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Medical Costs Derail Comfortable Retirements

Philip Moeller

The message about steeply rising healthcare costs has been at least partly received by older Americans, according to a new survey. Whether they can change their retirement planning to successfully accommodate these expenses is less clear.

National Financial sponsored a poll of relatively well-off people with $250,000 or more in household assets. Half were between ages 55 and 65, and half were older. In many respects, members of this group are poster children for successful retirements. They have saved and looked ahead to their later years in nearly all respects but one: healthcare expenses.

[See Health: The Biggest Determinant of Your Retirement Security.]

Nationwide Financial found that the group had not planned for their future health expenses, and had serious gaps in their understanding of Medicare and the scale of later-life health expenses. If there was a silver lining in the survey, it was that many people were well aware they might be facing very unpleasant consequences as a result.

"What we think is so important in getting out from a message standpoint is the specific word that people used in terms of their plans for retirement, and that word was 'terrified,'" says John Carter, president of Nationwide Financial Distributors. "They do have plans and they do have assets, but what they haven't done is incorporate out-of-control healthcare costs into these plans. And they haven't talked about this with their financial advisors."

While both age groups have substantial concerns about their retirement prospects, the younger group of people still getting ready for retirement had much more negative views. Nearly half of this younger group said yes when asked if they were terrified about the possible impact of healthcare costs on their retirement. Not surprisingly, they also had larger gaps in their understanding of Medicare than did older survey respondents.

[See Long-Term Care Needs Demand Your Attention Now.]

"Soon to be retired Americans who plan to enroll in Medicare estimated that Medicare will pay for 68 percent of their healthcare costs in retirement," Nationwide said. "When asked how they arrived at that percentage, nearly three in four [said they] guessed or didn't know." Nationwide cited research that found Medicare covers 51 percent of retiree healthcare costs.

The survey documented other misconceptions:

-- Average annual healthcare expenses during retirement were estimated at $5,621 per person. The actual average is projected to be nearly twice that amount.

-- There is a widespread belief that Medicare covers long-term care expenses, but it does not.

-- Long-term care will be needed by most older Americans. But the survey found such expenses were not included in people's efforts to calculate their retirement healthcare costs.

[See Social Security, Medicare Outlooks Worsen.]

Retirees and younger respondents generally agreed on the financial planning priorities that would help them achieve more successful retirements. But in all but one instance (travel expenses), retirees thought each of the top 10 planning priorities was more important than did people who had not yet retired. Here are the 10 most important topics that retirees identified for discussions with financial advisers, and the percentage of retirees who felt discussing the topic would be helpful:

1. A written retirement investment plan; 93 percent

2. How to best provide for loved ones; 91 percent

3. The safe level of annual retirement savings withdrawals; 86 percent

4. How invested assets will be tapped for income over the next 5, 10, and 15 years; 86 percent

5. Tips for getting the most out of retirement funds; 82 percent

6. How to pay for travel expenses; 75 percent (it was 84 percent for pre-retirees)

7. Current state of the economy; 71 percent

8. Expectations for healthcare costs apart from Medicare; 70 percent

9. Information about health and estimating retirement healthcare costs; 69 percent

10. Medicare's role in retirement; 68 percent

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