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Study Reveals Health Care Costs in Retirement Will Keep Rising Fast
Costs to keep rising
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Happy Sunday everyone, and welcome to Benzinga’s financial advisor newsletter.
Today we’re talking about a new study showing that retirees will need to put aside even more money for healthcare costs, which needs to be accounted for in any financial plan.
So, let’s get into the Industry Chatter!
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INDUSTRY CHATTER
The 2024 Milliman Retiree Health Cost Index projects that health care expenses for retirees will continue to rise, with costs varying based on health status, location, and age at retirement, which must all be considered when planning for retirement.
For a healthy 65-year-old retiring in 2024 with a Medicare Advantage Part D (MAPD) plan, lifetime health care costs are estimated at $128,000 for men and $147,000 for women. To cover these expenses, men need at least $86,000 in savings, while women require $96,000, assuming a 3% annual investment return.
Costs are even higher for those choosing Original Medicare with Medigap plus Part D, with projected lifetime expenses of $281,000 for men and $320,000 for women. The difference in costs between genders is primarily due to women's longer average lifespan.
Location Makes All the Difference
Location significantly impacts costs. For example, a 65-year-old retiring in Florida in 2024 might spend $340,000 on health care, compared to $260,000-$280,000 in Texas.
Recent changes, including the Inflation Reduction Act's modifications to Medicare Part D and increased spending on brand-name drugs like GLP-1s, have affected health care costs. While out-of-pocket expenses decreased in some areas, premiums have risen.
Wait to Retire and Save Thousands
Retirement timing greatly influences health care expenses. Retiring at 60 instead of 65 can increase costs by 56% to 86%, depending on the chosen plan. Conversely, delaying retirement to age 70 can reduce health care expenses by about 30%.
Robert Schmidt, Milliman principal and co-author of the index, emphasizes the importance of considering health care expenses in retirement planning. He advises realistic assessment of health status and health care expenses to ensure a less stressful, financially healthier retirement.
The study highlights the complex factors affecting retiree health care costs and underscores the need for careful financial planning. As health care remains a significant expense in retirement, understanding these projections can help individuals and their financial advisors better prepare for their future financial needs.
TOMORROW’S GREATEST STOCKS
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MARKET RECAP
The S&P 500 Index, as tracked by the SPDR S&P 500 ETF Trust (SPY), declined for the third consecutive week, while the Nasdaq 100 tumbled into a market correction phase, suffering a 10% drawdown from its all-time highs hit last month.
Statements from Fed Chair Jerome Powell hinting at a potential rate cut in September provided only temporary support to the stock market, as weaker-than-expected economic data and escalating geopolitical tension in the Middle East dampened investor risk appetite by week’s end.
As a result, investors turned to safe-haven assets, with long-term Treasury bonds enjoying their best week in years as yields fell sharply amid increased expectations of Fed rate cuts. Speculators are now betting on a larger 50-basis-point reduction in September.
The U.S. economy showed signs of weakness last month, as manufacturing activity contracted at its fastest rate since December 2023 and job growth slowed significantly. Alarmingly, the unemployment rate unexpectedly rose to 4.3%, the highest level since October 2021.
Utilities were the strongest sector for the week, while technology the worst. Regional banks and semiconductors suffered the heaviest losses among industries.
Fed Policy Mistake?
The Federal Reserve’s decision to keep interest rates unchanged was criticized by some economists as a serious policy error, especially following the July jobs report released Friday that showed rising unemployment.
Economists argue the Fed should had already lowered rates this week to support the economy as labor market data turns negative.
Chip Stocks Plunge
Chip stocks plunged, with Intel Corp. (INTC), NVIDIA Corp. (NVDA), and ASML Holding NV (ASML) seeing sharp declines due to weak manufacturing data and higher jobless claims. The sector faces pressure from U.S.-China tensions, regulatory challenges and disappointing earnings, triggering a broad retreat in semiconductor stocks.
Amazon Stock Dips
Amazon.com Inc. (AMZN) shares fell after reporting mixed quarterly results, with net sales below expectations and AWS revenue slightly surpassing estimates at $26.3 billion. The company issued soft third-quarter guidance, predicting net sales between $154 billion and $158.5 billion, below analyst estimates.
Apple AI Surge
JPMorgan Chase & Co. (JPM) analyst Samik Chatterjee remains optimistic about Apple Inc.’s (AAPL) artificial intelligence-driven growth, maintaining an Overweight rating on the stock after strong third-quarter results. The upcoming AI upgrade cycle with products like the iPhone 16 and iOS 18 is expected to drive significant growth, enhancing Apple’s market leadership, the analyst said.
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THE WEEK AHEAD
Economic Data
Monday: ISM’s service sector activity data
Tuesday: China’s official import and export data
Wednesday: Germany’s official import and export data
Thursday: Initial jobless claims
Friday: CFTC speculative net positions for the most important global commodities
Earnings
Monday: Tyson Foods (TSN), Palantir Technologies (PLTR)
Tuesday: Uber Technologies (UBER), Caterpillar (CAT)
Wednesday: CVS Health (CVS), Walt Disney (DIS), Novo Nordisk (NVO)
Thursday: Cheniere Energy (LNG), Under Armour (UA)
Friday: Canopy Growth (WEED), Nikola (NKLA)
Click here for the full calendar of economic data and earnings reports.
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