Economic Update: Life Expectancy & Healthcare Costs

A recently updated report from the National Center for Health Statistics (NCHS) estimated that the average life expectancy for Americans slid to 77.0 years in 2020 (1-year lagged data release), the first annual decrease in three years. It is important to remember, though, that this headline statistic refers to life expectancy at birth, but life expectancy after you reach a certain age can be much higher.

At age 65, for instance, the new NCHS calculations imply a life expectancy of 18.5 years, 6.5 years longer than the life expectancy at birth figure. Similarly, updated J.P. Morgan estimates suggest that if you are age 65 there is a 49 percent chance you or your spouse will live to at least 90, and 1 in 25 odds of becoming a centenarian.

The coronavirus of course adds a lot of noise to this and next year’s mortality data update, and COVID-19 was the third most common cause of death in 2020. The report encouragingly found that cancer-related deaths declined during the year, but the rates of many other common causes of death ticked higher, perhaps a side-effect of the pandemic’s impact on lifestyle and quickness to seek medical care. Regardless, the cost for treating all of these and other medical ailments remains high, especially as one ages. Moreover, healthcare spending in old-age can be substantial, as evidenced by data from the Centers for Medicare & Medicaid Services (CMS) which showed that Americans spent a staggering $4.1 trillion on healthcare in 2020. That is equivalent to $12,530 per person, or 19.7 percent of U.S. gross domestic product (GDP). The elderly (age 65 and older), though, do not even represent a sixth of the population but still accounted for more than a third of the total healthcare spending in America.

What is worse is that the CMS projects national health spending will grow at a rate of 5.4 percent per year through 2028. That is more than a full percentage point faster than the economy is forecast to grow during the same period, meaning that healthcare spending as a share of GDP will also continue to rise. Altogether, these statistics should provide more motivation to set aside as much money ahead of time as possible for retirement. The earlier one can start the better, and taking full advantage of 401(k)s, IRAs, HSAs, and other tax-advantaged savings vehicles can help greatly. Additional assistance is available by regularly working with a professional financial advisor or utilizing the various tools on our website to make sure that you remain on track to achieve the retirement lifestyle you deserve after decades of hard work.

Healthcare expenses, however, can also be significant long before one even reaches retirement and as a result potentially impact a person’s ability to set money aside for old age. Employers are well aware of this and unsurprisingly such expenses were cited as a concern for 80 percent of business managers in an earlier Transamerica survey, and 84 percent cited “health benefits” as an important part of recruiting and retaining talented workers. That likely explains why a growing number of small- and medium-sized businesses are working with professional employer organizations (PEOs) that can help with the financial and administrative burdens associated with providing attractive healthcare benefits to workers.

What To Watch This Week:

Monday

  • Chicago Fed National Activity Index 8:30 AM ET
  • PMI Composite Flash 9:45 AM ET
  • 2-Yr Note Auction 1:00 PM ET

Tuesday

  • FOMC Meeting Begins
  • Case-Shiller Home Price Index 9:00 AM ET
  • FHFA House Price Index 9:00 AM ET
  • Consumer Confidence 10:00 AM ET
  • Richmond Fed Manufacturing Index 10:00 AM ET
  • 5-Yr Note Auction 1:00 PM ET

Wednesday

  • MBA Mortgage Applications 7:00 AM ET
  • New Home Sales 10:00 AM ET
  • EIA Petroleum Status Report 10:30 AM ET
  • Survey of Business Uncertainty 11:00 AM ET
  • FOMC Announcement 2:00 PM ET
  • Fed Chair Press Conference 2:30 PM ET

Thursday

  • Durable Goods Orders 8:30 AM ET
  • GDP 8:30 AM ET
  • Jobless Claims 8:30 AM ET
  • Pending Home Sales Index 10:00 AM ET
  • EIA Natural Gas Report 10:30 AM ET
  • Kansas City Fed Manufacturing Index 11:00 AM ET
  • 7-Yr Note Auction 1:00 PM ET

Friday

  • Personal Income and Outlays 8:30 AM ET
  • Employment Cost Index 8:30 AM ET
  • Consumer Sentiment 10:00 AM ET
  • Baker Hughes Rig Count 1:00 PM ET

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