Today’s retirees are slowly coming to grips with the possibility of paying almost $500,000 in retirement health-care costs
Knowing the reality of health-care expenses in retirement, retirees (29 percent) are most concerned about the costs associated with declining health than running out of money, according to the Retirement Income Study from Massachusetts Mutual Life Insurance Co. (MassMutual).
A 65-year-old couple could pay nearly $490,000 in total health-related costs throughout retirement, according to Healthview Services, a software company that projects healthcare costs.
“While we’re working, many of us think about retirement in terms of our leisure pursuits, a kind of permanent vacation that requires more disposable income,” said Tom Foster Jr., MassMutual’s head of retirement plans practice management. “Retirees’ experience tells us that health concerns become increasingly prominent, especially as many retirees begin experiencing health issues and their subsequent costs.”
Once they have achieved retirement, most people feel confident that their retirement income will last as long as they live and that they will be able to live their desired lifestyle, according to MassMutual’s study. Nine in 10 retirees said that they feel confident about being able to live their lifestyle in retirement, compared to about half of pre-retirees, according to the study.
Pre-retires worry most about not having enough income in retirement to enjoy themselves — four times more worried than retirees (28 percent vs. 7 percent).
According to the report, pre-retirees are also more worried about changes in Social Security benefits (81 percent vs. 69 percent of retirees) and low interest rates (69 percent vs. 57 percent of retirees) hurting their retirement income.
When asked if their retirement savings would last as long as they live, 91 percent of retirees said they believe their income will last--only 56 percent of pre-retirees said the same.
The higher levels of confidence among retirees may stem from finding they need less income than they anticipated before retiring. Sixty percent of pre-retirees believe they will need at least two-thirds of their pre-retirement income to live comfortably in retirement. Only 44 percent of retirees said the same about their retirement income needs, according to the report.
“While many retirees can manage their expenses to lower income levels in retirement, the rising cost of care may steadily reduce their lifestyles as they age,” Foster said. “Once you’re older, it may be impossible to make up for any increasing income needs by simply tightening your belt. It’s far better to err on the side of having more rather than less income than you anticipate needing, especially as costs for care continue to escalate.”
Spending in retirement can heavily impact how long retirement income will last. The study found that 70 percent of pre-retirees anticipate spending less in retirement than they did in their working years. Half of retirees confirmed they spend less, while the rest found that they spend about the same amount (41 percent) or more (8 percent).
The majority of pre-retirees said they wish they had started saving for retirement sooner (84 percent). Fifty-five percent of retirees reported wishing they started sooner too, according to the study. Those sentiments were more likely to be expressed by those with assets of less than $250,000. The statements were also more common among respondents who made withdrawals from their 401(k) or other retirement savings plans before retirement via loan or withdrawal, and those who suspended contributions to their plans.
The study was conducted on behalf of MassMutual by Greenwald & Associates and polled 801 retirees who had to have been retired for no more than 15 years, and 804 pre-retirees who were within 15 years of retirement. Pre-retirees were required to have a minimum household income of at least $40,000, while retired respondents had at least $100,000 in investable assets and participated in making household financial decisions. The research was conducted January 2018.