Health Care Costs Drive Up the National Retirement Risk Index

The National Retirement Risk Index has shown that even if households work to age 65 and annuitize all their financial assets, including the receipts from reverse mortgages on their homes, 44 percent will be ‘at risk’ of being unable to maintain their standard of living in retirement. More realistic assumptions re­garding earlier retirement and reluctance to annuitize 401(k) balances or tap housing equity would put the percentage ‘at risk’ even higher. But these previous analyses have not addressed rapidly rising health care costs. When these costs are included explicitly, the percentage of households ‘at risk’ increases dramati­cally. This brief explores how rapidly rising health care costs enter the NRRI calculations. It begins with a recap of the NRRI, then describes the health care landscape facing older Americans, and finally reports the results of incorporating retirement health care costs explicitly into the Index. The results show that once health care is considered explicitly, the percent­age of households that will be ‘at risk’ rises from 44 percent to 61 percent. As always, the percent ‘at risk’ is greater for those at the low end of the income dis­tribution. And later cohorts show more ‘at risk’ than earlier ones due to the combined effect of a contract­ing retirement income system and continually rising health care requirements.