About 64 percent of workers today say they think they will be able to retire comfortably, but when asked specific questions about being able to pay for health care and other long-term security issues, it’s hard to understand where the confidence comes from.
The Employee Benefit Research Institute’s 28th annual “Retirement Confidence” survey measured workers’ and retirees’ confidence about retirement issues. Overall, a third of the 2,042 respondents felt confident in their ability to live well in retirement. While that statistic was virtually unchanged from last year, very few workers or retirees have figured out one of retirement’s largest expenses: health care.
According to the report, only 1 in 5 workers and 4 in 10 retirees have actually done the math. Fidelity’s latest evaluation shows that retirees will need an average $280,000 in 2018 dollars to cover health care when they retire.
“Health care costs continue to rise and continue to be a major expense for retirees,” said Lisa Greenwald, executive vice president of Greenwald & Associates, and co-author of the report. “Despite the importance and significant impact health and health care costs can have on retirement security, it seems to be a blind spot in retirement planning.
“This is a gap that needs to be addressed,” Greenwald said.
People realize they don’t know what they will need to pay for health care expenses, and more than 7 in 10 workers surveyed said they thought it would be helpful for their company to offer this type of planning assistance. In particular, 76 percent of defined contribution participants said they would like this help, compared to 63 percent of nonparticipants.
“Planning for health care in retirement is a key issue that retirement and health solutions providers, as well as employers and the advisory community, need to help Americans better plan for,” Greenwald said.
Workers also showed interest in products they think might provide security, but may wind up not being the best investments, said John Lowell, partner and actuary at October Three Consulting.
The survey showed that 4 out of 5 active defined contribution participants said they were interested in putting some or all of their money into guaranteed lifetime income products. Guaranteed lifetime income products are investments that are offered either inside defined contribution plans as an investment option or outside the plan in the retail market. It provides a steady, monthly income for life.
Nearly a quarter of active defined contribution participants said they would buy a product that would give them a steady monthly check for life.
While the interest in lifetime income among active workers seems high, only 7 percent of retirees reported purchasing that kind of product with their defined contribution savings.
Craig Copeland, EBRI senior research associate and co-author of the survey, said employers are still balking at offering lifetime income products in the defined contribution plan because there are still questions around cost, fiduciary obligations and other issues. In addition, the idea of offering lifetime income as an investment choice is still a relatively new concept.
“As we get these people who have had an entire career with 401(k), we will see growth” in lifetime income products, Copeland said.
Lowell said many soon-to-be retirees get a huge wakeup when they start realizing how little their savings can translate into a monthly income stream for life.
According to Schwab’s Annuity Estimator, a 65-year-old single woman with $500,000 in 401(k) savings could expect to get about $2,500 per month when retiring this year.
“They think they have a lot of money” in their retirement accounts, Lowell said. “When it is converted to an annuity and they see that outcome, there is a look of horror. It doesn’t feel like a ton of money anymore.”
Patty Kujawa is a writer in the Milwaukee area. Comment below or email firstname.lastname@example.org.