Few Plan for Health Care Costs in Retirement

Health care is likely to be the biggest expense in retirement and tops the list of Baby Boomers’ worries, yet not many people are taking action, Robert Reynolds, president and chief executive of Putnam Investments, said during the company’s forum “Health, Wealth and the Future of Retirement.”

“For all the talk and worry about health care, we have seen very little by way of solutions or even baseline guidance beyond macro-estimates of lifetime costs, which leave many people frozen with fear,” he said. “It makes no sense at all to talk about retirement savings or lifetime income provision without expressing the numbers in a monthly context and factoring in health care expenses.”

Putnam provided a preview of a tool to be launched this fall—personalized monthly health care cost projections—being incorporated into its Lifetime Income Analysis Tool, which helps workers model how much monthly income their savings might generate in retirement and determine whether they are on track to maintain their current lifestyle after they stop working.

Research by Brightwork Partners LLC found that only 12% of respondents who have a formal written plan for retirement have factored in health care costs not expected to be covered by insurance.

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The research also found that 14% of respondents were “very interested” in a health care planning tool, 46% were “somewhat interested,” 24% were “not very interested” and 17% were “not at all interested.” Thirty percent of survey respondents with investible assets of $1 million or greater were interested in a health care planning tool, while only 5% of those with no investible assets were interested.

Many variables determine the amount of savings needed in retirement for medical bills, one of which is an individual’s state of health. Van Harlow, Putnam’s director of investment retirement solutions, said the recommended health care savings in retirement for a 65-year-old man in excellent health is $168,900, whereas the recommended health care savings for an individual who has ever had cancer is $112,500 and $99,400 for an individual with diabetes. The higher costs associated with certain health states, like cancer or diabetes, are often offset by shorter life expectancies, Harlow said.