A recent Vanguard study found that nearly a third of 401(k) plans contained less than $10,000. Over the next 15 years, the number of elderly Americans will grow by more than 20 million. Will they have enough for their health care needs?

Here's a startling scenario for many Americans, as outlined by financial writer Brett Arends in a recent MarketWatch op-ed: “a couple who retires at age 65 with $34,000 in assets and looked to convert that into a pension for the rest of their lives through an annuity would be looking at the princely income of $1,600…a year.”

Arends’ calculation is alarming on multiple levels, but it underscores an ominous trend: most Americans 65 and older have not saved enough for retirement. This trend is especially problematic for Americans at or below the median income who will be most affected by the high costs of health care later in life.

Health care is a significant expense later in life

According to HealthView Services, a firm that provides health care cost projection software, a 65-year-old couple in good health needs around $387,644 to pay for health care costs for the remainder of their lives. That estimate encapsulates premiums for Medicare Part B (medical insurance) and Part D (prescription drug coverage), dental coverage, and various out-of-pocket costs (e.g., doctor exams and hearing services). But it excludes long-term care expenses.

And long-term care costs are expensive.

There’s a 70 percent chance that a person retiring today at 65 will need long-term care services during their remaining years, according to the U.S. Department of Health and Human Services. Statistically speaking, women will need coverage longer than men due to their extended lifespans (3.7 vs. 2.2 years). Furthermore, median yearly costs for assisted-living facilities are an eye-popping $48,000. This figure jumps to $89,000 when factoring in the prices for a semi-private room at a nursing home. Additionally, a home health aide costs around $50,400 each year. Medicare – relied on by most retirees – does not cover long-term care costs and typically covers limited amounts of skilled nursing care and rehabilitative services.

Exploring solutions

It’s no secret that the Covid-19 pandemic took a devastating toll on nursing home and long-term care communities. My colleagues, Gregg Girvan and Avik Roy covered these tragedies amid the worst of the pandemic. In the months ahead, FREOPP will be looking at the high costs associated with long-term care. Understanding the unique pressures facing nursing homes and long-term care facilities offers a foundational step in addressing this problem. Moreover, analyzing how hospital closures and health care consolidation affected older Americans’ care will be critical – especially in rural areas. Lastly, ideas on reforms that could make care better and more affordable will be explored so that Americans at or below the median income can age more gracefully through the American health care system.