We know that many people aren't saving enough for retirement. Consultants at McKinsey & Co. estimate the average couple will be around $250,000 short of what they need to maintain their standard of living in retirement. Their calculation may be optimistic.
The mutual fund giant Fidelity figures a 65-year-old couple retiring in 2012 will need around $240,000 to cover medical expenses through their retirement. Fidelity first made the health-care-spending-in-retirement estimate in 2002 at $160,000. Since then, the number has increased at a 6 percent average annual rate. (It dropped by $20,000 in 2011 with one-time Medicare adjustments.)
Here's the thing: The $240,000 out-of-pocket guesstimate is for people with Medicare coverage. Medical care eats up more and more of the budget as retirees age.
When I look at a chart like the one above and read the Fidelity estimate on costs, it reinforces the message that we need to save more for our elder years. Despite all the criticisms about profligate generations, I think it's remarkable how much progress people have made with their savings considering the weak economy and lousy job market. Yet at this point, it's unrealistic to expect the savings alone will solve the household budget drain. Most people should plan on working into the traditional retirement years, which will allow them to continue saving, as well as delay taking their Social Security benefit.
Nevertheless, it's doubtful that households will save the kind of money the experts project they will need in retirement. After all, people lose their jobs. When they find new work at a lower wage (the typical experience), their employer may not offer a retirement savings plan. The short- and long-term trends are for wages for a majority of workers to stagnate. We're also struggling to build up emergency savings, save for our children's college educations and absorb more of the health-care bill.
This is why I think the notion of putting more and more financial responsibility on individuals won't work. Each policy on its own has its merits, but in the aggregate, it's overwhelming. Instead, we should focus on ways to improve risk sharing and create a stronger safety net. Both policy goals would encourage greater risk-taking, since the downside is limited. And more entrepreneurship is a net boon to the economy.