David Tyrie of Bank of America Merrill Lynch is on a mission. Since becoming head of personal retirement at Merrill in August 2010, he has focused much of his time on educating Merrill’s financial advisors about the critical issue of including healthcare costs when those FAs conduct retirement planning for their clients.
“Investors, even the affluent,” he said in a Thursday interview, “are confused about healthcare costs and are confused about how healthcare reform will affect them.” They’re aware of the competing budget proposals circulating in Washington, Tyrie says, and are concerned about what they can expect in terms of relying on income and healthcare coverage from Social Security, Medicare and Medicaid.
Beyond those shorter-term political worries, however, Tyrie argues that advisors are playing “a more and more important role” for their clients: “helping investors manage their income to last a lifetime.” To accomplish that goal, and to make the connection between health and wealth, advisors must familiarize themselves with how healthcare can affect that income in retirement, says Tyrie, and protect their clients with a three-pronged investment approach to retirement income.
“The challenge is about the cash flow,” Tyrie says. People are living 30 years longer than they were 100 years ago, he points out, so clients have “30 extra bonus years to deal with.” it’s easier to figure out what the assets are that a retiree has, “but with healthcare, you have an inverse relationship between health and age—you can’t say with any certainty where healthcare costs are going,” though he suggests that ‘up’ is a good guess.
When advisors enter into this healthcare discussion with clients, he says, they must be proficient about the nuances of healthcare coverage and costs, both government and privately supplied coverage.
What are the major drivers affecting healthcare access and cost for retirees?
The first driver is the kind of healthcare coverage the client has, Tyrie says. The income you can expect in retirement is the second factor. Your current state of health is third, and the fourth factor in planning for healthcare coverage in retirement is, surprisingly, geography.
“Those are the areas to focus on,” Tyrie says, in order to build a “holistic plan to manage your income for a lifetime.”
On healthcare coverage, says Merrill's head of personal retirement, David Tyrie, the advisor should be able to educate clients on their Medicare options and determine if they have health savings accounts or whether they should start an HSA. Advisors should factor in any chronic health conditions clients—and their children or parents might have.
"That’s the kind of difficult conversation advisors have to have—about chronic medical condition,” he says. It’s important to understand the importance of long term care insurance—“70% of people over age 65 will need some kind of long-term care,” Tyrie says studies have shown. If your client’s “plan” for long-term care is to have their children or other family members take care of them, “have you considered the stress that puts on caregivers?”
The fourth driver—geography—is a factor because “different areas of the country have different lifestyles,” which then affects health and longevity. Geography affects access to healthcare providers, for one thing. Studies have also shown that health and longevity—and happiness in retirement—can be affected when a retiree moves from one part of the country to another, an area where the retiree has neither long-time friends nor close family members,
To help its FAs be prepared to have those kinds of conversations with clients, Tyrie says Merrill has a "playbook" for each of those four areas, printed material supplemented by online resources that provides “ coaching on how to have these kinds of conversations.” This, Tyrie argues, “is what separates the Merrill Lynch advisor from other advisors.”
Planning for healthcare coverage is just the start of the process, Tyrie says. Another critical choice comes with Social Security: “When to take it; how to maximize it.”
The third of the four drivers is the actual investment plan to provide sufficient income in retirement. Merrill’s suggestion is to split a retiree’s portfolio into three major sleeves. The first is a low-risk, high income-producing portfolio that can provide at any time enough income to handle living expenses for five years. The second sleeve is a growth portfolio, while the third sleeve is a portfolio into which the retiree can place extra assets that can eventually be passed on to heirs.
Any such plan must build in flexibility, Tyrie says, to account for the unforeseen changes that could be brought about by changes in legislation or the tax code.Tyrie said that the response from Merrill advisors to the playbooks so far has been “overwhelming.”
“People are looking to advisors to help them live well longer,” he concludes. That requires an advisor to plan the investment portion of retirement, but to address these other issues as well. It’s the advisor’s job, he says, to get “the really hard dialogue started.”
(See a previous interview with David Tyrie from the January 2011 issue of Research magazine, focusing on the findings of the Merrill Lynch Affluent Insights quarterly survey on redefining retirement.)