Wealthy Americans Terrified of Health Care Costs in Retirement

According to a survey from Nationwide Financial, nearly three in four say health care costs going out of control is among their top retirement fears.

Thirty-eight percent of those nearing retirement say they have not discussed their retirement at all with a financial adviser. Of those who have, only one in five discussed health care costs in retirement not covered by Medicare.

“Americans—even those who have diligently saved for their golden years—are not prepared for the reality of health care costs in retirement and don’t really understand how Medicare works,” said John Carter, president of Nationwide Financial Distributors, Inc. “Too many assume their employers will continue to pay their premiums during retirement or Medicare will cover all health care expenses.”

It appears that soon-to-be-retirees lack confidence in the ability of financial advisers to help with this challenge, with three in five (59%) saying most financial advisers are not equipped to discuss retirement health care costs with their clients. However, this lack of confidence may be unfounded. Those who have broached this topic with a financial adviser indicated that it was worthwhile, with two-thirds saying advisers were helpful or very helpful in discussing information about their health and estimating their health care costs in retirement. 

Understanding Medicare 

Only one in five surveyed say they are confident in their knowledge of Medicare coverage, and more than half say it is very, to extremely, important they educate themselves on Medicare coverage when planning for retirement.

Soon to be retired Americans who plan to enroll in Medicare estimated that Medicare will pay for 68% of their health care costs in retirement. But when asked how they arrived at that percentage, nearly three in four guessed or didn't know, 15% calculated it based on their own research, 7% spoke with friends who have already retired, and just 4% say they were told by their financial adviser.

While 45% expect health care to be their biggest expense throughout retirement, when asked to estimate how much they anticipate spending each year on health care, they said, on average, $5,621. This represents a drastic underestimation based on a 2010 Fidelity study that estimates out-of-pocket health care expenses for a 65-year-old couple retiring today and living for 20 years to range from $250,000 to $430,000. That could mean as much as $10,750 a year per person in out-of-pocket health care expenses.

The survey also revealed an opportunity for advisers: 43% of soon-to-be-retired Americans say they plan to discuss health care costs with a financial adviser.

While only one in 10 (12%) of soon-to-be-retired Americans say they are planning to switch financial advisers, of those, more than half (54%) say they would be more likely to stay with their current adviser if they could help them plan for covering health care costs in retirement or discuss the role of Medicare in their retirement.

The survey data was collected online by Harris Interactive on behalf of Nationwide from January 3 to 19, 2012. The survey was among 625 adults ages 55 and older who have $250,000 or more in household assets and plan to retire by 2020, as well as 625 retired adults ages 65 and older who have $250,000 or more in household assets.