Concerns about health care costs threaten the retirement dreams of many

As health care costs in the United States continue to rise and inflation remains stubborn, many Americans are losing confidence in their ability to afford health care costs and maintain their physical and financial well-being after retirement.

According to the Nationwide Retirement Institute’s annual Retirement Health Care Cost Survey, approximately 6 in 10 respondents (59%) lack confidence in their ability to pay for health care costs as they age, and 57% worry about their ability to pay for care for their partner/spouse.

In addition, two-thirds of US adults (66%) are terrified of what health care costs could do to their retirement plans and worry that a single major health care problem could ruin their finances for years to come. Even more Americans (72%) say one of their top fears in retirement is that their health care costs will spiral out of control.

Making compromises

Consequently, with today’s economic uncertainty straining their finances, Americans are making difficult decisions about their medical care that can have significant long-term consequences.

Nearly 1 in 5 (18%) adults have postponed a health action such as a medical procedure, physical exam or prescription refill in the past 12 months to save money. To find additional savings, 10% of Americans say they are considering cutting their health insurance plan due to high inflation, including 19% of Gen Z, 11% of Millennials and 14% of Gen Xers.

Additionally, 6 in 10 adults (60%) say they would choose a health insurance policy with a lower premium but a higher deductible plan that typically has a cheaper monthly payment.

While Americans trade more comprehensive health coverage for lower monthly premiums, many do not have the means to cover the cost of a health care emergency. The survey found that more than half of Americans (51%) say they cannot pay an unexpected health care expense of $5,000 out of pocket.

The impact of AI

The survey results also reveal that financial planning challenges may be exacerbated by the potential for artificial intelligence (AI)-driven medical advances to extend life expectancy. One in four Americans (26%) expect AI advances in healthcare to add more than a decade to their lives. Of these, Gen Z expects AI to add an average of 15 years to their lives, Millennials 12 years, Gen Xers eight years and Boomers nine years.

This signals that Americans may be paying for health care costs significantly longer than they do today, and need a plan that takes that into account, the study suggests.

“Advances in artificial intelligence and healthcare technology in general are moving faster than ever before and could help treat many of today’s chronic diseases as well as other health problems,” said Christy Rodriguez, senior vice president of the Nationwide Retirement Institute. “While this is good news, longevity requires more planning. That’s why it’s so important to consult with a financial professional to create a plan that prioritizes your health needs now and for retirement, which may be longer than expected.”

Better planning

Although many seniors feel confident that they will be able to maintain good physical health after retirement, nearly half of those who are retired regret not taking better care of their health to save on health care costs after retirement.

In fact, an even greater majority do not have or have not had a written financial plan that includes how to pay for health care costs related to their chronic conditions in retirement. In addition, seniors may underestimate the need for health care professionals in retirement, and this may affect health care costs in retirement.

Americans also dangerously underestimated average health care costs in retirement, setting them at $55,343, when actual costs in 2022 were nearly triple the $172,500 for an individual or $315,000 for a typical 65-year-old retiree couple, according to Fidelity’s Health retiree care cost estimates.

Additional findings show that nearly three-quarters (72%) of respondents said they wanted to better understand Medicare coverage, and the vast majority (70%+) answered incorrectly when asked basic questions about Medicare, such as for example, what it covers, how Medicare Part B works, and cost considerations for different Medicare plans.

“Our research shows that Americans need more knowledge, guidance and ongoing support to make informed decisions about their financial plans,” Rodriguez added. “By including health care in financial planning conversations, financial professionals can help clients better prepare for rising health care costs.”

The survey was conducted online by The Harris Poll on behalf of Nationwide among 1,260 adults living in the US, including 301 Gen Z (18-26), 310 Millennials (27-42), 307 Gen X (43-58) and 342 Boomers+ ( 59+). The survey was conducted from August 28 to September 11, 2023.

For additional information on the survey, visit: https://www.nationwide.com/lc/resources/investing-and-retirement/articles/health-care-survey-results

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