Biggest expense for millionaire retirees? Taxes, not health care, says Securian study

A new study by Securian Financial Group, based in St. Paul, says taxes, not health care, are the biggest expense for retirees in their 70s. At least fairly wealthy retirees.

The study asked 225 retirees between ages 70½ and 75 in August about their income and expenses. Respondents had a net worth of at least $1 million.

Michelle Hall, Securian’s manager of Marketing Research, said: “We speculated that taxes consume a bigger slice of retirees’ spending pie and wanted to either confirm or refute that with research.”

“For this group, personal income tax is the highest average annual expense by a large margin,” said Hall. The Securian study shows the respondents paid an average of $25,226 in personal income tax per year: Add in real estate, capital gains, and personal property tax and the total average annual tax expense was $40,578 or about 4 percent of their net worth.

“While that is a small percentage of net worth, it could be a much larger chunk of annual income,” said Hall. “If these ‘millionaires’ are living on their investments, taxes could consume most of their yearly cash flow.”

Health issues rank very high on the respondents’ list of concerns, but actual health-related costs – an average of $6,681 per year — account for a small fraction of their overall expenses. They spent more on travel, cars, charity, real estate taxes, food, gifts and mortgages.

“These findings run counter to conventional wisdom,” said Hall. “Even the people we surveyed thought their health care-related costs would be higher.” Prior to retirement, nearly one-third of respondents anticipated their biggest expense would be health care; in retirement, health care was actually 12 percent of their expenses.

The biggest concern of the retirees was not expenses or income, but worry about “the security and well-being of our country” (88 percent), followed by “the health of my spouse” (86 percent).

Other findings of the survey:

    • The bulk of current retirees’ income comes from Social Security (96 percent) and pension plan distributions (60 percent).

    • “Not knowing how to manage money to make it last until I die” slightly outweighed their concern of “not having enough money.” 

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