Name: Navigating Healthcare Costs in Retirement
Uploaded: 2025-02-11T21:31:00Z
Duration: 11 min 40 s

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Recent research highlights a significant disconnect between individuals' understanding of healthcare and long-term-care costs and their financial readiness. This discussion will explore how households and financial advisors perceive healthcare-spending risks and the implications for retirement-income planning. We'll examine strategies for adapting retirement plans to address rising healthcare expenses, increased longevity, and the growing incidence of chronic conditions.

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Navigating Healthcare Costs in Retirement

Glen, it's so great to have you back to provide some insight on a topic that is at the top of many investors' minds, but can also be very complex and overwhelming. So Glen, I wanna start with the recent study released by Jackson Financial, which focused on the investors' perspectives on healthcare risks and costs for today's longer retirements. What surprised you the most?

That's a great question, and just to remind everybody, this is the third in Jackson Security and Retirement Series. Previously we looked at longevity risk and inflation risk, and going forward, we'll be looking at market risk and policy and family risk in collaboration with the Center for Retirement Research at Boston College. But back to what surprised me, in this study on healthcare risk, one of the questions that we ask was how individuals and advisors felt about the impact of medical advances over the next 10 years. Now, we gave them positive options like, would this increase life expectancy? Would it help people stay healthy for longer? Could it increase longevity for people with chronic conditions? But by significant margins, both populations said, it's most likely to drive up the cost of healthcare. And that really puts a fine point on how people are viewing our healthcare system. Now, from a positive perspective for individuals, it did also underscore the importance of retirement planning.

So Glen, if folks are, let's say, unprepared, right, for healthcare costs in retirement, what do you think the root cause of that disconnect is?

Well, I think fundamentally it's the complexity of our healthcare system that is just overwhelming for people, but then with retirement, you also have issues of mortality, which is a huge, excuse me, emotional issue. And even though Medicare only has three components to it, it's a lot of detail to consider. It's something that potentially people are thinking about for the first time. As you know, for the most part, throughout adulthood, you're getting a series of limited options from your employer and you're picking the plan that works best for you and not really giving it that much more thought. But when it comes to retirement, you've got new things to think about. For example, how likely are you to have a major illness? Or if you're planning to travel in retirement, how would your coverage work in that? Or are you going to need periodic wellness visits or potentially more frequent routine care? Those are a lot of hard things to wrap your head around.

It's certainly some hard things. You talk, you know, about the sort of the deep emotional impact of considering mortality. It's also easy to overlook, right, potential health issues when you're feeling good. So how do you think individuals who are healthy realistically sort of assess their potential healthcare costs and needs in retirement?

Yeah, that's a great question. And it's similar to what we saw with planning for longevity and inflation risk, which is seek professional guidance. That way you're tapping into a broader base of knowledge and expertise. In fact, people might think about layering protection for healthcare in the same way that they set up income in an income floor strategy, where you're identifying guarantees to cover the essentials and then potentially looking at insurance to cover unforeseen risks. For example, you're healthy now, but you don't know whether you might be stricken with a major illness in the future, or have an accident that seriously injures you. And so having things in place to cover those, even in your healthy years and, in fact, you're likely to get more effective and efficient coverage in starting when you're healthy to cover those things.

I also wanna talk to you, Glen, about sort of some pitfalls, right, especially sort of reducing assets to qualify for Medicaid. Are there alternatives individuals should consider?

Yeah, so it's interesting, there's a number of different ways you can go about protecting your wealth later in life. For example, identifying guaranteed sources of income that could cover medical or long-term care expenses. Identifying assets, which could be the equity you have in your home or could be financial assets. In the US, also, the most likely scenario is a friend or family member providing caregiving for you, so identifying people that might be able to help you in your time of need. And then, of course, there is the prospect of using a Medicaid spend down, but that requires impoverishing yourself and potentially drastic financial changes in your life.

You know, the research also highlighted, Glen, some interesting gender differences in how people approach healthcare planning. Can you share some insights on those findings?

Sure, so in order for individuals to qualify for our study, we asked them about their role in financial decision making in the household. Then, we looked at households where women were the lead decision maker. What we found is that in those households they had 14% lower income. They had financial asset levels 44% lower than their male counterparts. They had lower levels of home ownership. And for those that did own their homes, significantly less home equity, which as we know is usually people's major source of wealth in America. Women are more likely to designate themselves as not savers than men are. They're three times more likely to engage in caregiving roles around people in their family that have disabilities or chronic illnesses. They have lower rates of owning long-term care policies and in general are much more concerned about healthcare and retirement related risks overall. And perhaps, most importantly, they have lower rates of completing basic healthcare and retirement planning steps.

So Glen, then, what advice do you have for women who are concerned about these costs?

Yeah, I think first and foremost, find a financial professional. One of the things that we did see in the study is that women seem reticent to seek out professional advice and at the same time are more likely to accept the guidance that comes with professional financial advice. Find a financial professional that's willing to work with you, then, work with that person to assess your unique situation, consider the risks that you may have for yourself or your household, and then work with them to develop a plan to mitigate those risks. And it's important to note, it's never too late to get started. Any amount of planning for any amount of time is always better than none at all.

So you talk about a financial professional or a financial advisor. It seems like maybe the challenge here is to maybe first demystify the topic. So Glen, how can a financial advisor help their clients create more resilient retirement plans that account for factors like rising healthcare expenses and longer lifespans?

Yeah, that's a great question. And I think there's four key things that the financial professional can do for their client. First, as you note, demystifying the topic. What we found in this study overall is people and many advisors aren't well informed on the details of healthcare coverage and long-term care options. And so looking at Medicare, the three components, hospitalization or catastrophic coverage, routine care coverage, and a prescription drug plan, simple in concept, but a lot of detail underneath, so also take the time to go through those with your client. Don't wait until they're approaching 65, perhaps start 1, 2, 3, or more years in advance just to give them time to digest, absorb, and think about the issues. Second, provide the facts on long-term care. In the US, on average, 70% of us are going to need long-term care at some point in our lives. We're going to need it on average for two to three years. And skilled care can cost as much as $100,000 a year or more. So look at, as we talked about before, the different options. Are you going to insure the risk? Are you going to identify assets to cover it? Are you going to identify a friend or family member? Third, take the emotionality out of the issue. One thing that we have seen consistently in looking at retirement related risk is that when you talk to people about themselves and their futures, it creates this emotional construct that is very difficult for them to work with. So a simple step, instead of talking about how you or your spouse is going to fare in retirement, change it subtly to someone like you or someone like your spouse to make it a much more approachable discussion. And then finally, the fourth thing is to deal with uncertainty in the future, you really have to insure the risk and identify a guaranteed outcome. That is the best way to protect income, to protect assets, or to protect loved ones.

I really liked your advice, Glen, on reframing the question in the conversation. So I do wanna ask you, what proactive steps can individuals take today to ensure that they're adequately prepared for the healthcare costs that they may face in retirement?

Sure, that's a great question, and really it's as simple as putting aside money and letting savings grow over time. That is the single most important step. Now, if the household qualifies for a high deductible healthcare plan and it's appropriate for them to take that option, they then also have the ability to open a health savings account. Now, it's important to note this is different than the traditional flex spending accounts where the money disappears at the end of the year. In a health savings account, the money's yours. You keep it over the long term and it has triple tax benefits. You put the money in pre-tax, the earnings grow tax free, and if you take that money out for healthcare related expenses, it is not taxed. Now, barring that, certainly regular retirement savings accounts will help, and in this case, the earlier you start, the better. The power of compounding is very awesome. Let it get to work for you as early in life as possible.

Glen, this has been incredibly informative. We have to leave it here for now, but thank you so much for your time and your valuable insights.

Thank you, Raakhee, I appreciate the time.

Navigating Healthcare Costs in Retirement

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