Most Retirees Are Confident They Can Pay For Future Health Care Costs

Despite the rising costs of health care and the hit many took from the recession, a recent survey from Nationwide Financial found that nine in ten retirees with at least $250,000 in household assets are not concerned about paying for their future health care costs beyond Medicare coverage. But nearly two in five retirees (39 percent) say they wished they understood Medicare coverage better.


According to the Harris Interactive survey of 1,250 Americans with at least $250,000 in household assets—including 625 retirees—93 percent of Americans in retirement say they are at least somewhat confident they can pay for their future health care costs. Baby Boomers are not so optimistic--nearly half (46 percent) of Boomers nearing retirement with the same amount of assets say they are “terrified” of what health care costs will do to their retirement plans.

“The good news is we’re not seeing the panic that many Boomers nearing retirement are having, but we hope this isn’t over-confidence that could lead to a lack of preparedness down the road,” said John Carter, president of Nationwide Financial Distributors, Inc., a subsidiary of Nationwide Financial. “For many of the retirees we surveyed, most of their health care costs have yet to come.”

One of the reasons retirees are confident in their ability to pay for health care costs may be that, so far, they have already been doing it successfully. Also, many current retirees have pensions and employer-paid health care—a luxury many Boomers nearing retirement do not, the survey report pointed out.

“Most Boomers can expect a very different retirement than that of their parents,” Carter said. “In addition to higher health care costs and longer life expectancies, Boomers likely won’t have pensions or employer-paid health care and realistically they’ll need to be prepared to pay for their own health care costs in retirement.”

According to the survey, just one-fifth (21 percent) of those in retirement cite the cost of health care as their biggest expense. This contrast significantly with 45 percent of those nearing retirement who say they expect health care to be their biggest expense.

Retirees, on average, estimate they currently spend $4,083 each year on health care for things like premiums, copayments and deductibles, while 21 percent estimate they spend less than $1,499 each year and 22 percent said they do not know.

Retiree health care costs have increased an average of 6 percent a year since 2002. That means a 65-year-old couple retiring today would need $240,000 to cover medical expenses during their retirement years (which could take up to 35 percent of the couple’s annual Social Security benefit). Estimates are calculated for “average” retirees, but may be more or less depending on actual health status, area, and longevity.

“The irony is that people who stay in shape have a better quality of life in retirement but may end up with higher health care costs because they’re alive longer and need care for more years,” said Kevin McGarry, director of the Nationwide Institute. “Too many people underestimate the amount of money needed to cover their health care costs in retirement because they do not think they will ever need long term care,” he said.

And, as more Americans get health insurance through the ACA, and are able to get preventive care, maybe, ultimately, when individuals become Medicare-covered they will be healthier and lower Medicare costs.  And other ACA provisions focusing on care  coordination and improvement also may help lower costs for all of us.