When it comes to planning for retirement, no hurdle appears toloom larger for consumers than how to account for potentiallycrippling healthcare costs down the road, a survey by Deloitte'sCenter for Financial Services revealed.

Ourprior blogs about this survey of nearly 4,500 Americans from awide range of age and income groups focused on a number of otherbarriers discouraging consumers from putting in place a formal planto generate savings and income for retirement, as well as fromseeking professional help to do so.

These barriers include conflicting financial priorities, lack ofawareness about retirement products, mistrust of the financialservices industry, a failure to communicate effectively withprospects (particularly via the workplace), and a potentiallymisplaced confidence that consumers can “do-it-myself” when itcomes to retirement planning.

But figuring out how to cover what are expected to beever-rising medical costs over the long term turned out to be oneof the biggest single concerns confronting respondents when tryingto address their retirement needs.

Indeed, next to saving money for retirement, the second-mostimportant financial priority among those Deloitte surveyed was howto pay healthcare costs after they stop working. Meanwhile, asmaller but significant segment listing a related challenge —financing long-term care expenses — as another toppriority.

Fear about the ability to cover future medical costs oftenundermines consumer confidence when it comes to retirementsecurity. One-third of respondents within five years of theirexpected retirement said that no matter how well they prepare, theybelieve healthcare and/or long-term care expenses could overwhelmtheir retirement nest eggs. That percentage of doubters increasesto 40 percent for those more than five years from retirement. Suchpessimism could be one reason why so few people have botheredputting a formal retirement plan in place.

Digging into the survey data a bit deeper, Deloitte found thefollowing:

• It is perhaps not surprising that those with higher incomes areless likely to feel concerned about healthcare costs overwhelmingtheir retirement savings than are those with lower incomes. But itwas interesting that such a large segment—one-third—of respondentsin the higher-income brackets (those with more than $100,000 inannual income) shared this fear. This means that even many of theaffluents and emerging affluents are skeptical about their abilityto generate adequate savings to cover their healthcare costs oncethey enter retirement.
• Another telling point is that just about the same percentage ofthose who work with a professional to plan for retirement as amongthose who do not believe that healthcare expenses might overtaketheir savings. This indicates that many agents and financialplanners are either not addressing their client's medical- andlong-term care needs as they put together retirement savings andincome plans, or are failing to account for such concerns to thesatisfaction of their clients.

We believe there are a number of ways financial servicesproviders can help alleviate these healthcare cost worries as partof a broader retirement planning process.

One is to at least deal with medical- and long-term careconsiderations in tandem with retirement savings and incomeplanning. If such issues are addressed in the same conversation,that might go a long way towards reconciling the dual (and oftendueling) problems of providing for both income and medical careneeds in retirement.

To start, financial planners should explain how Medicare works,as well as discuss “medigap” options — policies offered by privatecarriers to pay for whatever Medicare does not cover, such asco-payments, deductibles and coinsurance — and budget to financesuch coverage accordingly.

A second step might be to recommend the purchase of, and budgetfor, stand-alone long-term care insurance — or perhaps a hybridproduct that combines life insurance with a long-term care option.If the cost of long-term care insurance is an issue, short-termcare coverage might offer a partial solution.

However it is packaged, long-term care coverage should bepresented as part of a broader retirement plan to provideasset-protection, with policies designed to prevent a lifetime ofsavings from being prematurely depleted by treatment or aftercarefor a severe, debilitating medical condition.

The purchase of critical or catastrophic illness coverage mightaccomplish the same goal — to provide a backstop in caseunanticipated medical expenses threaten to drain the retirementsavings of an individual and their family.

In terms of product development, perhaps the addition of a newtype of “stop-loss” insurance, capping a policyholder's totalmedical costs for a given year or treatment, might also be offered.At present, “stop-loss” coverage is often purchased by companiesthat self-insure their health benefit plans, with a private“excess” insurer picking up aggregate costs if they exceed acertain level. Such coverage might benefit individual consumers aswell by providing some certainty about their maximum probable losson medical- or long-term care expenses.

Any of these policies might in effect provide “sleep insurance,”so buyers can rest assured that medical costs won't devour theirretirement nest eggs, allowing them to set aside savings with addedconfidence the money will actually go towards their retirementincome needs.

To put consumers on the road to a financially secure retirement,planners and insurance agents should make clients aware ofpotential hazards that could crop up along the way — such asunforeseen medical expenses — which might puncture their tires andleave them flat broke if they don't have a spare in the trunk inthe form of asset protection policies.

By taking such concerns into account as part of a broaderholistic approach — addressing multiple, often conflictingfinancial priorities in one sitting — consumers might not only havea firmer foundation on which to retire, but are likely to be moreopen to working with a financial services professional to put sucha plan in place.

“Meetingthe Retirement Challenge: New Approaches and Solutions for theFinancial Services Industry” — a full report on what else theDeloitte survey results suggest in terms of how to overcome thevarious barriers keeping insurers, annuities companies and theirintermediaries from more effectively connecting with retirementplanning prospects — can be accessed with this link.