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Americans Vastly Underestimate Healthcare, LTC Costs in Retirement Planning

Insurance Forums Staff

Healthcare costs in retirement are severely underestimated, according to a new report by Jackson National Life that uncovers “a notable gap between individuals’ perceptions of healthcare and long-term care costs and their overall financial preparedness.”

The findings, conducted in partnership with the Center for Retirement Research (CRR) at Boston College, is the third installment in a series of studies that highlights longevity risk and inflation risk throughout retirement. Its findings show that pre-retired investors are lowballing prospective healthcare expenses in the long-term, with nearly two-thirds anticipating spending at least $1,220 below the $8,600 annual estimate in costs.

It also found only 27% of respondents believe they’ll need long-term care at some point in their lives. However, 70% of individuals turning 65 each year are likely to need this type of care at some point in their lives. This is particularly notable, as Jackson’s recent longevity risk study found the vast majority of investors inaccurately predict their life expectancy, increasing retirement income planning risk.

“Retirement should be a time for security and stability, however, our research shows many households may be unprepared for the realities of the healthcare challenges and expenses they will face,” said Glen Franklin, Assistant Vice President of Research, RIA and Lead Generation Strategy for Jackson National Life Distributors LLC (JNLD), the marketing and distribution business of Jackson. “Our research is particularly timely given potential policy shifts resulting from the election outcome, as proposals addressing healthcare reform and federal funding for long-term care programs could significantly impact retirees’ healthcare costs and savings strategies. This further underscores the importance of working with financial professionals to prepare for an evolving landscape and proactively address healthcare risks in investors’ retirement plans.”

More key findings

  • Investors are considering asset spend-down to qualify for Medicaid. More than 60% of investors surveyed said they plan to or may consider spending down their assets to qualify for Medicaid as a long-term care funding solution but may be underprepared for the dramatic life changes that would come with spending down their assets.
  • Concerns over long-term care costs are amplified among financial professionals surveyed. Two in five financial professionals are concerned that clients will be unable to afford acceptable care, with 56% citing this as a major risk for retirees.
  • Personal experience drives better preparedness. Respondents who have seen family members require long-term care are nearly twice as likely to believe they will need similar care. This group is also more proactive in exploring costs, adjusting retirement timelines and planning for assisted living expenses.
  • Women face unique challenges. Women leading household financial decisions express higher concern about healthcare risks but are less likely to anticipate requiring long-term care despite longer life expectancies. Many report lower income and asset levels, yet they are three times more likely than men to be caregivers for family members.

“These new survey data should be a wakeup call for policymakers, financial professionals and older Americans themselves,” said Andrew Eschtruth, Director of the Center for Retirement Research at Boston College. “We are particularly concerned that too many people nearing or in retirement don’t have a good grasp of their potential healthcare needs and out-of-pocket costs, which could narrow their options when it comes time to pay the bills.”

The research, fielded between July 12-August 2, 2024, included online surveys of more than 400 financial professionals and 500 investors with at least $100,000 in financial assets between the ages of 48 and 78 years. Respondents were required to participate in, or lead, household financial decision-making.

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