In this essay, I argue that because people live longer and consume more health care, we should be saving more.
Suppose that 50 years ago the expectation for a 45-year-old man was that he would live to age 70, and that health care costs would be, in today’s terms, $1000 per year after retirement, at age 65. Today, a 45-year-old man might expect to live to age 85, with health care costs averaging $10,000 per year. Assume that other post-retirement living expenses are $30,000 per year. The total post-retirement expenses are compared in the table below.
| Expense Driver |
50 years ago |
Today |
| Average annual health cost |
$1000 |
$10,000 |
| Other annual expenses |
$30,000 |
$30,000 |
| Total annual expenses |
$31,000 |
$40,000 |
| Post-retirement lifespan |
5 years |
20 years |
| Total post-retirement expenses |
$155,000 |
$800,000 |
The bottom line of the table is that the need for savings has grown tremendously in the past fifty years. However, because of Social Security and Medicare, many people feel insulated from this dramatic increase in the need for savings.
For Discussion. What policies would encourage thrift?