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Help Wanted: Managing Health Care Expenses in Retirement

Many consumers are nervous about the unknowns in retirement — especially when it comes to health care costs. Recent LIMRA Secure Retirement Institute research found that half of consumers consider paying for health care costs beyond what Medicare and Medicare supplement will cover to be a major concern with regard to maintaining their standard of living in retirement.

Health care expenses that accumulate significantly over a short period of time (health care expense shocks) can be particularly challenging and scary for consumers to manage. After all, these events take financial, emotional and physical tolls on households. Here is what LIMRA SRI research found.

More than half of non-retirees believe that a health care expense shock (defined as an out-of-pocket medical expense of $15,000 or more over the course of a single year) during retirement would seriously compromise their financial security. This feeling is nearly universal among men and women as well as among different generations of non-retirees.

Despite a somewhat limited period of time in retirement — an average of eight years — one in 10 retirees already has experienced such a health care expense shock.

Retirees have a variety of ways to plan and pay for out-of-pocket health care costs beyond what Medicare will cover. Many of these costs are routine and paid directly from retirees’ incomes. However, more significant or non-routine expenses might require retirees to withdraw directly from their retirement savings if they have not saved separately for health care costs. This can prove especially problematic because retirees are reducing their future sources of income, adjusting their lifestyles to make up for financial shortfalls. Such withdrawals could even result in penalties, depending on the type of investment.

Only three in 10 non-retirees said they are confident they will be able to pay for significant non-routine out-of-pocket health care expenses without withdrawing from their savings. Half of the non-retirees said they are confident they will be able to pay for routine out-of-pocket expenses without tapping their retirement savings.

Overall, both retirees and non-retirees believe that financial professionals can help consumers manage health care cost risks in retirement. Four in 10 non-retirees believe they’ll need somebody to walk them through a plan to manage these risks. Wealthier consumers and those currently working with a financial professional are more likely to believe that financial professionals can help deal with out-of-pocket medical expenses in retirement. Six in 10 consumers with household financial assets of $100,000 or more and seven in 10 consumers whose households already work with a financial professional agree the financial professionals can help minimize the impact of out-of-pocket medical expenses in retirement.

Consumer desire for assistance with health care expense planning for retirement represents a big opportunity for financial professionals who currently offer this service or plan to offer it in the future. Specialization may require significant training to achieve but could become an offering necessary to meet future demand. A separate LIMRA SRI study found that four in 10 advisors said they need a significant amount of training in health care cost planning.

Advisors should discuss health care options with their clients and include health care cost needs in formal written plans.

 

Cecilia Shiner, M.A., FFSI, ALMI, ACS, senior analyst, LIMRA’s Retirement Research, is responsible for conducting major primary research projects conducted within LIMRA’s Retirement Research Unit. Cecelia may be contacted at [email protected]

 

Jafor Iqbal is associate managing director, retirement research, for LIMRA Secure Retirement Institute. In this role, he is responsible for managing retirement income research projects. Jafor may be contacted at [email protected]

Cecelia Shiner, M.A., FFSI, ALMI, ACS, senior analyst, LIMRA's Retirement Research, is responsible for conducting major primary research projects conducted within LIMRA's Retirement Research Unit. Contact her at [email protected] .

Jafor Iqbal is associate managing director, retirement research, for LIMRA Secure Retirement Institute. In this role, he is responsible for managing retirement income research projects. Jafor may be contacted at [email protected] .


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