[i] US Bureau of the Census

[ii] US Centers for Disease Control and Protection, National Vital Statistics Report, https://stacks.cdc.gov/view/cdc/79487/cdc_79487_DS1.pdf

[iii] U.S. Centers for Medicare & Medicaid Services https://www.healthsystemtracker.org/chart-collection/u-s-spending-healthcare-changed-time/#item-usspendingovertime_3

[iv] GoodRX, “The 20 Most Expensive Drugs in the US” https://www.goodrx.com/blog/20-most-expensive-drugs-in-the-usa/

[v] The Mesothelioma Center, “High Cost of Cancer Treatment”, https://www.asbestos.com/featured-stories/high-cost-of-cancer-treatment/

[vi] 2019 Alzheimer’s Disease Facts And Figures, Alzheimer’s Association

[vii] American Psychological Association, https://www.psychiatry.org/File%20Library/Psychiatrists/Practice/DSM/APA_DSM-5-Mild-Neurocognitive-Disorder.pdf

[viii] “Practice guideline update summary: Mild cognitive impairment”, American Academy of Neurology