The Big Elephant (s) in the Room

Pensions, 401k’s and health care costs are the big elephants in the room. The recent gains pointing to a sustained economic recovery have not made many Americans feel more secure about their financial future. In fact, many workers fear more cuts in retirement benefits and higher out-of-pocket health care costs, according to a survey by Towers Watson, a retirement consulting firm.

More than half, 55%, of workers say they are willing to give up some of their future pay increases in order to have more guaranteed income in retirement, the survey found. And 50% say they would also trade a portion of their pay to ensure health care benefits.

Why are folks concerned?

Pension funds continue to struggle. Low interest rates and meager returns on investments continue to widen the gap fund managers face along with significant losses from the Great Recession of 2008.

Future retirees examining their 401k may be scratching their heads. Too many are wondering is retirement going to be like they thought. Ever since corporate America stepped back, shifting the cost of retirement to future retirees these individuals have been doing their best to manage their investments themselves.

The selling of the 401k was brilliant for Wall Street and America’s corporations. Less than 10% of future retirees decide to save the full amount. Employers cut their costs shifting 40% of their costs to employees. Employees were empowered to manage their money in the stock market. This was far less time consuming for the average worker as the tech stocks were booming at the time. Everybody looked good regardless of the amount of time they invested managing their investments.

Corporations quickly saw the beauty in restructuring, utilizing chapter 11 as a strategic tool. Companies going back on their word are okay this way, the courts say. Thanks to the “super priority clause” banks get paid back 100% of principal, interest, and fees leaving nothing on the table for employees in chapter 11.

Future retirees may wonder how things came to be this way. Historically capitalism works exceedingly well. Cronies’ capitalism does not. Allowing corporations to write (modify) the tax code provided wall street with millions of new investors through their 401k at work. Financial corporations then wrote regulations governing stock swaps and derivatives and pretty much anything else they wanted to do to make more money. Free markets regulate themselves is the mantra. The reality is the fox guards the hen house. The perfect economic storm ensued and resulted in real pain on Main Street. The government is now tasked with bailing out troubled pension to the tune of 100 billion plus. Federal and state budgets are already strained with no relief in sight.

Increased Economic Self-Reliance is the New Mantra

It is prudent for future retirees to become increasingly more knowledgeable regarding their pensions, their individual benefit strategy/plan, and the challenges their investment fund managers face. You may even wish to help your organization by becoming active with political battles they are fighting. I recommend future retirees become active managers of their401k’s and treat them more like a science. Please, I encourage you to read, analyze, talk with experts and co-workers having success, and constantly monitor your 401K mutual funds performance. Keep a folder with past performance data, current and future trends along with potential strategies in the event certain performance issues arise. We know you are going to keep your funds invested in the mutual fund long – term but knowing where to be within the fund, at key times over the next 30 years can be critical to one’s long term success.

Health Care Costs are also a real concern for future retirees. As this issue unfolds in the Supreme Court in the coming months and healthcare reform unfolds in the coming years folks benefit from increased efforts on  prevention. Honestly the only good thing you can say about a lawyer or a doctor is that you don’t need to see them anymore, at least for awhile. If you are in your fifties and find yourself taking a boatload of medications you may need to really focus aggressively on how best to cover Health Care Costs in your sixties and beyond. Please see my post on Long –term Care (LTC). The sooner you act on the prevention side of the coin the cheaper it becomes in the long run. The following information, data was collected by the Kaiser Family Foundation and comes via USA Today:

Health Insurance Premiums Up 131% in Last Ten Years

By Brad Tuttle | @bradrtuttle | September 16, 2009 | 1

Today, the average cost of a family health insurance offered by an employer is $13,375. That’s up 131% over the last decade—a period in which inflation rose only 28%. And one estimate says that if costs continue on their current trajectory, premiums will go up another 166% in the decade ahead.

The data was collected by the Kaiser Family Foundation and comes via USA Today:

Since 1999, health insurance premiums for families rose 131%, the report found, far more than the general rate of inflation, which increased 28% over the same period. Overall, health care in the United States is expected to cost $2.6 trillion this year, or 17% of the nation’s economy, according to the non-partisan Congressional Budget Office.

At the same time costs have gone up dramatically, the policies have grown less generous, and more likely to add deductibles to be paid by the policy holder:

The annual survey of more than 2,000 companies also found that 40% of small-business employees enrolled in individual health plans pay annual deductibles of $1,000 or more. That’s almost twice the number who paid that much in 2007.

Unsurprisingly, employers will be passing along the most recent rises in premiums to their employees, as reported in the Washington Post’s look at the Kaiser survey:

Forty percent of employers surveyed said they are likely to increase the amount their workers pay out of pocket for doctor visits. Almost as many said they are likely to raise annual deductibles and the amount workers pay for prescription drugs.

Nine percent said they plan to tighten eligibility for health benefits; 8 percent said they plan to drop coverage entirely. Forty-one percent of employers said they are “somewhat” or “very” likely to increase the amount employees pay in premiums — though that would not necessarily mean employees would pay a higher percentage of the premiums. Employers could simply be passing along the same share of the overall increase that they are doing this year…

A major business lobby weighed in Tuesday, saying that if current trends continue, annual health-care costs for employers will rise 166 percent over the next decade — to $28,530 per employee.
Read more:

A Time to Be More Proactive with check-ups, and Prevention

I recommend future retirees take seriously the notion of preventative medicine. Below are the costs associated with typical maladies eventually suffered by too many retirees. Preventing diseases in your life can be considered a part-time job that you perform at home, and at the doctor’s office with compensation in the $10,000 to 15,000 range annually for 30 years.

Direct medical cost for treatment of lung cancer is approximately $5 billion annually

Eating disorders, inpatient – $1,000+ per day

The lifetime cost of treating breast cancer in 1984 dollars is $36,926 and lung cancer is $12,510.

The World Bank has estimated the cost of obesity in the U.S. at 12 percent of the national health care budget

Gastric bypass can range between $20,000 and $55,000.

Asthma affected an estimated 14.2 million Americans*, and cost the U.S. economy an estimated $10.7 billion.*

Diabetes is the fourth leading cause of death by disease in the United States. And, depending on the calculation method used, it costs the economy anywhere from $92 billion (1) to $112 billion (2) annually.

Per capita medical costs for diabetics were estimated to be more than 3.5 times those for nondiabetics, an annual average of $9,493 compared to $2,604. (2)

Your minimum heart attack cost for this overall experience will be about $45,000 – $50,000!—Can-You-Afford-One&id=396634


About Roger O'Keefe

My background is in education and finance. I'm a published author and photographer, former radio talk show host, and creative retirement planning expert. My work is a love of labor, I do not sell any products of any kind. I've appeared as a guest on more than 50 national and local television and radio shows. With a Masters in education, I'm a licensed educator and author of the “Future Bright Program” and the California State Department of Education “Teacher Appreciation Program.” I'm a member of the American Association of Retired Persons and the National Care Planning Council NCPC. I'm currently writing my second book and reside in the Rocky Mountains of Colorado. My mission is to reshape retirement planning one person at a time. Please visit my website and take advantage of the many complimentary online seminars, resources, and retirement planning tools.
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2 Responses to The Big Elephant (s) in the Room

  1. “An ounce of prevention is worth a pound of cure.” The hardest part of my job is selling the prevention side even though we have these figures. Unfortunately, sick care wins in our society. We need to act preventatively on both our healthcare and our future finances. Well done.

    • Thanks, I agree prevention is a tough sell but worthy of serious consideration given what is at stake. Continued success and Keep the faith it is all worthwhile no matter what!

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