More Workers ‘Terrified’ They Cannot Afford Health Care in Retirement

Inflation is pressing U.S. workers to delay medical care and downgrade health insurance as they lose confidence in their ability to afford health expenses and to maintain their physical and financial health in retirement.

Two-thirds of all U.S. adult survey respondents (66%) are “terrified” of the effect health care costs will have on their retirement plans and worry that a single large health care issue could ruin their finances for years to come. Even more (72%) said one of their top fears in retirement is out-of-control health care costs, and 61% said they are worried about living so long that they run out of money, found a Nationwide Institute survey published this month. For adults at least 50 years old, 62% are “terrified” of how health care costs may impact their retirement plans, an increase from 56% in 2014.

“Considering the amount of anxiety we see from survey respondents about planning for health care expenses in retirement, plan sponsors should work with their recordkeepers to ensure the educational resources they offer take this challenge into account,” says Kristi Rodriguez, senior vice president of the Nationwide Retirement Institute, by email. “There continues to be a great opportunity for plan sponsors to do more than just help their employees save for the future. We’re seeing best-in-class plan sponsors begin to offer employees tools and resources to actually plan for what happens in the decumulation phase of retirement—and health care costs are an important part of that opportunity.”

More than half (59%) of respondents in every age group reported lacking confidence in their ability to pay for health care costs as they age, and 57% worry about their ability to pay for caregiving for their partner or spouse, implicating their retirement preparedness. In the U.S., 100 million people live with medical debt, according to 2021 data from KFF, formerly the Kaiser Family Foundation.

As workers grapple with longevity risk and economic factors, such as inflation, Nationwide found workers are making trade-offs to manage health care expenses, including:  

• Nearly one in five (18% of) adults have postponed health care activities—like a medical procedure, physical exam or renewing prescriptions—in the past 12 months to save money;
• To find additional savings, 10% of Americans said they are considering downgrading their health insurance plan because of high inflation, including 19% of Generation Z, 11% of Millennials and 14% of Generation X; and
• Of those surveyed, 60% said they would pick a health insurance policy with a lower premium but higher deductible to have a cheaper monthly payment.

Retirement Planning Implications

Workers underestimated the average cost of health care in retirement, reporting anticipated expenses at an average of $55,343, although Fidelity Investments estimated $157,500 for an individual or $315,000 for a typical 65-year-old retired couple.

“Health care costs in retirement is a point of terror among most adults, but the majority are not sure or can’t even estimate how much their annual health care costs in retirement could be/are in retirement or their total health care costs in all of retirement,” the survey’s key findings section stated. “Even among those who provided estimates for health care costs, they may be underestimating costs.”

Following successive years of rising estimates, Fidelity’s health care costs were estimated to remain flat from last year, in 2023.

Nationwide also found that workers think their financial planning challenges may be exacerbated by artificial intelligence-enabled medical advancements that extend lifespans, as 26% said they expect AI advancements in health care to add more than a decade to their lifespan. Gen Z respondents expect AI to add an average of 15 years to their life, Millennials 12 years, Gen Xers eight years and Baby Boomers nine years.

“Advances in AI and health care technology in general are moving faster than ever and may help treat many of today’s chronic diseases, as well as other health issues,” Rodriguez stated in a press release. “While this is good news, longevity requires more planning.”

The Nationwide research was conducted online by the Harris Poll among 1,260 adults age 18 and older residing in the U.S., including 301 from Gen Z (18-26), 310 Millennials (27-42), 307 from Gen X (43-58) and 342 Baby Boomers and beyond (59+), with additional oversamples for a total of 549 Black adults and 512 Hispanic adults. The survey was conducted from August 28 through September 11.