Introduction
Households approaching retirement should account for all kinds of dangers to their monetary safety. They might dwell longer than deliberate and deplete their sources; they could expertise unexpectedly excessive inflation; or they could 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 sources.
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 will be substantial in retirement. Every, nevertheless, has completely different implications for retirement planning. Each dangers have two parts – particular person danger and normal worth danger. The person danger is the chance {that a} retiree will truly face a medical shock or want LTC. The final worth 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 parts is that particular person danger can, theoretically, be insured by danger pooling, whereas normal danger impacts everybody and thus can’t be dealt with by pooling. Because the uninsured parts of those dangers will 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 may face. The family survey captures the extent to which older households are fearful about healthcare dangers in retirement, their evaluation of how a lot healthcare shocks might value, and the way they plan to handle these dangers. The advisor survey assesses how involved advisors are in regards to the healthcare dangers their shoppers could face, together with the related prices. The survey additionally asks what advisors suggest their shoppers do to handle these dangers and their views on numerous contingency methods ought to their shoppers run out of cash.
The outcomes present that older households are likely to underestimate their healthcare dangers in retirement and have little or no sense of how a lot medical shocks or LTC assist companies could value. Many additionally consider chopping again on non-essential spending, akin to journey, will probably be sufficient to cowl the prices or that Medicaid will step in for them. Advisors, then again, are extra fearful than their shoppers about healthcare dangers as a result of they’ve a greater sense of the prevalence and the prices of medical shocks and LTC assist companies. Apparently, older households who work with advisors shouldn’t have a significantly better sense of their healthcare dangers or prices. Questions for future analysis embody why advisors have little influence on their shoppers’ perceptions and the way inaccurate perceptions have an effect on their shoppers’ retirement safety.