Survey: Nine in 10 Retired Americans Confident They Can Pay for Future Health Care Costs

Nationwide Financial survey identifies differences between retirees and Boomers nearing retirement
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Despite the rising costs of health care and the hit many took from the recession, a Nationwide Financial survey released today reveals nine in 10 retirees with at least $250,000 in household assets are not concerned about paying for their future health care costs beyond what Medicare covers.

“The good news is we’re not seeing the panic that many Boomers nearing retirement are having, but we hope this isn’t over-confidence that could lead to a lack of preparedness down the road,” said John Carter, president of Nationwide Financial Distributors, Inc., a subsidiary of Nationwide Financial. “For many of the retirees we surveyed, most of their health care costs have yet to come.”According to the survey conducted by Harris Interactive of 1,250 Americans with at least $250,000 in household assets – including 625 retirees – 93 percent of Americans in retirement say they are at least somewhat confident they can pay for their future health care costs. This contrasts with the nearly half (46 percent) of Boomers nearing retirement with the same amount of assets who say they are “terrified” of what health care costs will do to their retirement plans.

One of the reasons retirees are confident in their ability to pay for health care costs may be that, so far, they’ve already been doing it successfully. Also, many current retirees have pensions and employer-paid health care – a luxury many Boomers nearing retirement do not.

According to the survey, 40 percent of those in retirement say their biggest expense in retirement is paying monthly housing bills, 21 percent say the cost of health care and 16 percent say providing for their family. Those nearing retirement say they expect health care to be their biggest expense (45 percent), followed by monthly housing bills (35 percent) and providing for their family (9 percent).

Retirees, on average, estimate they currently spend $4,083 each year on health care for things like premiums, copayments and deductibles, while 21 percent estimate they spend less than $1,499 each year and 22 percent said they don’t know.

Retiree health care costs have increased an average of 6 percent a year since 2002. That means a 65-year-old couple retiring today would need $240,000 to cover medical expenses during their retirement years (which could take up to 35 percent of the couple’s annual Social Security benefit). And that number doesn’t even include long-term care costs. 

Longevity, inflation and chronic disease

Medical advances have people living longer in retirement – sometimes years longer than for which they budgeted. Many retirees may try to avoid health care costs by eating healthier and exercising more – but despite the physical health benefits, that strategy may backfire.

“The irony is that people who stay in shape have a better quality of life in retirement but may end up with higher health care costs because they’re alive longer and need care for more years,” said Kevin McGarry, director of the Nationwide Institute. The Nationwide Institute, a resource made available by Nationwide Financial, provides the latest research and best practices from top institutions and practitioners in the industry.

Even if they’re able to pay for health care costs today, too many retirees fail to plan for inflation. The costs of nursing home care and assisted living nationwide went up more than twice the rate of inflation between 2009 and 2010. And, according to the US Department of Health and Human Services, people over the age of 65 have a 70 percent chance of needing long-term care during their lifetime.

“Too many people underestimate the amount of money needed to cover their health care costs in retirement because they do not think they will ever need long term care,” McGarry said.

In 2008, the annual cost of a nursing home was about $71,000 for a semi-private room, but nursing home costs are expected to reach $265,000 per year by 2030.

There’s also the risk of incurring exceptionally large health care expenses. At age 65, a typical married couple free of chronic disease faces a 5 percent probability that their remaining lifetime health care costs – excluding nursing home care – will exceed $311,000. Including nursing home care, they face a 5 percent probability of costs exceeding $570,000. 

“These retirees know bad things happen to other people that result in costly health care services, but most just don’t think it will happen to them,” Carter said.

Retirees need advice

About two in five retirees (39 percent) say they wished they understood Medicare coverage better. But only about one in six retirees say they plan to meet with their financial advisor to discuss health care costs beyond those covered by Medicare. However, of those that have, about 70 percent say their advisor was helpful, to very helpful, in estimating their future health care costs.

Retirees who underestimate their health care costs may need to meet with an advisor to reassess how rapidly to draw down their wealth during retirement. Retirees also should meet with a financial advisor to get regular health care cost assessments to factor in inflation or any changes in their health.

“Financial advisors can play an important role in helping their clients estimate health care costs in retirement,” Carter said.

Carter says despite retirees’ confidence in how they will pay for health care costs, Boomers nearing retirement should not think it will be as easy when they retire.

“Most Boomers can expect a very different retirement than that of their parents,” Carter said. “In addition to higher health care costs and longer life expectancies, Boomers likely won’t have pensions or employer-paid health care and realistically they’ll need to be prepared to pay for their own health care costs in retirement.”

To see the entire survey, visit nationwide.com/healthcare.