Amid the specter of skyrocketing health care costs, many financial advisers are scrambling to hone their accuracy at predicting what their clients can expect to spend on health care during their retirement.
For most advisers — and their clients — estimating post-retirement health care expenses is an exercise in the abstract. Many of the factors that go into that estimate are moving targets, such as Medicare reimbursement rates, or simply unknowable, such as a clients' lifespan.
But having a reasonable expectation of how much money individual clients can expect to spend on health care during retirement is absolutely crucial to sound planning.
“The amount of dollars spent on health care has grown over time, as have people's life expectancies,” said Katy Votava, president of Goodcare.com, a consulting firm that works with advisers and their clients to help them manage health care costs. “When you put the two together, it's an even bigger issue now than it was a generation ago.”
Routine health care costs, including Medicare premiums and co-pays, cost an average of $6,550 a year per individual. Since some aspects of Medicare are means-tested, wealthier individuals pay even more — upwards of a staggering $9,000-a-year in out-of-pocket annual premiums, Ms. Votava said.
A PRIORITY
Not surprisingly, predicting the cost of health care for retirees is becoming a priority for many advisers.
Some advisers are boning up on the ins and outs of Medicare or consulting with experts on the program. Others are incorporating health care professionals, such as nurses or gerontologists, into their practices.
Finally, others are turning to sophisticated computer programs — developed with the help of actuaries — to get a better handle on health care cost projections.
“Health impacts how you live your life, and money supports your health, so if you want to be full-service, you have to look at that,” said Rick Kahler, president of Kahler Financial Group.
He is looking to hire a medical-care coordinator, a geriatrician or a nurse to assist his financial planning clients in navigating the health system and managing their own health.
Mr. Kahler uses life expectancy calculators, such as one available at livingto100.com, to ascertain how long a particular client might be expected to live. That, in turn, gives him an idea about how far to plan out that client's retirement budget.
Michael J. Ward, founder of Wealth Management Partners LLC, formed a partnership in with Davevic Benefit Consultants Inc., an insurance agency. The insurer reviews his clients' medical histories and provides Mr. Ward with an estimate on what their individual health care cost will be in retirement.
If Davevic determines that those clients need more health care insurance, it may offer to sell them that insurance — and Mr. Ward receives a cut of that sale.
Broker-dealers provide advisers with planning software, but brokers are largely left to their own devices when it comes to calculating future health costs.
Raymond James Financial Services Inc., for instance, gives advisers Medicare guides and work sheets but stops short of having one dedicated software program, said Shannon Reid, head of the retirement solutions group at the firm.
Still, some financial services firms hope to make post-retirement health care costs a regular part of the planning process.
At least three companies this year released software that uses clients' lifestyle information, personal and family health history, along with actuarial data to draw a more detailed picture of upcoming medical costs.
Just last week, Nationwide Financial Distributors Inc. made such software available to broker-dealers and wirehouses with which it has selling agreements.
Although there are health care expense calculators available on the web, few use actuarial data to project the ultimate toll those costs will take on clients' retirement plans over a lifetime.
Getting a better sense of how long that client will be around can give advisers a more accurate view of how much to budget for and for how long.
“Many firms plan to a life expectancy of 100 or 95,” said Ron Mastrogiovanni, president of HealthView Services Inc., a firm that builds such software. “Most of us don't have millions to spare, and that person with diabetes isn't living to 100.”
BIG CHUNK
No matter what, medical expenses will likely take a big chunk of any client's retirement savings.
A 65-year-old couple retiring this year can expect to ring up about $230,000 in health care costs during retirement, according to a recent study released by
Fidelity Investments.
Understandably, dealing with medical or health issues is the least appealing part of retirement, followed by anxiety over personal finances, according to a survey of 1,313 retirees and pre-retirees by The Hartford Financial Services Group Inc.
It might be the prospect of surprise medical costs that clients find so unappealing.
“Nobody wants to budget for illnesses; it's a mental thing,” said Richard K. Colarossi, a partner at Colarossi & Williams. “But from a client's perspective, we like to see how they can meet their obligations for their health.”
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