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Health Care Costs in Retirement Vex Older Americans

Practice Management

The cost of health care and the effect it could have on their retirement is a top concern for a strong majority of older adults, according to a new study.

Nationwide Retirement Institute’s “Health Care Costs in Retirement Consumer Survey” found that 69% of 1,462 U.S. adults age 50 or older with investable assets of $50,000 or more who have retired or plan to in the next 10 years said that health care expenses spiraling out of control was among their top fears during retirement.

Even more future retirees — nearly 80% of adults age 50 or older and who are working — are somewhat or very concerned about health care costs in their upcoming retirement, and 76% identified it as their top fear. Half of future and recent retirees expressed confidence that they will be able to cover health care costs beyond what Medicare covers.

Disconnects Abound

The study identifies some disconnects between rational recognition and behavior that would respond to, or even obviate problems posed by concerns over health care costs and retirement. For instance, Nationwide found that many older adults also have regrets about their actions over the years, with nearly half of those who are retired (46%) reporting they would save more in their retirement accounts if they could plan for retirement over again. Half of recent retirees said so.

Financial health and health care are related, the study found. “Financial matters are making people sick, and the king of all financial worries over a lifetime is health care,” says Nationwide in a press release. However, the researchers also found that recognition of the importance of health care doesn’t necessarily translate to action.

For instance, while many older adults are concerned and stressed about health care costs, the study says that a majority also are not having informed discussions with professionals on how to prepare. In fact, just slightly more than 30% of older adults plan on discussing health care costs during retirement or long-term care costs with a financial advisor or consultant.

And reluctance to act (or at least inertia) crosses generational lines, the study suggests. Nationwide found that younger adults are eager to do more to prioritize their health and be financially prepared for health care costs, and they agree that prioritizing self-care and mental health will help them save on health care expenses in the distant future. But one-third of young adults admitted that health and wellness are not a top priority, and 40% do not get preventative care. Half of the young adults said that they expect that in 10 to 15 years they will regret not having set such priorities.

They are setting the stage for just that. For instance, Nationwide says that both younger and older adults lack understanding of the advantages a health savings account (HSA) can provide, including their role as a retirement savings tool. Fewer than 20% of young adults use an HSA, and just 25% of those who have one use it to pay for current expenses rather than use it to amass funds to pay for health care in retirement.

And in this case, the study says, age has not brought wisdom — 43% of older adults don’t know about the advantages of an HSA, and only 42% know that HSA contributions or funds drawn from an HSA to pay for qualified expenses are not taxed. Furthermore, 52% of older employed adults who contribute to an HSA offered by their employer use it to pay for today’s health care expenses only.