US: Millionaires Worry Health Care Costs Will Affect Retirement

Nine out of ten millionaires are worried that rapidly rising health care costs will significantly affect their ability to enjoy retirement, many plan to fund their retirement by working part or full-time, and nearly half are relying on themselves rather than a professional in planning for retirement.

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This is according to research released today by The Northern Trust Company, a leading provider of investment management, global custody, fiduciary and private banking services for affluent individuals, families and family offices.

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Northern Trust’s new survey of 1,312 millionaire investors, representing more than $7 billion of total investable assets, revealed that 92 percent of non-retirees are very worried or somewhat worried that rapidly rising health care costs will affect their ability to enjoy retirement. Most (88 percent) retired millionaires, 55 and older, are similarly worried, as are nearly all (96 percent) baby boomer millionaires (age 54 and under).

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« It was surprising to learn that regardless of age or level of wealth no one is immune from the devastating affects of spiraling health care costs, » said Thomas Hines, Senior Vice President and head of the Northern Trust Financial Planning Group. « Affluent individuals and families are feeling the pinch along with everyone else, as rising costs are expected to take a huge bite out of retirement savings. Preparing a financial plan can help them anticipate the cost of paying for long-term care insurance, if appropriate, home health care or nursing home care should they need it. Perhaps that’s why many plan to continue working during retirement. »

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Close to half (42 percent) of surveyed millionaires who have yet to retire said they plan to work part or full-time during their retirement years. Of those, 38 percent of baby boomers plan to work. Further, nine percent of retired millionaires reported they are currently working, while 10 percent of millionaires with more than $10 million of assets to invest said they will never retire, indicating that for a number of affluent individuals work becomes their identity and lives.

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« The intention to work during retirement is a phenomenon we haven’t seen with previous generations, » Hines said. « The baby boom generation is unique in that they are interested in staying active and engaged well into their senior years. The idea of working in retirement could be a reflection of that interest. For those with higher incomes the reason to continue working may be more a function of personal identity than need. »

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Baby Boomers Rely on Themselves for Retirement Planning Advice

According to the Northern Trust survey, affluent baby boomers are planning for retirement, but many without the assistance of professional advisors. When asked who their principal advisor for retirement planning issues related to finances is, nearly half (45 percent) of those age 54 and under said, « myself. » More than half (55 percent) of baby boomers said they haven’t established or updated their estate plans.

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« We were surprised by the number of affluent baby boomers who are worried about many issues surrounding their ability to retire, yet are not taking action on critical elements of their retirement plans, namely the creation of estate plans, » said Hines. « We suggest that this very self-directed group take advantage of the services of seasoned professionals who can help them develop comprehensive financial plans for their needs today and in the future. Indeed, how well one prepares for this next stage in life can determine the quality of their retirement and how much they will have to leave their heirs and to charity. »

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Baby Boomers Plan to Draw From Several Sources to Fund Retirement

More than half (54 percent) of younger millionaire investors plan to draw income from a combination of five or more sources of income to fund retirement, including stocks and bonds, IRA accounts, 401(k) plans and Social Security. Of those, 84 percent plan to use their stock and bond portfolio, while 73 percent plan to use IRAs. Savings in 401(k) plans will be used by 73 percent of baby boomers, a reflection of the plans’ popularity among younger executives, business owners and professionals covered by these plans.

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Reflecting the rise of interest in alternative investments among affluent investors, nearly half (43 percent) of young millionaires, 54 and under, are planning to use real estate investments as a source to fund their retirement, more than double the number of retirees (18 percent) who are currently drawing on this asset.

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Commented Hines, « The survey results indicate that millionaires have complex financial situations, which call for advice and planning. They plan to manage multiple sources of income while running a family, a business or a professional practice. An advisor can ease that burden by understanding a family’s financial goals, taking into consideration long-term financial security, taxes, and estate and charitable giving. To maximize the likelihood of a smooth transition into retirement, we advise them to begin planning at least several years before the big day. »

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Millionaires Also Worried Over the Stock Market, Taxes, Personal Health and Inflation

According to Northern’s survey, millionaire investors are very worried or somewhat worried that stock market declines, personal and family health, inflation and the possibility of large tax increases, may significantly affect their ability to enjoy retirement. Of greatest worry to 88 percent of non- retirees and 89 percent of retirees is the possibility of stock market declines. An equal number of non-retirees and retirees (79 percent) are worried that personal and family health issues will affect retirement. Worry over inflation ranks high with 80 percent of non-retirees and 76 percent of retired millionaires. And, 75 percent of non-retirees and 76 percent of retirees said that they are worried over large increases in taxes.

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The Northern Trust Company retirement survey was conducted among a national sample of 1,312 clients and non-clients of Northern Trust.

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Source: The Northern Trust Company