Health and Retirement: Planning for the Great Unknown

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This year, the youngest baby boomers will celebrate their 50th birthdays. As boomers move into their later years, health will be the ultimate retirement wildcard. For many, health can be the difference between a retirement of opportunity, independence, and financial security – or of worry and financial challenges.

To better understand the role and impact of health in retirement, in 2014 Merrill Lynch and Age Wave completed a national study, “Health and Retirement: Planning for the Great Unknown.” This study, based on a nationally representative survey of more than 3,000 respondents, explores the challenges of health in later life, and how pre-retirees can prepare for a healthier and more financially secure retirement. Key findings include:

Boomers Taking Charge of Their Health

• Retirees say health is the #1 ingredient for a happy retirement.
• Boomers have adopted a more empowered, proactive approach to health during every stage of their lives, and have helped drive the fitness movement, alternative/complementary medicine, and are more empowered healthcare consumers.
• As they approach retirement, boomers say they are far more likely to take charge of their health and health care than their parents’ generation.

The Four Boomer HealthStyles

• Our study revealed four Boomer HealthStyles:
  • The Healthy and Proactive take charge of their health and health finances.
  • The Lucky but Lax have been fortunate to be relatively healthy so far, but are potentially vulnerable to future unexpected health disruptions.
  • The Course-Correcting and Motivated have experienced a health “wake-up call” and are now trying to improve their health.
  • The Challenged and Concerned are struggling with health challenges, yet many are not actively taking good care of their health.

Double Threat of Health Challenges

Health challenges can create a double threat in retirement: (1) unpredictable costs and (2) unexpected early retirement.

• Potential Threat #1: Unpredictable Retirement Health Care Costs. Health care expenses are people’s top financial concern in retirement. Wealthier pre-retirees and retirees are even more likely to rank health care expenses as their top financial worry in retirement.
• Potential Threat #2: Unexpected Early Retirement Due to Health Problems. The majority of retirees surveyed (55%) retired earlier than they had expected, while 38% retired when they planned to, and just 7% later than they expected. Health problems are now the top reason for their early retirement.

Planning for Health Care Expenses: Not a Do-It-Yourself Project

Planning for retirement health care expenses can be both confusing and overwhelming. Pre-retirees are seeking guidance to help them make the right decisions and provide them with greater peace of mind.

• Less than one out of six pre-retirees (15%) has ever attempted to estimate how much money they might need for health care and long-term care in retirement.
• Many pre-retirees say the information available to them when they are trying to determine how much they might need to cover health care costs in retirement – and how they can best prepare for and insure against these costs – is overwhelming, confusing, and frustrating.
• A mere 7% of people age 55–64 say they feel very knowledgeable about Medicare coverage options. Even among actual Medicare recipients, only about one in five (19%) say they are very knowledgeable about Medicare offerings.
• Less than one-third of married pre-retirees age 50+ have discussed important retirement health care topics with their spouse.

Can the Health Care Challenges of an Aging Population be Solved?

Rising life expectancy and the aging of the boomers will create new health challenges. Three important changes are needed to achieve a healthier and more secure retirement.

• Solution #1: Retirees Need to Take Charge of Their Own Health. Investing in health can be just as important – to retirement happiness and even financial security – as investing in a financial portfolio.
• Solution #2: Better Prepare Health Care Professionals for an Aging Population. Two-thirds of adults age 50+ (67%) believe today’s health care system is ill-prepared for our aging population.
• Solution #3: Step Up Government and Private Sector Efforts to Manage and Eliminate the Diseases of Aging. People of all generations express overwhelming interest in a wide range of potential innovations to help them age with greater health and vitality.  At the top of the list is “therapies to slow down the aging of the brain.”