Ill Prepared for Long-Term Health Care

Without proper planning, the cost of health care will create a hardship on a majority of retiring baby boomers

The high cost of long-term health care will drag down the quality of life for nearly two-thirds of today's retirees. It can cost $77,000 a year for a nursing home room and $20,000 for in-home care, expenses that many people are ill prepared to absorb, said the Center for Retirement Research at Boston College.

A new analysis shows that when the cost of health care and long-term care is included, 64% of retirees likely will be unable to maintain the lifestyle they had before retirement.

"This is the No. 1 issue staring us in the face over the next decade," said Paul Ballew, a senior vice-president at Nationwide Mutual Insurance Co., which provided a grant to fund the study.

The cost of health care will create such an unexpected hardship on unprepared retiring baby boomers that it's imperative to sound the warning now, said Alicia Munnell, director of the Center for Retirement Research.

The stock market collapse that has whacked retirement savings for millions of workers has focused attention on how poorly people are prepared for retirement expenses, she said.

Underscoring a Harsh Reality

Munnell has been concerned for years about the impending retirement crisis caused by a combination of problems. They include inadequate personal savings, a Social Security system that will likely fail to provide current levels of support, and rapidly rising health-care costs.

Health-care costs rose nearly 7% last year after costing a total of $2.4 trillion in 2007, about $7,900 per person, says the nonprofit National Coalition on Health Care.

"My thought was that nothing was going to happen until the first generation of people retired without enough money and congressmen would see their parents living on just too little and people would be motivated to do something," Munnell said. "The financial crisis really accelerated that process."

The study illustrates the harsh reality that spending too much, borrowing excessively, and saving too little has left a generation unprepared for retirement, Ballew said.