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Even Affluent Americans Have This Retirement Worry

Survey finds most will rely on Medicare, but don’t truly understand the program

401k, retirement, health care, NationwideThis picture makes us sad.

The richies are worried about the cost of care in retirement, and how it will affect their overall savings and assets.

Nearly three out of four affluent, older adults list out-of-control health care costs as one of their top fears and 64 percent of future retirees say they are “terrified” of what health care costs may do to their retirement plans.

And as health care costs rise, affluent older adults are becoming increasingly reliant on federal programs to cover health care costs, according to a new Nationwide Retirement Institute survey.

It found that 67 percent of older adults plan to use—or currently use—Medicare and 63 percent plan to use or currently use Social Security to pay for their health care costs.

Future retirees plan to access a wider array of resources like Medicare to cover health care costs in retirement than current retirees do (71 percent vs. 59 percent).

Government programs needed, but not fully understood

With 86 percent enrolled in—or planning to enroll in—Medicare, it’s clear Americans acknowledge the need for health care coverage in retirement.

Yet more than seven in 10 wish they better understood Medicare coverage, indicating they don’t fully know what they’re signing up for.

The misconceptions vary:

  • 53 percent do not know that Medicare Part B is not free even if you have worked and paid Social Security taxes for at least 10 years
  • 23 percent do not know you cannot enroll in Medicare at any time
  • 29 percent do not know Medicare does not cost the same for everyone
  • 62 percent do not know that future changes will impact the ability to sign up for Medigap/Medicare supplement plans

“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,” John Carter, president of retirement plans for Nationwide, said in a statement.

In addition, among older affluent adults with children, 42 percent admit they would give away all their money to their children so they could be eligible for Medicaid-funded long-term care.

“Affluent adults should not be planning to rely on Medicaid,” Carter added. “Not only is the program not designed for them, they lose personal control when it comes to long-term care.”

Health care costs loom over retirement goals

More than half of affluent, older Americans are unsure or can’t estimate what their annual health care or long-term care costs in retirement will be.

Those who did estimate an amount expect annual health care costs to be approximately $22,849 for themselves or for themselves and their partner, if married.

“Health care 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,” Carter said. “Our survey found that 39 percent of adults immediately associate health care with high costs. Yet, very few know what the actual costs could be, which makes planning difficult.”

While they know health care costs are coming, they are not prepared to pay for them.

In fact, more than one in four affluent, older adults say they couldn’t cover more than $1,000 in unplanned expenses, 44 percent couldn’t cover more than $4,000 and 60 percent couldn’t cover more than $5,000 of unplanned expenses.

More than half pay or plan to cover unplanned expenses with disposable income, 42 percent use or would use 401k withdrawals, 33 percent use or plan to use a savings fund specifically for this type of expense and 17 percent use or plan to use credit cards.

How future retirees are preparing

Four in five future retirees are taking actions to save for health care costs in retirement.

Most commonly, affluent, older adults are building their savings account, investing, increasing their 401k contributions and paying off credit card debt and loans.

While half of employed affluent adults have access to a Health Savings Account (HSA) through their employer, only 30 percent participate in or contribute to the HSA.

Of those that do use HSAs, just 35 percent utilize their maximum potential by using them as a long-term savings vehicle for future health care expenses in retirement and to cover today’s health care expenses.

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