A new study by LIMRA Secure Retirement Institute reveals that more than half of non-retired Americans believe a significant out-of-pocket health care expense ($15,000 or more) would seriously compromise their financial security in retirement.
Eight in 10 non-retired Americans think there is a 50/50 chance that they would face this kind of health care expense if they were a 65 retiree today. Although survey retirees have only been retired an average of 8 years,10 percent have already experienced an out-of-pocket expense of $15,000 or more for health care. The actual incidence of health care shocks is likely even higher because very sick people are usually unable to complete surveys.
According to the Consumer Expenditure Survey, the average annual amount spent on health care in 2014 was $5,956 for those age 65 to 74 and $5,708 for those 75 years and older. This represents about 12 percent of all annual spending for those age 65 to 74 and 15 percent for those age 75 or older.
Women are less confident that they can cover health care expenses in retirement.
Ignoring large out-of-pocket health care expenses, 6 in 10 non-retired Americans do not believe they have enough to cover day-to-day health care expenses not covered by Medicare in retirement. Women were less confident they could cover these costs in retirement (34 percent) vs. men (46 percent).
Working with financial professionals helps.
The study found that 80 percent of non-retired consumers who worked with a financial professional believed they understood how much their future health care expenses would be in retirement. In comparison, only 6 in 10 who haven’t consulted a financial professional felt confident they knew how much health care expenses would impact their retirement finances.
Overall, both retirees and non-retired consumers believe financial professionals can help consumers manage health care risks in retirement. And it appears financial professionals recognize the need for planning for health care costs in retirement. Recent Institute research finds 42 percent of financial professionals want training on health care planning to better help their clients.
Members can read the full report at Lions and Tigers and Health Care! Oh My? Consumer Perceptions of Health Care Expense Shocks in Retirement (2016).