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March 26, 2007 11:06 pm

Medical cost fears weigh on ‘Power Boomers’

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Rich people nearing retirement are “confident” and “prepared” when it comes to planning for life after work but have concerns about having enough money put away for medical emergencies, according to a survey.

The study said wealthy investors aged 40-60 with more than $2m in investable assets spend more time and effort planning than those with less money.

The survey, conducted by Financial Research Corporation, the Boston-based data company, found that more than 43 per cent of these so-called “affluent Power Boomers” spend at least three to eight hours a month planning for retirement.

Their planning encompasses researching funds on the internet, and reading personal finance books. By comparison, only 28 per cent of those aged 40-60 with $1m–$2m in assets spend more than three hours planning for retirement.

“The [affluent Power Boomers] spend more time and energy thinking about these issues and it is paying off,” said Laura Varas, a research partner at FRC who wrote the report. “About 63 per cent of them say they have little or no anxiety about paying for their retirement.”

This group is not entirely free of anxiety, however. About 26 per cent of respondents said they were worried that a costly and unexpected medical issue could have an impact on their standard of living.

“There is not a suite of products to deal with this issue yet,” said Ms Varas. “That is why the most common action among this group – particularly among the younger people – is to purchase long-term care, health, and life insurance.”

Medical costs do not appear to be as big a concern to other prospective retirees. However, those with less than $2m in investable assets said they have concerns about declines in the stock market, reduction of social security benefits, reductions in pension benefits or the death of a spouse having a negative impact on their standard of living.

Legacy giving also weighs heavily on the minds of “Power Boomers”. Almost half expressed concern that they would not be able to leave enough money for their heirs or favourite charities.

“While other boomers expect to spend down their assets and leave behind whatever is left over, those with $2m-plus in assets tend to have a specific estate-planning focus,” Ms Varas said. “They have an idea of the exact amount they would like to give to their heirs and charities and that plays a sizeable role in their retirement planning.”

Three quarters said they are confident they have the right investments, know the amount of money they need to retire, and have a grasp on their budget. However, 65 per cent said they have difficulty determining a strategy to draw income from multiple investments. Many had concerns about the amount of income that could be safely withdrawn on a monthly or yearly basis.

Ms Varas said a possible solution is internet-based tools and products that help customers develop an income plan, by monitoring their investments and spending. “We have seen the concept of the ‘retirement income management acc­ount,’ such as those offered by Fidelity and Merrill Lynch, and under development at other firms,” she said. “The computer helps keep the plan on track. I predict we are going to see more of these products in the future.”

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