Annuity.org’s most recent study highlighted the biggest financial concerns of Americans who are nearing or in retirement. The survey asked respondents to choose their top three financial concerns in retirement. The most common response, selected by 56.20% of respondents, was health care expenses.
“Health care expenses have always been the top category because health care expenses are unpredictable,” Aamir M. Chalisa, General Manager at Futurity First Insurance Group, told Annuity.org. “The Medicare plans change so often, people’s medical situations change. There are times when certain drugs are covered and certain drugs are not.”
Other key findings from the survey include:
- The next most common financial concerns among survey respondents were unexpected expenses (44.80%), inflation (39.80%), long-term care expenses (32.20%) and outliving savings (29.40%).
- 26.80% of respondents reported that they were very confident that they would be able to maintain their existing lifestyle in retirement. 25.80% said they were somewhat confident, 17.00% said they were only slightly confident and 16.00% were not confident at all.
- 41.25% of “Not confident at all” respondents reported that their only source of retirement income was Social Security.
- Only 16.4% of “very confident” respondents reported relying on just one source of retirement income, compared to 33.61% of respondents who were less than very confident.
Annuities serve to ensure that individuals do not outlive their savings, particularly beneficial for those with a family history of longevity beyond 80 years old. Given that retirement plans typically anticipate a lifetime around 80 years old, clients who may surpass this age should consider a financial vehicle that guarantees an income stream for essential expenses, such as at-home care and unexpected costs.
Elaine King, MBA, CFP®, CDFA™, CFBA, ACCFounder of Family and Money Matters™Elaine King, CFP®, founder of Family and Money Matters™, empowers families’ financial and human capital for wellbeing. She’s crafted actionable plans for 1,200+ families and 100+ enterprises. A recognized financial education advocate, creator of LATAM’s first family financial program and winner of the Best Latin Book Award. Featured in top publications and honored by Investopedia and People Magazine.
Ask the Experts: Tackling the Top Financial Concerns
Annuity.org spoke with personal finance experts Aamir M. Chalisa and Marguerita Cheng to better understand how people approaching retirement can address their biggest financial concerns.
#1: Health Care Expenses
The most common financial concern found in the survey was health care expenses, which 56.20% of respondents named as one of their top three concerns. Many retirees struggle to prepare for health care expenses because the amount you might need for those expenses is hard to predict.
“When you think about consumers in retirement who truly plan well, they allocate different dollars in different buckets,” Chalisa said. “‘I need a dollar amount for housing, I need a dollar amount for food, I need a dollar amount for entertainment, I need a dollar amount for travel.’ Health care is the one that’s really screwed up because they don’t know.”
Chalisa suggested that choosing a health care plan that’s best suited to your health conditions can help. “A lot of people try to buy these health care plans online and they don’t understand it,” Chalisa said. “It’s very common that people end up choosing the wrong plan.”
Chalisa recommended seeking the advice of a professional when choosing a health care plan, just like you might consult an advisor for financial planning in retirement. Instead of shopping online and picking “whatever looks cheaper or whatever looks good,” when you talk to an insurance professional, “that person can help you figure out what’s the best plan.”
#2: Unexpected Expenses
Unexpected expenses were the second most popular financial concern, chosen by 44.80% of survey respondents. Unforeseen circumstances like home repairs or car breakdowns can happen to people of any age. However, once you’re retired and potentially living on a fixed income, those out-of-the-blue expenses can pose a serious risk to your retirement.
“This is what I tell people: The day you retire, you no longer have to save for retirement. But that does not mean you’re not saving for emergencies,” Cheng, a Certified Financial PlannerTM professional and CEO of Blue Ocean Global Wealth, told Annuity.org.
Many people in retirement have wealth stashed away in return-generating products like certificates of deposit (CDs), brokerage accounts or annuities. But it’s important to also have some liquid assets you can access on short notice if needed. “I encourage people, whether they are retired, or getting ready to retire, it’s always good to have a designated fund for any emergencies or opportunities,” Cheng said.
#3: Inflation
Inflation has been a hot topic in financial news in recent years, and 39.80% of survey respondents said inflation was one of their top three financial concerns in retirement. The rapid rise of prices for consumer goods, housing and other essentials can make it difficult to plan for how much money you’ll need throughout your retired years.
“If a 50 year old is starting today, and they are trying to figure out how much income they need for retirement in 15 years at 65, if today your budget is $5,000, [in 15 years] you’re going to need a lot more than $5,000,” Chalisa said. “The value of that $5,000 will not be the same.”
One retirement planning product that can help offset the effects of inflation is a fixed annuity. These products grow your principal amount at a guaranteed rate for a number of years. Then, you can convert the principal with the interest earned into a stream of income payments that can last throughout your retirement.
The interest rate a fixed annuity earns can help your retirement savings keep pace with the rise of inflation. And some annuities go even further to preserve your savings’ purchasing power by offering optional riders such as the Cost of Living Adjustment (COLA) rider. With a COLA rider, annuities can adjust payouts periodically based on inflation, ensuring that your retirement income maintains its value over time.
“Certain products allow you a cost of living increase,” Chalisa said. You may be able to add a cost of living adjustment (COLA) rider to your contract for an additional fee. An annuity with a COLA rider might have lower payments at the start, but the monthly payouts will gradually increase as the years go on, typically by about 2%.
Methodology
Annuity.org commissioned an online survey through SurveyMonkey that collected answers from 500 respondents aged 45 and up. The survey asked respondents about their financial preparedness in retirement, their confidence in being able to maintain their existing lifestyle in retirement, what sources of income they expected to have in retirement and their top three retirement financial concerns.
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