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Retirement Planning > Retirement Investing

Adverse Impact of Health-Care Costs Driving Fears About Retirement

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Nearly half of soon-to-be-retired, high-net-worth boomers are concerned about the negative impact of healthcare costs on their retirement plans, new research reveals.

Nationwide Financial, Columbus, Ohio, published this finding in a summary of results from an online poll of 625 adults ages 55-plus having $250,000 or more in household assets who plan to retire by 2020; and of 625 retired adults ages 65-plus having $250,000 or more in household assets. The survey was conducted for Nationwide by Harris Interactive Jan. 3-19, 2012.

Nearly three in four of the survey respondents say that “out of control” health care costs are among their top retirement fears. Yet, nearly 4 in 10 respondents (38%) nearing retirement say they have not discussed retirement with a financial advisor. Of those who have, only one in five discussed health care costs in retirement not covered by Medicare.

“Americans—even those who have diligently saved for their golden years—are not prepared for the reality of health care costs in retirement and don’t really understand how Medicare works,” said John Carter, president of Nationwide Financial Distributors, Inc. “Too many assume their employers will continue to pay their premiums during retirement or that Medicare will cover all health care expenses.”

The survey notes that soon-to-be-retirees lack confidence in the ability of financial advisors to help with this challenge, with three in five (59%) saying that most financial advisors are not equipped to discuss retirement health care costs with their clients. But those who have broached this topic with a financial advisor indicated that it was worthwhile, with two-thirds saying advisors were “helpful” or “very helpful” in discussing information about their health and estimating their health care costs in retirement.

Only one in five respondents say they are confident in their knowledge of Medicare coverage. And more than half say it is very or extremely important they educate themselves on Medicare coverage when planning for retirement.

Soon-to-be-retired Americans who plan to enroll in Medicare estimate that Medicare will pay for 68% of their health care costs in retirement. But when asked how they arrived at that percentage, nearly three in four guessed or didn’t know, 15% calculated it based on their own research, 7% spoke with friends who have already retired and just 4% say they were told by their financial advisor.

Medicare provides health coverage to 46 million older or disabled Americans, but according to the Employee Benefit Research Institute, Medicare currently covers only about 51% of the expenses associated with health care services.

While 45% expect health care to be their biggest expense throughout retirement, when asked to estimate how much they anticipate spending each year on health care, they said, on average, $5,621. This represents a drastic underestimation based on a 2010 study that estimates out-of-pocket health care expenses for a 65-year-old couple retiring today and living for 20 years to range from $250,000 to $430,000.The survey says could mean as much as $10,750 a year per person in out-of-pocket health care expenses.

The survey also reveals an opportunity for advisors: 43% of soon-to-be-retired Americans say they plan to discuss health care costs with a financial advisor. While only one in 10 (12 percent) of soon-to-be-retired Americans say they are planning to switch financial advisors, of those, more than half (54%) say they would be more likely to stay with their current advisor if they could help them plan for covering health care costs in retirement or discuss the role of Medicare in their retirement.

Separately, a survey of 315 retirees 65 years and older, conducted by Extend Health, Inc., South Jordan, Utah, reveals that healthcare costs in retirement is now a top concern.

Respondents were all retirees from major U.S. corporations. And 74.9% of them retired more than 10 years ago.

When asked to pick their top concern about retirement today, respondents’ number one response was having adequate health insurance (22.8%). In comparison, respondents say their top concern five years ago was maintaining their pre-retirement standard of living (26.9%).

Moreover, retirees say they are more concerned today about “having enough money to pay out-of-pocket medical expenses not covered by their health insurance” than they were five years ago. Nearly one in seven (13.4%) of respondents say that out-of-pocket medical expenses is their top concern today, nearly twice the number who said that five years ago it was their top concern.


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