Even for the rich, health care costs a top concern in retirement

Even affluent people say they are “terrified” that escalating health care costs could wreak havoc on their golden years, according to the Nationwide Retirement Institute survey.

Harris Poll surveyed 1,007 U.S. adults aged 50 or older with a household income of $150,000 or more, and found that nearly three out of four (73 percent) list out-of-control health care costs as one of their top fears in retirement. Indeed, a majority (64 percent) of future retirees say they are “terrified” of what health care costs may do to their retirement plans, and more and more are becoming increasingly reliant on federal programs to cover health care costs.

Related: 10 indicators of retirement confidence — or lack of it

According to the survey, future retirees who are affluent plan to access a wider array of resources like Medicare to cover health care costs in retirement than current affluent retirees do (71 percent vs. 59 percent). However, more than seven in 10 (72 percent) say they wish they better understood Medicare coverage. Specifically:

• More than half (53 percent) do not know that Medicare Part B is not free even if someone has worked and paid Social Security taxes for at least 10 years
• 23 percent do not know that people cannot enroll in Medicare at any time
• 29 percent do not know Medicare does not cost the same for everyone
• 62 percent do not know that future changes will impact the ability to sign up for Medigap/Medicare supplement plans

“With changes coming to Medicare, premiums will increase for high-income retirees, making it even more important for future retirees to understand the details and incorporate the program as part of a comprehensive retirement plan,” says John Carter, president of retirement plans for Nationwide.

In addition, among older affluent adults with children, 42 percent say they would give away all their money to their children so they could be eligible for Medicaid-funded long-term care. “Affluent adults should not be planning to rely on Medicaid,” Carter says. “Not only is the program not designed for them, they lose personal control when it comes to long-term care.”

More than half of affluent, older Americans are unsure or can’t estimate what their annual health care (53 percent) or long-term care costs (65 percent) in retirement will be. Those who did estimate an amount expect annual health care costs to be approximately $22,849 for themselves or for themselves and their partner, if married.

Moreover, while they know health care costs are coming, they are not prepared to pay for them. In fact, more than one in four (27 percent) affluent, older adults say they couldn’t cover more than $1,000 in unplanned expenses, 44 percent couldn’t cover more than $4,000 and 60 percent couldn’t cover more than $5,000 of unplanned expenses.

More than half (59 percent) pay or plan to cover unplanned expenses with disposable income, 42 percent use or would use 401(k) withdrawals, 33 percent use or plan to use a savings fund specifically for this type of expense and 17 percent use or plan to use credit cards.

Four in five future retirees (87 percent) are taking actions to save for health care costs in retirement. Most commonly, affluent, older adults are building their savings account (59 percent), investing (56 percent), increasing their 401(k) contributions (46 percent) and paying off credit card debt and loans (36 percent).

While half of employed affluent adults (50 percent) have access to a Health Savings Account (HSA) through their employer, only 30 percent participate in or contribute to the HSA. Of those that do use HSAs, just 35 percent utilize their maximum potential by using them as a long-term savings vehicle for future health care expenses in retirement and to cover today’s health care expenses.

“It’s promising that most adults are taking action as a result of their concerns,” Carter says. “However, few are planning based on specific, personalized cost estimates, and even fewer are using all the resources available to them.”

Despite nearly two in three affluent future retired adults being terrified of what health care costs may do to their retirement plans, they aren’t having informed conversations to prepare, according to the survey. Fifty-two percent of those who have a financial advisor haven’t talked with their financial advisor about health care costs, most commonly because they consider it a personal issue (21 percent). One in three affluent adults (32 percent) have not had a conversation with anyone about their health care costs.

“You can’t adequately plan for health care costs without discussing the topic,” Carter says. “While often considered personal, consumers and advisors need to broach the subject and accurately plan to ensure health care doesn’t negatively impact their retirement.”

To aid advisors in these conversations, Nationwide offers an online Health Care Cost Assessment tool for advisors to help their clients estimate future medical and long-term care expenses, he adds.