This Is Americans’ Greatest Financial Fear in Retirement

This worry outranks running out of retirement funds -- but you can take steps now that will improve your situation later.

This Is Americans’ Greatest Financial Fear in Retirement Photo by Photographee.eu / Shutterstock.com

Never mind losing retirement savings to high taxes or low stock market returns, or even outliving your retirement savings altogether. Instead, Americans are more worried about medical expenses.

Such costs were the most commonly cited financial fear about retirement in a recent Merrill Lynch study, the last in a series of studies about finances in retirement.

More than 4,800 pre-retirees and retirees, whose ages ranged from 25 to over 70, were surveyed for the study.

They were polled about seven “life priorities” for retirement:

  • Family
  • Finances
  • Giving
  • Health
  • Home
  • Leisure
  • Work

Health stood out — but not in a good way. Merrill Lynch explains:

“Health is the biggest wildcard in retirement, sending ripple effects across the other Life Priorities. Two of the most important investments Americans can make in retirement are to maintain good health and cover its uncertain costs.”

Perhaps that’s why costly health issues ranked as Americans’ No. 1 financial worry in retirement. The most commonly cited financial worries are:

  1. I or a loved one will have a costly health issue(s): 49 percent
  2. The rising costs of goods and services (inflation): 46 percent
  3. Not having enough money to do what I’d like to do: 44 percent
  4. Outliving my retirement savings: 40 percent
  5. Living on a fixed income: 37 percent
  6. Increasing tax rates: 25 percent
  7. Not being able to find work, if needed: 21 percent
  8. The stock market will yield low returns: 16 percent

A lack of knowledge of medical costs appears to be compounding health concerns.

For example, the study found that many retirees don’t fully understand their health insurance and coverage, or erroneously believe Medicare will cover almost all health care costs in retirement. Few know what it will cost to finance their health care.

According to Merrill Lynch, a married couple would need $259,000 to be 90 percent sure that they could cover their out-of-pocket health care costs in retirement.

That’s in line with what Fidelity Investments found last year: A couple who were both 65 years old and retired in 2016 would need an average of about $260,000 to pay for lifetime medical expenses — which traditionally include Medicare premiums, Medicare co-payments and deductibles, and out-of-pocket prescription costs, Fidelity found.

So what should you do? The Merrill Lynch study participants cited two “course corrections” above all that they’d be willing to undertake:

  • Make healthier choices now to save money later: 91 percent
  • Use more generic medications/health supplies: 91 percent

On the bright side, the study notes these changes can make a difference:

“Positive adjustments to health can carry over to other Life Priorities and open up opportunities, for example, to engage in leisure and work or remain in the family home. And some adjustments have a relatively larger impact for those with lower income because (Medicaid excepted) health expenses and insurance are generally independent of income and assets.”

What’s your top financial worry about retirement? Share your thoughts below or on Facebook.

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