The Conversation Advisers Aren’t Having

More than half of pre-retirees express alarm at what health care costs may do to their retirement plans, a survey finds. An annual survey by Nationwide Financial finds a 30% jump in the number of affluent pre-retirees who used the word “terrified” to describe their anxieties about paying for health care costs in retirement. A year ago, in the same survey, fewer than half of pre-retirees used that word.

But people are not discussing retirement with an adviser, according to the “2013 Nationwide Financial Health Care and Long-Term Care Costs in Retirement Consumer Survey.” Of those who have talked with an adviser, just 22% discussed health care costs not covered by Medicare in retirement.

Long-term care is an emerging trend advisers need to understand, says John Carter, president and CEO of Nationwide Retirement Plans at Nationwide Financial.

About seven out of 10 people surveyed agree that other people will need nursing home care but do not see themselves needing it, Carter told PLANADVISER. As people live longer, however, the need for such arrangements is on the rise—especially for women, who live longer. The vast majority of long-term care claims are for women, Carter says.

It’s a well-known fact that women live longer than men, but they also have a unique set of circumstances and needs that can affect their choices and ability to retire. The survey found that women are twice as likely as men to believe they will never retire (36% vs. 18%). On average, they have not been in the work force as long as men because they are primary caregivers of children, parents and in-laws.

Care-giving has cut into women’s corporate plan benefits and savings, Carter says, and also helps keep them in the work force later. “If I were an adviser today, I’d really want to think about how I approach male versus female clients,” he says. ”You could guess there’s more stress on women. There’s a lot on their shoulders, and advisers should understand that as well as the different approaches and different planning concerns to address. It would be interesting to measure the stress of women versus that of men.” 

More Education

Advisers in the 401(k) space want more education, information and thought leadership about the role of health care in holistic retirement planning, Carter notes. Medicaid as it affects pre-retirees and retirees, and the different strategies for Social Security are also topics that participants need help with, according to Carter.

Traditional retirement discussions center on accumulation, Carter says. But the survey respondents said they were more concerned about not understanding the Affordable Care Act (ACA), discomfort in discussing long-term care and not knowing what their out-of-pocket expenses for health care would be in retirement. 

As the need for such care has increased, so have people’s misconceptions: “Something as simple as the belief that Medicare pays for long-term care—which it doesn’t—and the confusion between Medicare and Medicaid,” Carter says. Clients more frequently ask advisers if they should give their assets away in order to access certain benefits.

But these people are the ones who also say their greatest fear in retirement is losing control. “So, of course, that is the biggest loss of control: losing control of your assets,” Carter says. Many factors, from divorce to adult children in need of assistance to illness, can mean an unexpected drain on a retiree’s finances.

“Whether it is the economy, concerns about the implementation of the Affordable Care Act or skyrocketing health care costs, our survey shows America’s workers are increasingly concerned about how they will fund their health care costs in retirement,” Carter says. “More are realizing they can’t count on someone else to fix this problem and that they will have to fund their own health care costs in retirement.”

Carter says the survey yielded some interesting facts and a few surprises. “Four out of five Baby Boomers say they don’t expect their children to support them in retirement,” he observed. The reality is that 29 states have laws making the children responsible for their parents’ nursing home bills, if the parents are unable to pay. The survey found that more than half of Boomers (57%) are confident that states cannot force their children to pay these expenses. 

When to Retire?

The ACA has already affected how people choose to time their retirement, another interesting finding.

A quarter of Boomers (26%) do not expect to retire, the survey found, up from 22% in 2012. Two in five Boomers also say they will delay retirement if they had to buy their own health insurance. One in four say they will delay retirement in order to keep adult children on an employer-based health insurance plan.

The subject of health care costs in retirement continues to be a sore one, and only 22% of those surveyed have discussed them with a financial professional. “We have a lot of work to do there,” Carter notes.

Nationwide’s tools include calculators that advisers can use to provide an estimate of out-of-pocket expenses for health care as well as long-term care costs in retirement. One tool provides estimates for both. Updates to these calculators give the average costs, state by state, for a silver plan in the ACA.

Carter says that another surprise was the use of these assessments. “The first year we had those, we thought we’d do about 3,000 assessments,” he says. “We did close to 10,000, and now we’re up to 13,000.” The ACA is an opportunity to reach out to plan participants to give them an idea of their future needs.

Americans will have to be more realistic in planning for long-term care and health care costs in retirement, Carter feels, as well as taking more responsibility for these costs in retirement. Plan sponsors and advisers must help participants take a holistic view of retirement, Carter says. “It’s not just an annuity or pensions over here, and something else there—you need to look at the whole picture. I don’t know how you talk about retirement without talking about all of these factors.”

“The 2013 Nationwide Financial Health Care and Long-Term Care Costs in Retirement Consumer Survey” was conducted online in the U.S. by Harris Interactive on behalf of Nationwide Financial between September 24 and October 1. Respondents were U.S. adults age 50 and up with annual household incomes of $150,000 or higher.

Nationwide’s survey is on its website.