Even affluent Americans are concerned about health care costs and their impact on retirement plans

Columbus, OH - Nearly three out of four affluent, older adults (73 percent) list out-of-control health care costs as one of their top fears in retirement and 64 percent of future retirees say they are “terrified” of what health care costs may do to their retirement plans. As health care costs rise, even affluent older adults are becoming increasingly reliant on federal programs to cover health care costs.

A new Nationwide Retirement Institute® survey reveals that 67 percent of older adults plan to use or currently use Medicare and 63 percent plan to use or currently use Social Security to pay for their health care costs in retirement. The online survey conducted by The Harris Poll of 1,007 adults over 50 with a household income of at least $150,000 also finds future retirees plan to access a wider array of resources like Medicare to cover health care costs in retirement than current retirees do (71 percent vs. 59 percent).

Government programs needed, but not fully understoodWith nearly nine in 10 older adults (86 percent) enrolled in – or planning to enroll in – Medicare, it’s clear Americans acknowledge the need for health care coverage in retirement. Yet more than seven in 10 (72 percent) wish they better understood Medicare coverage, indicating they don’t fully know what they’re signing up for.

The misconceptions vary:• 53 percent do not know that Medicare Part B is not free even if you have worked and paid Social Security taxes for at least 10 years• 23 percent do not know you cannot enroll in Medicare at any time• 29 percent do not know Medicare does not cost the same for everyone• 62 percent do not know that future changes will impact the ability to sign up for Medigap/Medicare supplement plans

“With changes coming to Medicare, premiums will increase for high-income retirees, making it even more important for future retirees to understand the details and incorporate the program as part of a comprehensive retirement plan,” said John Carter, president of retirement plans for Nationwide.

In addition, among older affluent adults with children, 42 percent admit they would give away all their money to their children so they could be eligible for Medicaid-funded long-term care.

“Affluent adults should not be planning to rely on Medicaid,” Carter said. “Not only is the program not designed for them, they lose personal control when it comes to long-term care.”

Health care costs loom over retirement goals

More than half of affluent, older Americans are unsure or can’t estimate what their annual health care (53 percent) or long-term care costs (65 percent) in retirement will be. Those who did estimate an amount expect annual health care costs to be approximately $22,849 for themselves or for themselves and their partner, if married.

“Health care costs are the biggest expected expense in retirement and should be a major factor when estimating retirement expenses since they are often costly and unexpected,” Carter said. “Our survey found that 39 percent of adults immediately associate health care with high costs. Yet, very few know what the actual costs could be, which makes planning difficult.”

While they know health care costs are coming, they are not prepared to pay for them. In fact, more than one in four (27 percent) affluent, older adults say they couldn’t cover more than $1,000 in unplanned expenses, 44 percent couldn’t cover more than $4,000 and 60 percent couldn’t cover more than $5,000 of unplanned expenses.

More than half (59 percent) pay or plan to cover unplanned expenses with disposable income, 42 percent use or would use 401(k) withdrawals, 33 percent use or plan to use a savings fund specifically for this type of expense and 17 percent use or plan to use credit cards.

How future retirees are preparing

Four in five future retirees (87 percent) are taking actions to save for health care costs in retirement. Most commonly, affluent, older adults are building their savings account (59 percent), investing (56 percent), increasing their 401(k) contributions (46 percent) and paying off credit card debt and loans (36 percent).

While half of employed affluent adults (50 percent) have access to a Health Savings Account (HSA) through their employer, only 30 percent participate in or contribute to the HSA. Of those that do use HSAs, just 35 percent utilize their maximum potential by using them as a long-term savings vehicle for future health care expenses in retirement and to cover today’s health care expenses.

“It’s promising that most adults are taking action as a result of their concerns,” Carter said. “However, few are planning based on specific, personalized cost estimates, and even fewer are using all the resources available to them.”

A quiet concern

Despite nearly two in three affluent future retired adults being terrified of what health care costs may do to their retirement plans, they aren’t having informed conversations to prepare. Fifty-two percent of those who have a financial advisor haven’t talked with their financial advisor about health care costs (slightly down from 54 percent last year); most commonly because they consider it a personal issue (21 percent). One in three affluent adults (32 percent) have not had a conversation with anyone about their health care costs.

“You can’t adequately plan for health care costs without discussing the topic,” Carter said. “While often considered personal, consumers and advisors need to broach the subject and accurately plan to ensure health care doesn’t negatively impact their retirement.”

To help advisors have these conversations, Nationwide’s Health Care Cost Assessment tool uses proprietary health risk analysis and updated actuarial cost data such as personal health and lifestyle information, health care costs, and medical coverage. It provides a meaningful, personalized cost estimate that will help advisors and clients estimate future medical and long-term care expenses.

See how to plan for health care costs in retirement at www.nationwide.com/HealthCareinsights. Advisors can visit www.nationwidefinancial.com/HealthCareinsights.

About the survey 

This survey was conducted online by The Harris Poll on behalf of The Nationwide Retirement Institute between February 5 and February 22, 2018, among 1,007 U.S. adults aged 50 or older with a household income of $150,000 or more (“affluent adults”), including 634 future retirees, 506 who work with a financial advisor, and 553 employed affluent adults. Results are weighted where necessary by age by gender, race/ethnicity, region, education, income, marital status, and propensity to be online to be representative of affluent U.S. adults over 50 for the affluent group and of U.S. adults over 50 for the caregivers group.

This survey is not based on probability sample and therefore no estimate of theoretical sampling error can be calculated.