The Lifelong Connection of Health, Wellness and Finances – Signature Series

Despite a year of unprecedented turmoil and uncertainty, Americans close to or in retirement are redefining what it means to be retired today. This new phase of life can be an exciting time, full of freedom to take on new challenges and pursue things you’ve always wanted to do. But your physical health, mental health and finances need to be in harmony to make the most of what could be 20, 30 or more years in retirement.

It’s no secret that these three are closely linked throughout life; more than half of those struggling mentally today are also struggling financially.1 Just as regular exercise has been shown to reduce anxiety and improve your mood, and positive thinking can bolster your physical health 2, the confidence that comes from financial security can reduce stress and give you freedom to live the retirement you want.

Though the pandemic has created enormous challenges in keeping health, well-being and finances in balance (see chart), it’s more important than ever to live healthier. Some of the ways to support mental and physical health include maintaining positive relationships, whether with family, friends, co-workers or a support network, and being sure to prioritize mental well-being.

Research shows that physical/mental health and financial well-being are even more strongly connected if you’re entering your retirement years. Besides needing to plan for the known costs of health care, you’re entering a phase of life where it’s highly likely you’ll need money for the many unknown costs of health care. Not surprisingly, health care costs are the No. 1 uncertainty for Americans between 61 and 65 years old who are still working.3

When it comes to your finances, it’s important to talk to a financial professional focused on retirement income planning to make sure you’re on track to meet your financial goals. Conversations during market uncertainty can be especially difficult, so here are some questions to ask:

  • Have changes in the market affected my plan?
  • Am I still on track to be able to maintain my lifestyle without outliving my money?
  • Does my current plan include enough protected income to meet my essential monthly expenses?
  • Do I need to adjust my expectations or goals?
  • Should I adjust my retirement date?

Talking through these questions with your financial professional provides reassurance, while taking action to secure your financial future can improve your well-being.

Protected Income for Improved Well-Being

This concern about medical expenses is understandable: For the typical 65-year-old couple, the cost for health care will be an estimated $295,000 in today’s dollars in retirement.4 That doesn’t include the cost of long-term care.

Health care costs are even more top of mind because of the pandemic.5 Having these costs covered as part of a retirement income plan can go a long way toward providing a confident and satisfying retirement.

Retirement “income” planning is a completely different way to think about retirement planning and requires changing the old mindset from just accumulating a lump sum for retirement to developing a plan for how much and when you can withdraw and spend your retirement dollars. You can start this process on your own, using easy guides and tools available at ProtectedIncome.org/tools-guides, to get a simple and quick estimate. Then you can work with a financial professional to get a more detailed picture of the income you can expect to receive based on the amount you’ve accumulated.

Keep in mind that ideally you want to cover your essential monthly expenses for things such as a mortgage or rent, utilities, groceries or medicine with protected income you can count on — your must-have money. There are only three sources of protected income available today: Social Security, which only covers on average 40% of your preretirement income; pensions, if you’re one of the lucky few who still have one; and annuities.

Protected income is also good for reducing mental stress and improving well-being. No matter what someone’s income level is, having sources of protected income leads to a higher level of satisfaction in retirement.6

This improved well-being contributes to physical health — and surprisingly, healthy people tend to have higher cumulative medical costs in retirement compared with those who are unhealthy.7 That’s because healthy people have longer life spans. Living longer is good news, but remember, that also means your money has to last longer.

Annuities offering protected income can help cover the overall higher total medical costs resulting from living longer. Your financial professional also can work with you to design a portfolio that covers medical expenses by tailoring annuities to help pay for long-term care costs, for example, while still preserving your ability to benefit from stock market exposure or interest earnings to help cover cost-of-living increases the longer you live.

Women, Protected Income and Health Care

Protected income can particularly benefit women. They tend to live longer than men, which gives them an increased risk of outliving their savings and having higher medical costs in retirement.

Women also tend to be caregivers in their family8, which can add stress and put a strain on finances. The lifetime financial cost for women caregivers in terms of lost wages and Social Security benefits averages more than $300,000.9

Since they tend to live longer and be caregivers, women should begin retirement planning as early as possible. Women also need to make their own financial needs in retirement planning a priority, examine potential retirement health care costs in light of their increased longevity and not rely solely on Social Security.

The Financial Benefits of a Healthy Lifestyle

Much of this discussion has been about how sound finances can have a positive impact on health and wellness, but the effect goes both ways. Not being able to make physical health a priority can actually have financial consequences. A healthy lifestyle adopted earlier in life can pay off financially decades later.

For example, by maintaining a healthy lifestyle, a typical 45-year-old woman with high blood pressure can reduce her annual health care costs before retirement by $3,651.10 If this money is saved and compounds at only a modest rate of 4.3% annually, by age 65 her retirement plan can be richer by more than $112,000.

Many Americans can benefit from this approach. About half of all adults have a chronic condition such as high blood pressure, high cholesterol or type 2 diabetes. People in this category could increase their annual savings by making lifestyle changes and taking prescription drugs if advised by your doctor.10

You can work with your doctor on a plan to increase your physical wellness and with your financial professional to put the savings created by your efforts into portfolios with protected income that will help cover health care costs in retirement.* The protected income that annuities offer can strengthen the bonds between health, wellness and finances and can help you live a fulfilling retirement.

Health, Stock Market Volatility Are Closely Linked

Even though most financial professionals advise against watching the short-term ups and downs of the stock market, it’s hard to resist following your holdings daily. But these frequent check-ins can hurt your mental health.

Large, sudden losses in wealth increase depressive symptoms. One study of the 2008 stock market crash found “the crash reduced wealth and increased depressive symptoms and the use of antidepressants.”11 And hospital admissions for anxiety, panic disorders and major depression increase almost immediately when the market suffers a major drop.12

But your mental health can decline even when stocks are rising, a study of the Chinese market says.13 Highly volatile market periods, no matter what direction, can trigger anxiety.

“Although a turbulent stock market is associated with opportunities,” the study says, “it violates people’s sense of financial security, as income or return expectations are in flux. The actual losses and potential losses of a fluctuating market create uncertainty about financial security, which in turn induces anxiety.”

So even though the temptation is strong to watch your stocks go from green to red and back to green again, you’re better off remembering that the short-term fluctuations in stock prices have little to do with long-term wealth. And having income from an annuity can provide an additional feeling of security when stock prices are down.

That’s because annuities can provide a regular stream of income even when there are market downturns. An example from recent memory is what happened during the coronavirus market crash in February and March, where the markets fell by 12%-13%, but those Americans who had annuities kept receiving their monthly income while allowing time for the rest of their investments to recover. Knowing that this income will be there for you no matter how your investments are doing can bolster your mental health and help you feel more confident about your retirement.

*Variable annuities, which vary in value based on the performance of their underlying portfolio, may include add-on living benefits (or riders). There’s no guarantee that a variable annuity with an add-on living benefit will provide sufficient supplemental retirement income.

References

1 Ties That Bind: The Tight Links Between Mental and Financial Health, Prudential Financial

2 The Power of Positive Thinking, Johns Hopkins Medicine

3 Alliance for Lifetime Income Retirement Reset Survey, March 2020

4 How to Plan for Rising Health Care Costs, Fidelity Viewpoints

5 Prudential Financial Wellness Census 2020

6 What Factors Related to Overall Well-Being Make Retirees Happy? Julie M. Anderson, Retirement Income Institute

7 How Much Does Health Care Cost in Retirement? HealthView Services Financial

8 Family Caregiver Alliance

9 Caregiving Costs to Working Caregivers, MetLife Mature Market Institute

10 Healthcare, Annuities, and Retirement, HealthyCapital and the Insured Retirement Institute

11 Recession Depression: Mental Health Effects of the 2008 Stock Market Crash (Melissa McInerney/Jennifer M. Mellor/Lauren Hersch Nicholas)

12 Worrying About the Stock Market: Evidence From Hospital Admissions, Joseph Engelberg and Christopher A. Parsons

13 Stock Market Exposure and Anxiety in a Turbulent Market: Evidence From China, Frontiers in Psychology

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