Health-care planning presents an opportunity for advisers

Like it or not, financial advisers need to factor health-care costs and funding solutions into future retirement income plans. Clients expect it, and tools are now available to personalize cost calculations and to provide a variety of funding solutions, according to two new studies.

Holistic financial planning, including retiree health-care cost projections and long-term-care funding solutions, presents enormous opportunities for financial advisers who seek to differentiate themselves from investment-centric robo-advisers and to attract a new generation of clients.

With total lifetime health-care costs for a healthy 65-year-old couple retiring this year projected to exceed $360,000, ensuring sufficient savings are available to address health care is a growing retirement planning challenge. By age 87, health-care costs for that same couple are expected to be 200% higher than today, according to HealthView Services, a provider of health-care cost data for financial services firms.

“Retirement health-care premiums and out-of-pocket costs are guaranteed expenses that will rise faster than inflation and Social Security cost-of-living adjustments,” Insured Retirement Institute president Cathy Weatherford said in a statement accompanying the release of a new white paper, “Healthcare, Annuities and Retirement.”​

“Americans are increasingly focused on ensuring they can cover these costs,” Ms. Weatherford said. The paper is the result of a collaboration between IRI and HealthyCapital, a joint venture between the Mercy health-care systems and HealthView Services.

About half of U.S. adults have a chronic health condition, including Type 2 diabetes, high blood pressure and high cholesterol. In an earlier paper, HealthyCapital calculated the potential annual savings from simple behavioral changes, such as taking prescribed medications and managing one’s diet, and analyzed the impact of investing those savings in a retirement account.

The latest paper demonstrates how those retirement savings could be earmarked for future annuity purchases to cover health-care costs in retirement.

In a case study, a 30-year-old woman with Type 2 diabetes who adopts a few basic lifestyle changes can reduce her annual health-care expenses by a range of $1,041 at age 30 to $9,713 (future value) at 64. If she invests the savings and generates a 6% annual return, she has the potential to add $240,000 (future value) in additional retirement savings at age 60. The same principles can be applied to different age groups.

In the case study, the woman purchases both a variable annuity with guaranteed lifetime withdrawal benefits and a deferred-income annuity at age 60, with payments beginning at 65, to provide a stream of guaranteed income that will grow to meet rising health-care expenses at different stages of retirement. Depending on her health status and actual health-care expenses, she and her adviser could decide whether to purchase a single premium income annuity at age 75 for additional guaranteed income.

“The laddered annuities approach outlined in the paper offers one potential path to ensure sufficient income will be available to cover these expenses during retirement,” said Ron Mastrogiovanni, CEO of HealthyCapital and HealthView Services. “By including health care as part of retirement planning conversations, advisers can work with clients to create a guaranteed income stream that meets an individual’s health care, income and even legacy goals.”

In a separate report, 73% of affluent adults said they fear out-of-control health-care costs and half are very or somewhat concerned about having enough money to last through their retirement. Yet only 27% currently have long-term-care insurance, according to a new survey from Nationwide Retirement Institute.

Nearly 40% of those surveyed have never discussed long-term-care costs with their family or financial adviser. The survey is based on an online poll of more than 1,000 adults age 50 or older with household income of $150,000 or more.

“Financial advisers can help people plan for and live in retirement by providing a fact-based estimate of long-term-care costs and a unique plan to address those costs,” said Holly Snyder, vice president of Nationwide’s life insurance business. “If you are putting together someone’s retirement plan and you haven’t planned for this event, you haven’t done all you can to ensure that the client will achieve his or her goal.”

Ms. Snyder called insurance solutions, such as Nationwide’s hybrid universal life policy with a rider that can provide up to eight times premium costs in long-term-care benefits as well as a death benefit, appropriate even for clients “who can afford to self-insure but are smart enough not to.”

To encourage advisers to initiate discussions about future health-care costs with clients, Nationwide offers a free personalized health-care assessment tool.​