Americans fear Medicare’s future. How should financial plans adapt?

Americans are increasingly pessimistic about the future of Medicare, but few are prepared to take on the medical costs themselves, according to a new survey from Retirable and eHealth.

The study, based on a nationwide survey of 1,111 Americans, found that among adults not yet enrolled in Medicare, 4 in 5 said they’re worried the federal health insurance program won’t be there for them in old age.

Data suggests that Americans are right to be worried.

The latest report from the Social Security and Medicare Trustees projects an 11% cut to Medicare benefits by 2033, when the program’s Hospital Insurance Trust Fund is expected to run out.

READ MORE: Long-term care costs can derail retirement plans. Here’s how to manage them

“Social Security and Medicare won’t even be able to pay full benefits to current retirees — they will be insolvent when today’s 59-year-olds reach the full retirement age and today’s youngest retirees turn 70,” Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said in a statement.

Despite their concerns, most Americans are not prepared for the scale of medical costs that they’re likely to incur in retirement, according to the survey. 

Roughly three-quarters of respondents underestimated or didn’t know the average cost of healthcare in retirement. While 40% of respondents said they expect to spend $100,000 or less, research shows that the average retiree can expect to spend nearly $200,000 on healthcare costs throughout retirement.

Advising clients on the future, now

The impact of Medicare funding shortfalls is a distant reality for many clients, but that hasn’t stopped them from worrying about it in the present, advisors say.

“These questions are coming up more often with our millennial clients,” said Alvin Carlos, a financial advisor and managing partner at District Capital Management in Washington, D.C. “They’re skeptical about Social Security and Medicare being around, and honestly, I get it. Trust in the government is low, and the numbers on Medicare’s funding don’t look great. But I try to strike a balance between realism and panic.”

Survey results indicate that Carlos’ clients reflect a broader trend: millennials were the most doubtful about Medicare’s future.

READ MORE: Employees want to save $1.28 million for retirement — are they even close?

“I tell clients to plan as if Medicare will still be around in some form, but not to count on it covering everything. It’s not likely to disappear entirely, but changes like higher eligibility ages or more out-of-pocket costs are very possible,” Carlos said. “So we build in a cushion. For example, we estimate $200,000 to $300,000 in lifetime retirement medical expenses for most couples, even with Medicare. And we’re intentional about setting aside savings for health costs, either in a regular brokerage account or an HSA if they qualify.”

Advisors like Tipiwa Walker, the founder of Lucre Advisory in Brooklyn, New York, say that planning around future unknowns is often not the best approach for young workers.

“My advice to younger clients on this is that they should base their plans on what is known, rather than what is yet unknown,” Walker said. “What they can control is the prudence of their financial plan and strengthening it so that it is robust enough to handle any future adverse changes in Medicare, or anything else that is beyond their control.”

A political imperative

When it comes to Medicare, financial advisors do not always share the same concerns as the average American.

For John Power, a financial advisor at Power Plans in Walpole, Massachusetts, programs like Social Security and Medicare are simply too popular not to be funded.

“It is one of the most valued programs in the country, and the aging population is getting larger, not smaller,” Power said. “They are voters, and politicians who vote against sustaining these programs will be voted out posthaste.”

READ MORE: As Social Security claims surge, young investors brace for its absence

Avoiding cuts to the program could be achieved through a variety of options, but Americans are hesitant to support them.

Survey respondents were presented with a range of possible solutions to ensure Medicare’s survival, but none of them were well-received. The most popular option, reducing benefits for current beneficiaries, still only received support from 3 out of 10 respondents.

A plurality of survey respondents (34%) said they would not support any of the proposed solutions, which included reducing benefits, increasing Medicare payroll taxes and delaying the age of eligibility.

Still, even if Medicare were to face a funding shortfall, Power said it’s not worth it to plan around projected lifetime costs for any expense in retirement.

“I worry about how much to build into the annual budget because that can be understood and managed — Medicare cost, plus supplemental insurance cost, plus out-of-pocket cost for co-pays, deductibles, etc.,” Power said.