Beware of the blind side

As memorialized in the 2009 movie “The Blind Side,” based on Michael Lewis’ book, a quarterback’s “blind side” is behind him, where he can’t see attacking defenders. More than one quarterbacking career has been cut short by a hit from the blind side.

Financial advice isn’t as rough and tumble as American professional football, of course, but it is vastly more important to society.

So what could blind side you?

Perhaps a technology problem, such as a network that’s not airtight. Or maybe a practice management disconnect, such as having too many clients and not enough support staff. It could very well be the lack of a succession plan.

Or it could be that you’re not prepared for an onslaught of questions about Medicare your clients most likely will be asking soon. Remember that just five or six years ago, advisers had (and probably wanted) nothing to do with Social Security because, well, it wasn’t part of financial planning. But today, Social Security has become topic No. 1 in many client discussions and meetings.

The reason is simple demographics. For the past three years, about 8,000 baby boomers a day have turned 65, according to AARP. And that will happen for the next 15 years. No matter how you rationalize it, that’s a huge number, and a large portion of those baby boomers are, or will be, seeking advice.

One reason Medicare hasn’t reached the fevered pitch that Social Security has is that, as a benefit, it’s less directly linked to retirement income. In addition, unless someone is sick, Medicare may not be a front-burner issue.

That said, it is quickly moving to the front burner, which means advisers must make sure they’re familiar with all the coverage levels, costs, key filing dates and other details.

MANY MOVING PARTS

To begin with, Medicare has many moving parts. Literally. Medicare Part A, Part B, Part C and Part D. Part A is free, but the others aren’t. Do you know what the other parts will cost your clients? The expense will vary from client to client, and you need to know how income levels affect those costs.

And don’t forget Medigap, a supplemental insurance policy that can help take care of deductibles and co-pays — which, by the way, don’t have limits.

Here is where Medicare and financial planning — or retirement planning overall — intersect: right at the point of paying for health care.

If your clients think Medicare will cover most, if not all, of their health care costs in retirement, they are sorely mistaken.

You should be the one to tell them otherwise and help them adjust their plan to ensure they can afford the coverage they need. Don’t let them read about it in the newspaper and then place a frantic call to you.

As Mary Beth Franklin reports in this issue’s cover story, many people erroneously believe Medicare that will cover most of their retirement health care costs. In fact, it covers only about half, according to Ron Mastrogiovanni, founder and chief executive of HealthView Services.

Further, while Social Security might be a good place to start, that’s all it is: a place to start.

According to a new Retirement Health Care Cost Index from HealthView Services, a provider of Medicare, Social Security and long-term-care planning tools, average health care costs for middle-income retirees are on a path to exceed their Social Security benefits.

The index measures the percentage of Social Security benefits required to pay for health care-related costs in retirement for a healthy couple receiving the average expected Social Security benefit at full retirement age.

According to the index, by 2024, retirement health care costs will reach 98% of Social Security benefits for a healthy couple, up from 69% for a couple retiring next year. For couples retiring two decades from now, the gap will be even more dramatic. They will need 127% of average Social Security benefits to cover their health care costs in retirement.

Separately, last week’s report from the Board of Trustees for Medicare painted a slightly brighter picture than a year ago, with a forecast that the Hospital Insurance Trust Fund will be able to cover its obligations until 2030, four years later than the board projected last year.

But as Cathy Weatherford, president and CEO of the Insured Retirement Institute, said in a statement regarding the Medicare Trustees’ report, as long as both the Medicare and Social Security programs face long-term financial challenges, retirement confidence will continue to decline.

Indeed, Ms. Weatherford called on Americans to “discuss alternative options with a financial professional to ensure that they can maintain their financial security throughout retirement.”

That financial professional is you.

As the saying goes, forewarned is forearmed. Don’t be blindsided by Medicare.