More Workers ‘Terrified’ They Cannot Afford Health Care in Retirement
Oct 25, 2023
The
average cost of health care in retirement is nearly triple what Americans
estimate.
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.
Source: Plansponsor