Late-Career Workers Very Worried About Heath Care

A new Ameriprise survey suggests Americans nearing retirement are deeply concerned over projected health care costs, but few are taking financial actions in response.

Ameriprise says the overwhelming majority (86%) of Baby Boomers express concerns about the affordability of health care in retirement, but very few pre-retirees admit they have taken financial steps to better prepare themselves. The data is from the “Health, Wealth and Retirement” study, which surveyed people age 50-64 who are preparing for retirement with at least $100,000 in investable assets.

“Boomers understand that health care costs will be a significant expense in retirement, yet many haven’t planned—or simply don’t know how to plan—to fund these expenses,” says Pat O’Connell, executive vice president for Ameriprise Financial.

When asked what they’ve done to prepare for funding healthcare costs in retirement, only one in five (19%) surveyed say they’ve taken one or more steps to prepare. One-fourth (26%) have reviewed their options but have taken no action and another two in five (40%) have thought about health care cost issues but haven’t looked into the matter in detail. Ameriprise says 15% of respondents haven’t even begun to consider how they will cover health care costs in retirement.

“Fortunately, the national conversation around health care is prompting people to consider their health and the choices they make, as well as the need to build health care expenses into their retirement and long-term financial plan,” O’Connell adds. “Pre-retirees have an opportunity to translate this awareness into tangible steps to help prepare for expected and unexpected health care costs and protect the savings they’ve worked so hard to accumulate.”

Despite this opportunity, most pre-retirees fail to take specific financial action to address future health care costs. Only one-third (32%) have developed an advanced directive (a written statement of a person’s wishes regarding medical treatment); 23% have extended the age they plan to retire in order to continue receiving health care coverage through their employer; one in five (21%) have obtained long-term care insurance; and only 17% have maximized savings in an employer-sponsored health savings account (HSA).

The lack of action is concerning, Ameriprise says, but there is reason to be hopeful as some are considering taking action. About one-third (32%) of respondents say they have thought about developing an advanced directive and the same number say they’ve thought about purchasing long-term care insurance. Another one in five (19%) have considered contributing to an HSA to help fund health care costs in retirement.

Sixty-two percent of pre-retirees can estimate the amount they may need to cover health care costs in retirement based on “what they’ve heard and read.” The average predicted estimate of retirement health care spending per household is often cited in industry research at about $232,000 for a health couple retiring today. However, only 17% of pre-retirees have actually calculated a specific estimate for what they may spend on out-of-pocket health care costs, while another 37% have considered taking this step.

There are mixed feelings among pre-retirees about healthy lifestyle choices. Seventy-nine percent believe that the healthy lifestyle choices they make today could have an impact on achieving their financial goals. Eighty-eight percent believe that these choices will have a financial impact specifically by reducing the amount of money needed for health care in retirement.

Ameriprise says it is promising to find that most pre-retirees are making the connection between their health and their wealth, and holding that connection in high regard. When asked which aspect of success in life they most wished to improve, more than one-third (38%) said their health and fitness, and approximately another third (35%) said their wealth—passing over other options including mental well-being, social relationships, and professional success. Many pre-retirees are likely to be motivated to take action to help achieve a high quality of life in retirement and reduce the amount they may spend on health care. Nearly two-thirds (62%) report initiating a diet or exercise program as a strategy to reduce future health care costs.

Even with their efforts to remain healthy, one in four (26%) say they or their spouse have been impacted by a serious health event and half (54%) admit it has affected their finances. The concern and reality of experiencing a costly health event before retirement highlights the importance for pre-retirees to plan for how they may fund such an event.

The crucial and complex nature of planning for health care costs in retirement drives pre-retirees to seek help from a trusted source, Ameriprise says. Sixty-four percent expect a financial adviser to play at least some role in discussions about health and health care costs in retirement. 

“Nobody can predict the future, but you can take steps and seek the help of a financial professional to plan for it,” O’Connell says. “Factoring health care expenses—and discussing a plan for affording them with retirement income—into a comprehensive long-term financial plan can go a long way toward feeling more confident about retirement.”

More information on Ameriprise research is available here.