On Retirement

The black hole of financial planning: Health care costs

Affluent clients are confident about retirement plans, but not medical expenses

Jun 26, 2018 @ 3:43 pm

By Mary Beth Franklin

Affluent older adults are worried about what health care costs, including long-term care expenses, could do to their carefully laid retirement plans. Yet only about half of those who work with a financial adviser have discussed their fears because they consider health care a personal matter, according to a new survey.

Nearly three out of four (73%) older adults list out-of-control health care costs as one of their top fears in retirement, and 64% of future retirees say they are "terrified" about what health care costs may do to their retirement plans, according to the annual health care survey from Nationwide Retirement Institute released Monday.

The results were based on a Harris Poll online survey of more than 1,000 adults over age 50 with a household income of at least $150,000. Although this is the sixth year of the Nationwide health care survey, it is the first time that the Nationwide Retirement Institute has focused on affluent adults, who represent a prime market for financial advisers.

Despite widespread concern over health care costs, 48% of older adults who work with a financial adviser have not discussed the subject with their adviser. That marks a slight improvement from last year's survey, which showed 54% of advisory clients had not discussed health care costs.

"You can't adequately plan for health care costs without discussing the topic," said John Carter, president of retirement plans for Nationwide. "While often considered personal, consumers and advisers need to broach the subject and accurately plan to ensure health care doesn't negatively impact their retirement."

The second most commonly cited reason for not discussing health care costs with an adviser was a perception that advisers lack adequate knowledge on the subject. Nearly 40% of older adults who work with a financial adviser agreed with the statement: "Financial advisers do not know enough about health care costs," according to the survey.

The survey found that 78% of consumers expect financial advisers to offer guidance on health care costs in retirement. To help advisers have these conversations, Nationwide offers a free personalized health care assessment tool that provides personalized cost estimates to help advisers and clients estimate future medical and long-term care expenses.

"There is tremendous upside potential for advisers who want to grow their business and become a trusted resource," Mr. Carter said in an interview. "We have tools to help advisers educate and communicate critical information in a professional, research-driven way."

The survey shows that when people do talk with their advisers, they feel more confident about their retirement plans and where the money will come from to pay for health care expenses.

The Nationwide survey also found that while nearly 90% of older adults plan to rely on Medicare to cover much of their health care costs in retirement, a majority of survey respondents admitted they don't know enough about how the government program works. In fact, many could not correctly answer some basic questions about Medicare benefits.

For example, 53% of respondents did not know that Medicare Part B, which pays for doctors' fees and outpatient services, is not free, and 29% did not realize that Medicare premiums are not the same for everyone. Higher-income retirees pay more. In addition, nearly a quarter of respondents did not know there are specific deadlines to enroll in Medicare.

"It's another huge opportunity for advisers to be in that niche to answer those questions," Mr. Carter said

The survey found that most future retirees are taking steps to save for health care costs in retirement, including building up their savings accounts (59%), investing (56%), increasing their 401(k) contributions (46%) and paying off credit card debt and loans (36%).

But while nearly half of employed affluent adults have access to a health savings account (HSA) through their employer, only 30% contribute to the HSAs, and few fully leverage HSAs' triple tax break. Of those who do contribute to an HSA, only 10% maximize the accounts by using them as long-term savings vehicles. Unused HSA funds can be rolled over from year to year and can be used tax-free to pay for future health care costs in retirement, which in turn can reduce future income taxes and possibly reduce future Medicare premiums.

Advisers can help clients by creating personalized health care costs estimates, projecting savings needs for those costs and recommending funding sources such as HSAs, insurance, Social Security and Medicare. Advisers should also suggest that clients discuss potential health care needs and costs with family members to create a truly holistic retirement plan.

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