A sizable gap exists between individuals’ perceptions of health care and long-term care costs and their overall financial preparedness, underscoring the need for better retirement planning, according to a survey from Jackson National Life Insurance Co.
Some two-thirds of pre-retired survey participants underestimated their prospective health care expenses in retirement, citing expenses at least $1,220 less than the $8,600 annual estimate.
Only 27% of respondents believed that they will require long-term care at some point, but according to Morningstar research, 70% of individuals turning 65 each year are likely to need extended care at some point.
Jackson said this is particularly notable, as its recent longevity risk study found that a large majority of investors inaccurately predict their life expectancy, increasing retirement income planning risk.
“Our research is particularly timely given potential policy shifts resulting from the election outcome, as proposals addressing healthcare reform and federal funding for long-term care programs could significantly impact retirees’ healthcare costs and savings strategies,” Glen Franklin, an assistant vice president in Jackson’s marketing and distribution business, said in a statement.
The research, Franklin said, further underscores the importance for investors of working with financial professionals to prepare for an evolving landscape and proactively addressing health care risks in their retirement plans.
The online survey, fielded last summer, included some 400 financial professionals and 500 investors ages 48 to 78 with at least $100,000 in financial assets who participate in, or lead, household financial decision-making.
Retirees’ Risk Factors
Advances in medical technology and treatments are expected to significantly increase health care costs over the next decade. The price of medical care including services, insurance, drugs and equipment has increased by more than 120% since 2000, the study said, citing recent research.
Jackson said these findings align with insights from its 2024 inflation risk study, which examined how pre-retired households struggle to adapt to rising costs of essential expenses, including health care, in the face of inflation.
More than 60% of investors surveyed said they plan to or may consider spending down their assets in order to qualify for Medicaid as a long-term care funding solution. Jackson noted, however, that many may not be prepared for the dramatic life changes doing so would entail.
Forty percent of financial professionals in the survey said they are concerned that clients will be unable to afford acceptable care, with 56% citing this as a major risk for retirees.
Survey participants who had seen family members require long-term care were nearly twice as likely as those without that experience to believe that they will need similar care. This cohort is also more proactive in exploring costs, adjusting retirement timelines and planning for assisted living expenses.
Female respondents who lead financial decisions in their household expressed higher concern than their male counterparts about health care risks but were less likely to anticipate requiring long-term care despite longer life expectancies.
Many women reported lower income and asset levels, yet they were three times more likely than men to be caregivers for family members.
“These new survey data should be a wakeup call for policymakers, financial professionals and older Americans themselves,” Andrew Eschtruth, director of the Center for Retirement Research at Boston College, said in the statement.
“We are particularly concerned that too many people nearing or in retirement don’t have a good grasp of their potential healthcare needs and out-of-pocket costs, which could narrow their options when it comes time to pay the bills.”
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