Are clients saving too much money for retirement health care?

When it comes to helping clients save for healthcare costs in retirement, advisers need to balance concerns about massive medical costs with a retiree's actual quality of life – no small task. The keynote session at the Investment News Retirement Income Summit (Twitter #RSI2013) kicked off in Chicago today with a dose of cold reality about how much it takes to finance healthcare in retirement. Employer-provided healthcare benefits for retirees is a shrinking benefit in the private sector and advisers need to help clients prepare for what could be swelling costs, according to Paul Fronstin, director of health research and education at Employee Benefit Research Institute. “Fewer workers are able to retire with benefits,” he said. “It's never been that high to begin with, but right now less than 20% of workers work for a company that provides healthcare coverage in retirement.” With that in mind, Mr. Fronstin laid out the grim reality that a married couple could need between $163,000 and $387,000 just to cover health care costs in retirement. “We can't imagine that Medicare will become more generous,” he added. “If anything, it will become less generous.” But physician and adviser Carolyn McClanahan, who founded Life Planning Partners Inc., warned against talking too much about medical savings while ignoring the medical realities that come with declining health. Indeed, she believes in getting clients prepared for end-of-life decisions, which includes specific quality of life guidelines. “If you're a low healthcare user and you're willing to take the risks, you don't need to have all those dollars saved for healthcare costs,” she said. “People have to understand their health care risks and plan for that. You have to decide what an acceptable lifestyle is for you, and how much you want to go through. For example, I would not have a 60-year-old diabetic over-saving for healthcare.” Ms. McClanahan stressed the need to create specific directives to help family and medical providers understand how much medical care an ailing individual truly wants.“Make the focus on quality of life,” she said. “We found that the number one issue for most people was being able to communicate with others.” On the topic of Obamacare, both panelists agreed there are still more questions than answers. Ms. McClanahan, who holds the distinction of having read the entire healthcare law, still believes the healthcare overhaul is better than nothing. “Our healthcare system is so complex that people are giving up and not going to the doctor anymore; they're going to the Internet for answers or asking friends,” she said. “Ultimately, we've got to change our own behaviors.” Mr. Fronstin praised the introduction of healthcare exchanges for “leveling the playing field.” “With the exchanges, you don't need your former employers to offer healthcare in retirement, you just need their money,” he said. He cited the example of someone who quit a 20-year job at an accounting firm, where he worked for the healthcare benefits, to become a photographer. “With Obamacare you'll see a lot of your clients quitting their jobs to go and do other things,” he said. Mr. Fronstin added that advisers will need to focus on helping clients try and keep their income levels below 400% of the poverty rate, in order to avoid paying retail prices for insurance at the exchanges.