Fearing Health Care Costs in Retirement

While most Americans realize retirement will be the biggest purchase of their lifetime—at 2.5 times the cost of an average home—81% say they do not know how much money they will need to fund their retirement, according to a study from Bank of America Merrill Lynch, in partnership with Age Wave.

While most people say they want to live to the age of 90, only 27% of pre-retirees ages 50 and older feel financially prepared to fund a retirement that lasts 10 years, let alone 20 to 30 years. The study found Americans are saving only a fraction of what they think they should: 5.5% vs. 25% of their annual income, after taxes.

More than half of Millennials feel a secure retirement is beyond their reach, compared with 30% of Baby Boomers who feel this way. And Millennials expect 65% of their retirement income to come from personal sources, including other savings and continued employment, far more than have earlier generations.

The three biggest retirement-related financial worries for most Americans are a costly health issue affecting them or a loved one; inflation; and having too little money to do what they would like. Respondents to a survey used in the study said handling basic expenses and prioritizing paying down debt are the two biggest barriers to saving more for retirement. And they are far more concerned about their own economy than the economy.

Among those saving for retirement, the top incentives that got them onboard were an employer offering a retirement savings plan (46%) or information about retirement benefits (26%), rather than reaching a certain age.

However, half of pre-retirees age 50 and older said they are without a positive role model when it comes to financial planning, and 65% of all respondents said the language of finance is confusing and not user-friendly. “This opens doors for employers to play an even larger role in empowering Americans to financially prepare for their futures,” says Kevin Crain, head of workplace financial solutions at Bank of America Merrill Lynch.

Respondents to the study said they are willing to make certain course corrections to improve their financial security in retirement.

Ninety-one percent would make healthier choices to reduce potential expenses in later life, and the same percentage would use more generic medications and supplies. Sixty-eight percent said they would consider purchasing long-term care insurance.

Three-quarters would be willing to work longer—preferably part-time—to shore up their savings, although only 43% would want to work full time; 67% would be open to learning new skills to be able to work at something different; 70% would consider cutting back on support to adult children; and only 30% would ask family members to provide help to them.

Three in four would downsize their home to lower ongoing costs and benefit from the equity. Sixty-seven percent would be willing to move to a less expensive location, and 47% would consider selling their home and renting an apartment.

Of retirees, 95% said they would prefer to have more enjoyable experiences than buy more things; 81% would increase use of community recreation programs; and 70% would be willing to stay with friends or family when traveling to reduce costs.