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LIMRA Secure Retirement Institute finds many retirees underestimate their retirement expenses in the areas of basic living expenses, health care and long-term care expenses, and discretionary expenses with the biggest disparity in the area of health care and long-term care expenses.*

The Institute finds more than 40 percent of retirees find their health care and long-term care costs in retirement are higher than they planned or estimated. This is true across all demographics, income and asset levels.

About a quarter experienced higher than anticipated basic living expenses, and 23 percent had higher than planned discretionary expenses. Additionally, 15 percent of retirees who had higher than expected basic living expenses also gave health care cost as their reason for having higher than expected basic living expenses.

While some discretionary spending can be controlled and adjusted by the retiree, underestimating basic living expenses and health and long-term care expenses can undermine the retiree’s quality of life.

LIMRA Secure Retirement Institute research shows, on average, about 13 percent of a retiree’s income is spent on health and long-term care expenses. For example, if a retiree’s spending equaled their income and their income was $80,000, about $10,400 would be spent on health care and long-term care expenses.

Having a formal plan for retirement didn’t prove to completely solve the problem of underestimating the costs of health and long-term care. Forty-three percent of those with a retirement plan still underestimated these costs. Advisors need to educate their clients on health care cost risks as an important component for retirement planning.

Planning ahead can help. Health savings accounts (HSAs) are a great way save for health care expenses prior to your retirement years. Since HSA funds do not have to be used in the year they are saved, they can remain in the account and used to help offset higher than expected healthcare costs. Additional LIMRA Secure Retirement Institute research showed that 74 percent of consumers participating in an HSA indicated that HSAs are a part of their retirement strategy.

* LIMRA Secure Retirement Institute conducted the survey in early 2017. More than 2,000 U.S. consumers ages 50–79 who a) retired at least one year earlier, b) were involved in the household’s financial decisions, and c) had annual household incomes of at least $35,000 participated. The results were weighted to demographic characteristics to ensure the results represented the U.S. population.