If you think dividend equities are a passing fad and that retirement portfolios are about to shift back into bonds aaaaaaaaaaaaaany minute now, you should consider the new awareness dawning on people about what their healthcare costs will be in the future.
Here are some stats that virtually guarantee the need for portfolio growth as opposed to income for many Americans:
According to an AARP study released early this year, titled “What are the Retirement Prospects of Middle-Class Americans,” rising out-of-pocket medical costs are the prime factor threatening retirement security.
The report notes that median out-of-pocket medical expenses for 70-year-olds currently come to $2,800, or 8.2% of annual income. For middle-income workers aged 45 to 54 in 2012, that figure should rise to $5,600, or 15.3% of income, when they reach 70, while for those between ages 25 and 34, those expenses are likely to rise to $11,000, or 20% of income.
With those rising medical outlays, the AARP study concluded “future retirees are less likely than current retirees to maintain their standard of living during retirement.”
We spend a lot of our time in our practice explaining that the real risk for many clients is not “volatility” – it’s running out of money before running out of lifetime. Medical expenses are absolutely a big part of that.