Even affluent Americans are concerned about how they will pay for their healthcare costs in retirement.

Seventy-three percent of affluent, older adults, who make $150,000 or more a year, list out-of-control healthcare costs as one of their top fears in retirement and 64% of future retirees say they are terrified of what these costs may do to their retirement savings, according to research by Nationwide.

“What I thought stood out is that these are the top tier and more than half of them are unsure about what their healthcare costs are going to be in retirement,” says John Carter, president of retirement plans at Nationwide. “They also plan to rely on federal programs to cover their healthcare costs. The federal programs aren’t just for the less affluent.”

This was the sixth year his company conducted a survey on the topic but it was the first year it focused on affluent individuals. He was surprised that their responses were no different from the other demographic groups. He points out that 86% of survey respondents were enrolled or planned to enroll in Medicare but 72% said they didn’t really know anything about what they would get with Medicare.

“This is a tremendous opportunity for education and communication, and what we are trying to get is a dialogue between pre-retirees and their advisers,” Carter says.

Retirement plan sponsors can help with this as well by offering health savings accounts and educating employees about medical expenses in retirement as part of their financial wellness programs, he adds.

It is important that plan participants have a conversation with someone about how much money they should be saving for medical expenses in retirement and whether or not they have saved enough to pay for these expenses in retirement.

Nationwide finds that 67% of older adults plan to use Medicare to help them pay for medical expenses in retirement, while 63% said they plan to use Social Security to pay for those costs.

There are many misconceptions about Medicare. Nationwide found that 53% of the affluent didn’t know that they have to pay for Medicare Part B even if they have worked and paid Social Security taxes for at least a decade. Twenty-three percent of respondents didn’t know they couldn’t enroll in Medicare at any time. Twenty-nine percent didn’t know that Medicare doesn’t cost the same for everyone.

“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,” Carter says.

Forty-two percent of respondents said they would give away all of their money to their children so they could be eligible for Medicaid-funded long-term care.

Carter says that affluent people should not rely on Medicaid. “Not only is the program not designed for them, they lose personal control when it comes to long-term care,” he says.

Rich, yet uncertain and concerned

Most affluent people admitted they were unsure of what their annual healthcare costs would be in retirement and those who did try and estimate future costs came up with $22,849 for themselves and their partner. Other studies have put that cost as high as $240,000 for a couple retiring at age 65.

“Healthcare costs are the biggest expected expense in retirement and should be a major factor when estimating retirement expenses since they are often costly and unexpected,” says Carter. “Our survey found that 39% of adults immediately associate healthcare with high costs. Yet, very few know what the actual costs could be, which makes planning difficult.”

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The majority of respondents said they would be interested in speaking to a financial adviser about planning for healthcare expenses, and that number has grown over the past six years of the survey.
“What we know from past surveys is that if an adviser doesn’t reach out and have these discussions, the investor will find an adviser that will,” Carter says.

Having this conversation is a good way to deepen an adviser’s relationship with existing clients and a great way to attract new ones, he adds.

More people should take advantage of an HSA if they have access to one through their workplace, he says, but only four out of 10 people who have that opportunity choose to save in an HSA.

Many leverage an HSA for short-term medical expenses but don’t use it for the long-term.

Advisers and employers need to speak with retirement plan participants about not only utilizing their HSAs but also help them determine when and how to take their Social Security so they only tap into it when they need to.

Carter says that education and engagement and participant campaigns are how employers drive participation in workplace plans. That same amount of engagement and education must be focused on HSAs and medical expenses in retirement. It isn’t just retirement planning that is now falling on the shoulders of workers, but medical expenses as well.

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