Increasing lifespans mean consumers face more years of medical expenses in retirement. Add in the trends of rising healthcare costs and the burden of payment shifting to consumers from employers, and people need more help than ever managing money through retirement.
Industry leaders who see longevity planning as core to the future of financial advice believe technology has a role in helping advisers work with clients to predict everything from future healthcare costs to who will drive them to doctor appointments when they can no longer drive themselves.
Without useful data on retirement medical expenses or education on how to navigate specific issues like Medicare, many advisers still avoid longevity planning, said David McClellan, head of wealth management solutions at technology firm Aivante.
"If they use anything at all, they use financial planning software and simply guess at a medical expense number and use inflation rates," Mr. McClellan said. "But that's still largely guess work and it's not personalized to the client."
Seeing an opportunity, Mr. McClellan is bringing his machine learning technology, which was initially developed to help employees more effectively enroll in a healthcare plan, to the adviser market to predict clients' future healthcare costs.
Aivante's new adviser solution uses a client's health history and location to make a personalized projection of healthcare costs based on analysis of claims data. The software can predict how a client's consumption of healthcare services will change over time and apply accurate Medicare or private market insurance coverage to show on a year-by-year basis what the client can expect to pay out of pocket.
While the software can't account for unexpected illnesses or random events like being hit by a car, Mr. McClellan said Aivante accounts for the key decisions to build an effective plan for expected healthcare costs.
Aivante isn't the only fintech looking to help advisers manage retirement healthcare costs. Instead of using average costs from insurance data, competitor Genivity looks at lifestyle and hereditary factors influence how much someone can plan on spending, said founder and CEO Heather Holmes.
Genivity embeds into advisers' websites and is available in Orion Advisor Service's client portal as an educational, interactive experience advisers can take clients or prospects through. After entering in factors about a client's current health, lifestyle and family, Genivity will provide a snapshot of expected longevity.
Advisers receive data on the back end that they can then incorporate into client financial plans.
The idea is to assist advisers with uncomfortable conversations about longevity planning, Ms. Holmes said.
"A lot of clients haven't had these conversations," she added. "Advisers can start illustrating to them what these things look like and get in front of these conversations earlier."
Carolyn McClanahan, co-founder of Whealthcare, thinks technology can go a step further than predicting healthcare costs in retirement. In addition to thinking about healthcare costs, advisers should be helping with what she calls "the logistics of aging," such as where they are going to live when they get older, or how they are going to transport themselves if they can no longer drive.
"It's the whole issue around the loss of independent and control," which will only increase with longer lifespans, Ms. McClanahan said.
Using a series of questionnaires, Whealthcare creates three different reports for clients — a risk profile, a financial caretaking plan, and a proactive age plan.
The risk profile helps advisers identify how capable an aging client is of making independent financial decisions, or if they might need help. The financial caretaking plan puts in place actionable steps to decrease the risk of financial abuse in case clients lose the ability to make decisions for themselves. It establishes how bills will get paid or how investment decisions will be handled. Finally, the proactive aging plan accounts for how clients want to live their life as they age — such as where they will live, how long they will drive, or what healthcare needs will be.
"Calculators can give you a number of the amount of money you need to retire, but that's a bogus number," Ms. McClanahan said. "People who have good advanced directions in place will have lower healthcare costs at the end of life than people who don't."
Though longevity and healthcare planning is a new area for most financial advisers, Mr. McClellan, Ms. McClanahan and Ms. Holmes are confident it will soon be a necessary offering from both RIAs and independent broker-dealers.
"This is where the industry has to go," Ms. Holmes said. "Instead of goals-based planning, it's moving into these financial wellness conversations, and you can't do that without conversations on health and longevity."
Some large firms already are considering how they can help. For example, Raymond James introduced in 2018 a suite of resources for advisers to help with longevity issues.
Mr. McClellan compares healthcare and longevity to Social Security claiming strategies, which went from something few advisers new about to a core element of financial planning.
"You have to figure out how [healthcare] fits into the context of broader financial planning," he said. "This topic poses tremendous risk to clients. Any retirement plan that you're developing that does not take in projection of medical expenses is not a good retirement plan."