Carolyn McClanahan is a physician and financial adviser who says she has read all 2,409 pages of the Affordable Care Act of 2010, which is aimed at reforming America's health care system.
Her medical background lends weight to the guidance she offers clients at Life Planning Partners Inc. in Jacksonville, Fla., about the financial realities and burdens of health care costs.
IN: How do you advise clients to prepare for health care costs in retirement?
CM: I am honest, and I say that I have no idea what health care costs are going to be, because, really, we don't. They can't sustain the incredible growth they've had, or this country is going to go broke.
So I discuss what they can control — their personal health. I have them make certain that they are living the healthiest lifestyle possible. Keeping on top of things like cholesterol, weight, blood sugar and high blood pressure goes a long way toward your longevity, how well you live in retirement and reducing your future health care costs.
The second thing I talk about is having people consider what quality of life means to them. The biggest health care costs come toward the end of life. If people do poor end-of-life planning and haven't thought proactively about what they want their life to look like, they will potentially incur a lot more costs down the road.
IN: Are there circumstances when an annuity would make sense to cover retiree health care costs?
CM: I'm not a big fan of variable annuities or equity- indexed annuities. I am a fan of immediate-fixed annuities. However, because immediate-fixed annuities are priced on current interest rates, which are so low, you will get pitiful pricing. But overall, I think annuities are great to help with longevity issues. If I have a client who is very healthy and my biggest concern is that they may outlive their money then I think annuities have a good place. As interest rates go up in the future and as you get older, we'll put smaller parts in annuities. I often think that you shouldn't do a lump sum into any one annuity — that you should be doing laddered-immediate annuities.
IN: Under what circumstances do you advise that clients buy long-term-care insurance?
CM: The insurance has had some major changes over the past decade. Early on, I had great faith in these products, with lifelong features and other great benefits. But we found that they are unsustainable.
The problem I've had with conventional long-term-care insurance — both in getting clients to buy it and from my own perspective — is that you are putting a lot of money into a product that you may not use. Are you sacrificing a good life now for buying an expensive product that you may not use? I've been excited about newer products, basically the hybrid life insurance and long-term-care policies, which I like because you're going to get something back in the end. It's not money that's just going to get away.
IN: Is long-term-care insurance especially important for women, who typically live longer than men and are more likely to live alone at the end of their lives?
CM: Absolutely. We know women are the caretakers, and men die earlier because they hate going to doctors and wait until it's too late. Women are going to take care of their spouse until they die, if it's a conventional relationship, and then they are going to be on their own. One of the things I see happening is more women — kind of like the Golden Girls — going into shared living situations and hiring help. Over time, we're going to move away from the traditional nursing home concept to more in-home care. The Affordable Care Act has some provisions in it that are going to help us make that move.
IN: How will the Affordable Care Act affect retirees?
CM: The biggest factor is for early retirees. We have clients who are financially able to retire but are uninsurable, so they have to work to get the health coverage that they need.
Where it's going to change is for those who want to retire before age 65 but are uninsurable in the private market and not yet eligible for Medicare. They can now look at guaranteed health insurance.
IN: How do you recommend that financial advisers discuss health care matters with clients?
CM: Most people are more comfortable talking about their health than they are talking about their finances. A lot of financial planners are uncomfortable talking to people about health issues because they just aren't used to doing it.
To do a good financial plan, you have to understand a person's health issues and ask basic questions. “What is your lifestyle?” “Do you exercise?” “Do you smoke?”
You have to develop a conversational way of asking instead of making it like an inquisition. If a client is overweight, for example, you can gently bring it up. Just say, “It's important to plan for health issues, too. Do you have any concerns that I need to know about?”
IN: What do you tell your clients about what they can expect to pay for health care after they retire?
CM: They came out with a study that says people are going to need $250,000 saved for health care in retirement, but that's a population-based study. It's going to be different for everyone, so I don't throw out that number.
We have people save like fiends for their basic needs: housing, food, transportation and health care. And then the rest is wants. I encourage people to work for as long as they can, but to work less and at jobs that they love.
For people who are unhealthy, you've got to address it with them and say, “If you are so unhealthy that you can't work, how are you still going to spend money?” If they still feel the need to go to Target every day and spend $100, that's going to be unsustainable for them. Everything is an educational process of, “Here are your choices.”
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