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Overcoming retirement fears

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One thing that presents many clients from fully executing a comprehensive estate plan is the fear that they haven’t fully taken care of their own retirement. That must always be their first priority, and rightfully so.

That might be surprising given the demographics of the estate-planning market. It is generally high-net-worth individuals who create estate plans, and these people might also be assumed to be well prepared financially for retirement. But surveys show that they are as nervous as any other American heading into retirement. The concern might not be that they have set aside sufficient assets to cover their retirement, but there are serious fears there nevertheless.

In a study that just came out last week, Legg Mason surveyed 500 affluent investors (defined as those with at least $200,000 in investable assets), and found that 88 percent of them were confident that their money would fund their retirement comfortably, in the manner in which they were hoping. But they still had many lingering fears about retirement. According to Legg Mason, those concerns are, in order:

1. Having a catastrophic event that uses up my retirement funds  2. Living longer than my retirement funds last  3. Government not following up on obligations  4. Not saving enough for my retirement  5. Low interest rate environment

The paramount concern appears to be some sort of devastating illness, which would be the “catastrophic event” alluded to in the first answer above. Another survey of high-net-worth individuals (defined as those with at least $250,000 in household assets), conducted annually by Nationwide Financial, shed some further light on how these people relate to their health care worries.

Around 60 percent of those surveyed described themselves as “terrified” of what health care costs could potentially do to their retirement plans. But one thing they did not do was turn to their financial advisors for help with this issue. In fact, a solid majority – 59 percent – of the respondents said that most financial advisors are “not equipped” to discuss retirement health care costs with their clients. Among those who had actually tried to get help from an advisor, though, the story was very different. The survey singled out those affluent individuals who had discussed health care costs in retirement with an advisor; two-thirds said that they found the conversation to be helpful or very helpful.

The gaps in understanding health care costs on the part of those who haven’t yet retired can be staggering. The Nationwide survey asked pre-retirees to estimate how much they expect to spending out of pocket each year on health care costs after they’ve retired. The average response was $4,300, which is woefully inadequate. According to a cost estimate calculated by Fidelity Benefits Consulting, a 65-year-old couple retiring this year is expected to need roughly $220,000to cover medical expenses throughout the course of their retirement.

Nationwide also asked those surveyed how much of their post-retirement health care costs they expect to be covered by Medicare. The respondents answered that they expected it to cover 69 percent of their medical bills. In actuality, Medicare covers only about 51 percent of the average retiree’s health care costs. It’s no surprise that 70 percent of those surveyed said they wished they understood more about Medicare.

There’s an important lesson here for estate planners and other advisors who deal with end-of-life issues. The affluent are not likely to broach the topic of health care costs with you; they’re not likely to see it as a topic you can help them with, and they may be a bit embarrassed to admit that the assets they have accumulated might not make them bullet-proof. A proactive advisor will take the initiative to discuss how these costs fit into an overall retirement plan.

These are difficult times for people worried about health care costs. The Affordable Care Act has changed the landscape for many insurance and health-related issues, and there has been a great deal of discussion about the future of Medicare and other entitlement benefits now enjoyed by the elderly. This provides a perfect opportunity for an advisor to educate them on the issues, and provide some invaluable peace of mind.