Fronstin (2006) estimates that a 55-year-old couple in 2006, planning to retire at age 65, would need to accumulate more than $400,000 during the next 10 years in order to afford supplemental health costs, beyond what Medicare already covers, through age 90. Even in the near term, projections based on the Health and Retirement Study suggest that by 2019, nearly one-tenth of elderly retirees will be devoting more than half of their total income to out-of-pocket health expenses. Thus, saving for retirement may ultimately be less about the golf condo at Hilton Head and more about being able to afford wheelchair lifts, private nurses, and a high-quality nursing home.
The main take-away from Skinner’s paper is that you cannot answer the question of whether you are saving enough for retirement without making a forecast about health care expenditure. For a given level of technology, I can imagine private insurance taking care of the risk that a given individual will require expensive medical care in old age. But if you are 50 years old, your future medical expenses depend on what medical technology will look like 30 years from now. Rather difficult to forecast, I’d say. Is that a rationale for social insurance? I think David Cutler would say yes.