Stop guesstimating, or worse, ignoring, your clients’ health care costs in retirement

Health care costs are key component of retirement expenses but devilishly difficult to estimate. Consequently, many financial advisers are forced to take the path of least resistance by either guessing the amount of health care costs to include in a retirement income and expense plan — or ignoring them.

New research from the Employee Benefit Research Institute (EBRI) separates retiree health care expenses into two categories: recurring and non-recurring.

The institute finds that recurring health care services such as doctor and dentist visits and use of prescription drugs, usually remain stable throughout retirement. But non-recurring expenses such as overnight hospital and nursing home stays, outpatient surgery and home health care tend to increase with age and generally are more expensive.

“Health care is one of the key components of retirement expenses and is the only part of household expenditures that increases with age,” said Sudipto Banerjee, EBRI research associate and author of the report “Utilization Patterns and Out-of-Pocket Expenses for Different Health Care Services Among American Retirees,” released this week.

“While some of these costs are more predictable, others are uncertain, and for many people these expenses spike toward the end of life when resources are slim,” Mr. Banerjee said in a statement accompanying the report. “To successfully manage your resources in retirement, a good plan may include separate preparations for each.”

That’s easier said than done. But now financial advisers can play around with a free retiree health care planner tool to get a better handle on the potential health care costs that their clients might face given their age, current health, location and preferences for type of Medicare coverage and where they want to receive long-term care services if needed.

Omyen Corp.’s Retiree Healthcare Planner is free for all advisers, whether or not they use any of the company’s other products. Advisers can use the tool to model potential long-term care costs and determine the need for insurance or to create a more comprehensive retirement health care cost estimates that include Medicare premiums tied to a client’s Modified Adjusted Gross Income.

Dinesh Sharma, Omyen’s CEO, said the firm previously charged $99 a month for the software, which has been on the market for more than three years, with several upgrades over that time period.

However, there is a fee if advisers want to produce branded personalized reports for clients. The cost is $49 per month or $499 per year.

There are few tools available to help advisers estimate retiree health care costs. HealthView Services, for example, offers healthcare planning tools for advisers.

Omyen is also launching a separate adviser-branded consumer facing life and health care tool aimed at allowing consumers see how changes in their lifestyle can affect their life expectancy and out-of-pocket health care costs. For a small fee, advisers can add an interactive button to their website so consumers can use the tool, capturing consumers’ email and zip codes that can be used to generate leads of prospective clients.

The retiree health care assessment tool is also available to plan advisers.

“The idea is to use estimated health care costs to influence people to adopt healthier lifestyles,” Mr. Sharma said. “Advisers working with retirement plan sponsors may be able to help reduce their clients’ health insurance bills.”

Michelle Goldstein, a fee-only planner with Goldstein Financial Future in Dallas, has used the software for about two years. While not necessary for all clients, she said having the ability to estimate health care costs based on how many times a client typically sees a doctor and how many prescription they use can be very comforting to those who are concerned about the impact of health care expenses on their retirement.
Jackie Thornhill, an independent adviser with Landmark Financial in Las Vegas, has also been using the retiree health care planner tool for a couple of years and said she has found that the graphics are client friendly. “As an independent, I think branding is important and I want to be able to differentiate myself from the pack,” Ms. Thornhill said.

(Questions about Social Security? Find the answers in my ebook.)