Will Health Care Costs Erode Retirement Security?

Richard W. Johnson Rudolph G. Penner

IB#23

Introduction

Retirement security depends on both the income of the aged and their consumption needs. Several recent studies project that the Baby Boomers, who were born between 1946 and 1964 and are now approaching traditional retirement ages, will on average receive more income in later life than earlier generations of older Americans. But increases over time in consumption needs might offset these income gains. In particular, rising health care costs may threaten the Baby Boomers’ retirement security. This brief projects future income and out-of-pocket health care spending at older ages. If current policies continue, income after taxes and health care spending for the typical older married couple will be no higher in 2030 than it was in 2000 — despite 30 years of productivity growth. The increased health care burden will be particularly painful for those at the lower end of the income distribution who do not qualify for Medicaid…