Introduction
Households approaching retirement should account for all kinds of dangers to their monetary safety. They might reside longer than deliberate and deplete their assets; they might expertise unexpectedly excessive inflation; or they might obtain unusually poor returns on their investments. Equally consequential is the chance that main bills to make sure their bodily well-being will drain their assets.
On this paper, we use “healthcare” to consult with any health-related prices, whether or not they contain periodic medical care or long-term care (LTC). Medical and LTC dangers may be substantial in retirement. Every, nonetheless, has totally different implications for retirement planning. Each dangers have two elements – particular person danger and common value danger. The person danger is the chance {that a} retiree will really face a medical shock or want LTC. The final value danger is the chance that costs for healthcare companies will develop significantly, eroding an individual’s retirement revenue over time. The distinction between these two elements is that particular person danger can, theoretically, be insured by danger pooling, whereas common danger impacts everybody and thus can’t be dealt with by pooling. Because the uninsured elements of those dangers may be substantial, households’ perceptions of the dangers have necessary implications for the way they plan their spending in retirement.
Utilizing two new surveys of older households and monetary advisors, this paper examines how households’ perceptions of their healthcare dangers in retirement may differ from the precise dangers they could face. The family survey captures the extent to which older households are anxious about healthcare dangers in retirement, their evaluation of how a lot healthcare shocks may price, and the way they plan to handle these dangers. The advisor survey assesses how involved advisors are concerning the healthcare dangers their purchasers might face, together with the related prices. The survey additionally asks what advisors suggest their purchasers do to handle these dangers and their views on numerous contingency methods ought to their purchasers run out of cash.
The outcomes present that older households are inclined to underestimate their healthcare dangers in retirement and have little or no sense of how a lot medical shocks or LTC help companies might price. Many additionally imagine slicing again on non-essential spending, similar to journey, will likely be sufficient to cowl the prices or that Medicaid will step in for them. Advisors, then again, are extra anxious than their purchasers about healthcare dangers as a result of they’ve a greater sense of the prevalence and the prices of medical shocks and LTC help companies. Curiously, older households who work with advisors shouldn’t have a significantly better sense of their healthcare dangers or prices. Questions for future analysis embrace why advisors have little influence on their purchasers’ perceptions and the way inaccurate perceptions have an effect on their purchasers’ retirement safety.
