Health-care costs are making retirement investors worried sick about their finances, according to a recent study by San Mateo, Calif.-based Franklin Templeton Investments.
In its seventh annual “Retirement Income Strategies and Expectations” survey, the company found that short-term medical and pharmaceutical expenses were the most cited financial cause for concern among investors planning for retirement.
In a survey of more than 2,000 U.S. adults, 31 percent named medical and pharmaceutical expenses as the most concerning expense in retirement, followed by paying off their debts, named by 18 percent, and the funding of long-term care or assisted living, named by 15 percent.
Across all generations, the cost of medical care was named as the most concerning retirement expense, with nearly half of all respondents expressing that they don’t know how they’re going to pay for their expenses in retirement.
Franklin Templeton notes that many of the survey’s respondents were not using one of the primary savings vehicles designed for health-care expenses—the health savings account (HSA). More than three-quarters of the survey’s participants either had no access to HSAs or were not saving in one.
“When determining your retirement savings strategy, health-care planning should be a major part as it can directly impact your retirement,” said Kevin Murphy, senior vice president and national retirement plan strategist for Franklin Templeton’s Defined Contribution Division, in a comment. “Health savings accounts are often thought of as IRAs or 401(k) plans for medical expenses, and they can complement long-term retirement savings strategies. While there are a lot of options, this is where financial advisors can be helpful to determine the best strategy for each individual.”
Underpinning concerns about retirement expenses are uncertainties about retirement income. Nearly half of the respondents, 49 percent, indicated that Social Security would be their primary source of retirement income, and another 41 percent said they would rely on a current or prior workplace retirement plan.
One-third of the survey’s respondents, 33 percent, were concerned about running out of money in retirement, eclipsing concerns about personal health issues, named by 26 percent, and living an inactive lifestyle, named by 11 percent of the respondents.
While most of the respondents, 62 percent, recognized that a financial advisor might help address some of their retirement planning concerns, only 29 percent were currently working with an advisor.
Different generations had diverging concerns. Members of Generation X, aged 38 to 53 years old, were concerned mostly about running out of money during retirement and crafting retirement income strategies to meet their expenses. Baby boomers, aged 54 to 72, were most concerned about their health.