As health care costs in the United States continue to rise, and inflation remains stubborn, many Americans are losing confidence in their ability to afford their health expenses and maintain their physical and financial wellbeing in retirement, according to the annual Nationwide Retirement Institute® Health Care Cost in Retirement survey, released yesterday.
More than half of respondents (59%) lack confidence in their ability to pay for health care costs as they age, and 57% worry about their ability to pay for caregiving for their partner/spouse.
The study also found that financial planning challenges may be exacerbated by the potential for medical advancements brought on by artificial intelligence (AI) to extend lifespans. One in four Americans (26%) expect AI advancements in health care to add over a decade to their lifespan. Of those, Gen Z expect AI to add an average of 15 years to their life, millennials 12 years, Gen Xers 8 years and boomers 9 years. This signals Americans could be paying for health care costs for significantly longer than they are doing today, and they need a plan that accounts for that.
“Advances in AI and health care technology in general are moving faster than ever and may help treat many of today’s chronic diseases, as well as other health issues,” said Kristi Rodriguez, senior vice president of the Nationwide Retirement Institute. “While this is good news, longevity requires more planning. That is why it is so important to consult with a financial professional to create a plan that prioritizes your health care needs now and for a retirement that could be longer than anticipated.”
Americans are making tradeoffs to manage health care expenses
As Americans eye a future that could be longer than anticipated, today’s economic uncertainty is putting a strain on their finances and causing them to make tough decisions about their medical care that could have significant long-term implications.
- Nearly 1 in 5 (18%) adults have postponed health care actions such as a medical procedure, physical exam, or renewing prescriptions in the past 12 months to save money
- To find additional savings, 10% of Americans say they are considering downgrading their health insurance plan because of high inflation, including 19% of Gen Z, 11% millennials and 14% of Gen Xers
- Three-fifths of adults 18+ (60%) are placing a bet on their health by saying they chose or would choose a health insurance policy with a lower premium but higher deductible plan which typically have a cheaper monthly payment
While Americans are trading more comprehensive health coverage for lower monthly premiums, many do not have the means to cover an emergency health care expense. The survey found more than half of Americans (51%) say they could not pay off an unexpected $5,000 health care out-of-pocket expense.
“As inflation and rising health care costs continue to be a pervasive concern, the most important action individuals can take is to consult with a financial professional,” said Rodriguez. “They can help develop tailored financial plans to ensure people are equipped to meet their health care costs without compromising their overall financial wellbeing.”
The implications on retirement planning
In a country where 100 million people live with medical debt, it’s no surprise that two-thirds of U.S. adults (66%) are terrified of what health care costs may do to their retirement plans and worry that a single large health care issue could ruin their finances for years to come. Even more Americans (72%) say that one of their top fears in retirement is their health care costs becoming out of control.
With all this worry, 69% of Americans with chronic conditions (60% of the U.S. adult population) say they do not have a written financial plan that includes how to pay for the health care costs related to their condition in retirement. Nearly 7 in 10 Americans (68%) do not work with a financial professional.
Conversations with financial professionals are key
In addition to developing plans that consider health care costs and needs, financial professionals are instrumental in guiding retirees through the complexities of our health care system and helping them select the most suitable plans based on their health needs and financial situation. Research findings show this level of guidance is sorely needed.
Nearly three-quarters (72%) of respondents said they wish they understood Medicare coverage better and the vast majority (70%+) responded incorrectly when asked basic questions about Medicare, such as what it covers, how Medicare Part B works, and cost considerations for different Medicare plans.
Americans also dangerously underestimate the average cost of health care in retirement, putting it at $55,343 when the actual cost in 2022 was almost triple that at $172,500 for an individual or $315,000 for a typical 65-year-old retired couple.
“Our survey shows that Americans need more knowledge, guidance, and ongoing support to make informed decisions about their financial plans,” added Rodriguez. “By incorporating health care into financial planning conversations, financial professionals can help clients better prepare for the rising costs of health care.”
To help financial professionals guide these conversations, Nationwide’s Health Care Cost Assessment tool uses proprietary health risk analysis and updated actuarial cost data to help financial professionals and clients estimate future medical and long-term care expenses.
