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Study: Many Retirees Underestimate Healthcare Costs When They Retire

retirement healthcare costs estimate

The high cost of healthcare looms as a major factor for retirees to deal with after they stop working. But a recent online survey revealed that things may actually be even worse than what retirees are predicting.

Sponsored by Nationwide Life Insurance Company, the survey was conducted from March through April of 2019. The 1,462 people who were polled were at least 50 years old. This group was a mix of pre-retirees, current retirees, and folks who had been retired for at least 10 years. An additional 516 caregivers were also polled.

The findings? Most of the retirees greatly underestimated their retirement healthcare costs. The majority predicted they would need to spend roughly $7,000 a year on healthcare in retirement. Nationwide estimated the real cost would be closer to $10,739 for the average retiree.

The insurer's health cost estimate was based on the Summary of National Health Expenditures, with reported spending data from the 1960s to 2017.

Healthcare and Top Financial Stressors

Future retirees seem to be the group most concerned about healthcare costs in retirement. Three-quarters of future retirees stated that they are at least somewhat concerned about paying for retirement healthcare costs.

In regard to stressors, 63% of future retirees said that paying for healthcare was their top concern. Meanwhile, 62% feared a major decline in health after they stop working.

In fact, future retirees showed themselves to be the most concerned about all retirement-related financial issues, including healthcare costs, long-term care, health insurance, Social Security, taxes and retirement. Recent retirees came in second in most categories and those who have been retired for at least 10 years were last.

Retirement Goals Don't Include Healthcare Planning

However, the survey also revealed that while healthcare may be the top concern for future retirees, planning for this isn't their primary goal.

Among those not yet retired, 72% of them are more concerned about paying for living expenses. Their second most common goal is paying for travel expenses. And perhaps most surprisingly, only 45% of future retirees planned to discuss their concerns with a financial advisor.

The reasons for not doing so are broken down as follows:

  • 21% - prefer to discuss with (future) spouse
  • 19% - it’s a personal issue
  • 15% - I don’t know enough about the topic
  • 13% - financial advisors don’t know enough about the topic
  • 12% - prefer to work with a health insurance specialist
  • 12% - prefer financial advisor not know about my health issues
  • 10% - healthcare costs aren’t a problem
  • 8% - don’t want to think about health problems
  • 5% - prefer to discuss with my children
  • 4% - waiting for financial advisor to bring it up
  • 4% - financial advisor recommended options that were too expensive
  • 14% - don’t have this relationship


Gaps in Education and Understanding

In the poll, affluent older adults were much more likely to discuss healthcare costs with a financial advisor than their non-affluent counterparts.

37% of affluent respondents said that they would do this. In contrast, only 22% of non-affluent respondents indicated they would do so. But both of those numbers are alarmingly low. They clearly show that financial advisors need to be more proactive with healthcare planning for their clients.

The survey also clearly shows a significant gap in understanding among the respondents on a variety of financial topics.

For example, 55% of future retirees who have a Health Savings Account (HSA) aren’t making contributions to it. And 52% of future retirees only use their HSAs for current medical expenses.

Two-thirds of future retirees said that they wish that they understood Medicare better than they do. A whopping 79% of them thought that Medicare Part B is free to anyone who has worked and paid Social Security taxes for at least 10 years

Knowledge Gaps on Long-Term Care and Future Health Costs

Furthermore, three-quarters of future retirees have no form of long-term care coverage. Not only that, an alarming 86% of them thought that Medicare covers long-term care costs.

Less than half of future retirees felt that they could estimate what their retirement healthcare costs would be. Meanwhile, about a third of them estimated that their annual healthcare costs would be somewhere in the $1,000 to $5,000 range. That is a far cry from the $10,739 estimate from Nationwide.

The Price Tag of Retirement Healthcare Needs

According to Fidelity, the average 65-year-old couple retiring in 2019 can expect to spend about $285,000 on healthcare during retirement.

The estimated cost for single men is $135,000 and for single women, it’s $150,000. And the Nationwide-sponsored survey also shows that nearly half of all respondents stated that they would have saved more for retirement than they did if they had it to do all over again.

Delaying taking Social Security came in a distant second, followed by working longer, taking better care of their health and buying long-term care insurance.

Strategies for Covering Healthcare Costs during Retirement

So, what can you do to be more ready to hold costly healthcare needs at bay? Here are a few pointers:

Understand Your Options

Learn all you can about Medicare, Medicare Part B, and supplemental coverage. Find out if you have any other options that you can use to pay for healthcare costs, such as through your former employer or perhaps a fraternal organization that you belong to.

Talk to your financial planner about your concerns and come up with a plan. As Benjamin Franklin once said: “An ounce of prevention is worth a pound of cure."

Incorporate Medicare in Your Plan

Sign up for Medicare as soon as you are able. And don’t forget to explore whether to some supplemental coverage on top of this.

There are many medical bills and prescription drug costs that Medicare doesn’t pay. Take the time to explore which supplemental plan is right for you. The best choice will depend on your finances, your health, and your spouse’s health, if you have a spouse.

Leverage HSAs and Their Benefits

Open an account dedicated to healthcare spending, such as a Health Savings Account. Depending on your personal needs and situation, you might consider exclusive use of this account for payment of health insurance premiums as well as deductibles and copays.

Contributions to a Health Savings Account are tax-deductible. Not only that, withdrawals are tax-free as long as they are used to pay for qualified medical expenses (and the IRS’s definition of this is very broad). You can also roll a retirement plan over into a HSA if you have one to spare as long as you are younger than 65.

Explore New Options for Long-Term Care Cost Relief

Check out the new wave of financial products that can protect you from long-term care expenses.

There are annuities that will double or triple their payout to you if you qualify under certain conditions. Those circumstances may kick in if you need any form of long-term care or if you become unable to perform at least two out of the six activities of daily living.

Some life insurance policies also have accelerated benefit riders that will pay out if you become disabled or need nursing care.

Retiring Before 65? Consider "Bridge" Health Coverage Choices

If you are retiring before age 65, consult with your former employer about possible “bridge” health insurance to cover you until you are eligible for Medicare.

Put Your Healthcare Planning Strategy in Place

Don’t wait another day to begin planning for how you can pay for healthcare after you retire. Consult with your financial professional to map out a battle plan that can leave you standing financially firm during this last phase of your life.

What if you are on the lookout for personal financial guidance right now? Or maybe you want a second opinion of your existing plan and how well-prepared you are for healthcare in retirement.

Help is a click away at SafeMoney.com. Use our "Find a Financial Professional" section to connect with someone directly for an initial appointment. Should you need a personal referral, call us at 877.476.9723.

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