Most Boomers Missed This Retirement Strategy But Millennials Still Have Time

Fidelity Investments recently released its annual estimate of healthcare costs in retirement. The scary numbers indicate the average person older than 65 years old may spend $157,500 in out-of-pocket expenses for healthcare in retirement. A couple may pay an average of $315,000.

Middle-aged Millennials should take note, this is not just a Baby Boomer problem. Imagine what those costs might be in a few short decades from now.

The Centers for Medicare & Medicaid Services estimate that out-of-pocket healthcare expenses may grow at a projected 4.1% between 2025 and 2031. CMS also suggests a low growth rate of 3.6% due to changes in Medicare Part D enabling the negotiation of lower drug prices. While there are many countervailing variables between now and Millennial retirement years, what might the out-of-pocket healthcare costs be for the first wave of retiring Millennials?

Assume the oldest Millennials retire at 65 years old — 23 years from now — in 2046. What if health expenses in retirement continue to grow from today’s out-of-pocket estimates at the rate CMS projects (between 4.1% and 3.6%)? Let’s say it’s 3.8% annually. Could Millennial couples be looking at average healthcare costs in retirement of approximately $742,000, while solo-living Millennials expect to pay more than $371,000 for healthcare in their retired years?

The oldest Millennials are now in their early 40s. They are also in the prime years when advisors and employer-sponsored retirement plans are urging people to save, invest, and plan ahead. Today’s retirement planning focuses primarily on finances, which is not wrong but just woefully incomplete.

A longevity planning approach should be adopted by Millennials and those that advise them. Longevity planning, in contrast to traditional retirement planning, is a far more holistic approach to preparing for life in older age and emphasizes investing in both wealth and health. Other than ensuring there is enough money to pay for healthcare in retirement, the other obvious hedge against rising healthcare costs in older age is to stay as healthy as possible for as long as possible.

Many would quickly respond that Millennials are already very health conscious.

The Boomers were health conscious once too. Jogging, aerobics, fitness clubs, VHS tapes and television fitness programs with Boomer icons such as Jane Fonda and Suzanne Somers became an industry powered by a generation.

The Population Reference Bureau cites several studies indicating that older Boomers may be less healthy than previous generations at the same age decades earlier.

Boomers may be enjoying more years of life than their parents and grandparents, but many are now faced with managing more chronic conditions, disability, and unanticipated healthcare costs in retirement.

Millennials now are entering traditional middle age when chronic conditions begin to present themselves and develop. A 2021 Harris Poll indicated 44% of Millennials have at least one chronic condition. In fact, a pre-Covid-19 study conducted by Blue Cross Blue Shield Association suggested that Millennials may be less healthy in older age than previous generations.

Moreover, as family, professional, and ever-growing caregiving responsibilities for aging parents demands escalate, Millennials are reporting greater stress affecting their mental well-being and ultimately their physical health. In fact, a 2023 study by Deloitte found 39% of Millennials “feel stressed or anxious all or most of the time.”

Today, Millennials are the driving force behind fitness companies such as Pure Barre, Orange Theory, countless yoga studios, and more — but will they go the way of the Boomers as life gets more complicated and demanding?

Current approaches to preparing for life in retirement are focused primarily on financial security. Millennials still have the time to invest in their financial security as well as physical well-being. It is often said that if you have your health, you have everything. What goes unsaid is that if you don’t have your health, it will cost you, your family, your adult children, and even your employer.

Don’t be a Baby Boomer, Millennials. Hedge your futures, and invest in both your portfolios and your personal health.