‘Repeal and replace’ seemingly small cap on Medicaid isn’t small at all. According to the Congressional Budget Office (CBO), the House version of “Repeal and Replace” would cut federal health care expenditures by $1.2 trillion over the decade 2017-2026, result in 24 million fewer Americans having medical insurance by 2026, and impose a cap on federal Medicaid expenditures that is estimated to reduce the annual growth rate by 0.7 percentage points. This restraint on Medicaid spending growth, which is less stringent than the cap in the Senate bill, might seem like small potatoes compared to the legislation’s other effects (which include a separate provision that eliminates enhanced federal support for the Medicaid expansion). Federal Medicaid expenditures, under current law, are matching contributions: the federal government matches state Medicaid expenditures, for traditional beneficiaries, dollar-for-dollar in rich states and nearly three-to-one dollars in the poorest state. This cut in federal Medicaid expenditures would clearly affect the elderly. Nearly 20% of Medicaid expenditures currently go to the elderly, primarily for long-term care. Given the extremely high cost of nursing homes and other forms of long-term care, many middle-income and even some well-to-do elderly individuals exhaust their assets and rely on Medicaid to cover the cost of care. As a result, half of all expenditures for the long-term care of the elderly are currently provided by Medicaid. The states — especially states heavily dependent on federal Medicaid funds — cannot be expected to fill the gap by spending more. The long-term effect of a seemingly modest cap on federal Medicaid spending, combined with the predictable rise in long-term care costs for a rapidly expanding number of elderly boomers, is likely to significantly diminish the well-being of seniors — as well as the disabled and low-income households who would all be competing for Medicaid’s diminishing resources.
Many Americans struggle to come up with an official retirement savings target. After all, in the absence of a crystal ball, it’s hard to know what your senior living expenses will look like down the line, and it’s downright impossible to predict how many years of retirement you’ll actually end up needing to fund.
Still, those of us who are planning for retirement can do our best to guess at these costs and establish our nest eggs to align with what we think we’ll ultimately need. The problem, however, is that most Americans aren’t good at this particular guessing game.
In a recent study by Fidelity Investments, 75% of respondents underestimated the amount of money they’ll need in retirement. Specifically, 72% weren’t aware just how expensive healthcare in retirement can be, while 22% came up with a medical care figure that fell about $200,000 short of what recent projections actually call for.
And it’s not just expenses a large number of us are underestimating; we’re also selling our life expectancies short. Almost 40% of respondents felt they’d be OK with enough savings to last for just 12 to 17 years, but given that Americans are living longer these days, those who retire on time (meaning, at full retirement age for Social Security purposes) should plan for 20 years of savings at a minimum. Furthermore, since the Social Security Administration reports that one in four 65-year-olds today will live past the age of 90, while one in 10 will live past 95, a significant portion of the senior population will need savings that last a good 25 to 30 years, if not more.
What all of this tells us is that while we can’t be expected to come up with definitive retirement savings targets, most of us do need a better understanding of what it will cost to sustain ourselves once we stop working. And the sooner we get educated, the better positioned we’ll all be to ramp up our savings game.
How much will you spend in retirement?
The amount of money you’ll need in retirement will depend on a number of factors, such as where you live and how you spend your days. It stands to reason that a retiree living in a big city with plans to dine out and visit the theater regularly might spend more than someone who plans to live in a modest town and keep busy tending to his or her home and garden.
That said, there are certain universal costs that all apply to all retirees, regardless of desired lifestyle, and these are the ones we should all be aware of. We just learned that many Americans…