3 Defenses Against Retirees' Biggest Challenge

How to protect your clients

(Image: Thinkstock) (Image: Thinkstock)

Do you want to be a super hero for your retirement services clients and their families? Have a real conversation with them about the dramatically rising cost of paying for health care, both before and after retirement, which is one of the biggest challenges they will face.

Whether they pay for retirement with annuities, life insurance or other arrangements, this is where much of the income will go.

(Related: Addressing the Fear Inside Your Client)

We know the pre-retirement numbers because Milliman, an actuarial firm, releases an annual Milliman Medical Index report showing the average cost of health care for a family of four under the age of 65. (As an actuarial firm, Milliman is more concerned about math than about politics.)

Milliman's reports show that, in 2015, the average cost for a family of four for medical expense was $24,671. In 2016, the average cost rose to $25,826, and, in 2017, it increased to $26,944.

Milliman's annual reports also show that health care costs have approximately tripled over the last 15 years. That is astonishing. If they triple again in the next 15 years, the average cost would rise to $81,000 per year. That is not a ridiculous assumption: health care costs would only need around 7% inflation for that to occur.

Another important piece of information is the annual Retirement Health Care Costs Data Report from Healthview Services. They predict that a 65 year old couple living to their life expectancy will pay $404,000 in today’s dollars or almost $608,000 in future dollars. If they live past their life expectancies, then they will need $453,000 in today’s dollars and $709,000 in future dollars.

Furthermore, their latest report found that retirement health care costs are increasing at twice the rate of the cost of living increases for Social Security—and these totals do not even include long term-care expenses. At that rate, the cost of health care will consume all of retirees’ Social Security benefits.

Ben Franklin on a $50 (Image: Thinkstock)

(Image: Thinkstock)

Organizations like Fidelity and the Center For Retirement Research at Boston College also provide annual reports on retiree health care costs. They have published similar findings.

With numbers like these, the cost of health care will become a challenge for many people well before they can actually retire. If they do not begin to seriously plan for these health care costs, they may have to delay their retirement, or not retire at all. Some Americans will have to keep working until they die just to cover health care costs for them and their family.

Once we identify this important challenge, there are several things we can do to help our prospects and clients plan for these costs. Remember, you have super powers!

1. The Miracle of Leverage

You can reposition money market accounts, saving accounts, CDs, and short term bond funds into cash value life insurance to accomplish many things.

2. The Power of Working Together as a Family

You have the tools to make $100,000 or $200,000 look like $200,000 or $400,000 at death. If retirees need to use the money for their own health care costs, the original amount is replenished with the death benefit. And if the retirees do not need the money during their lives, they can provide additional money for their families to meet ever rising future health care costs.

3. The Wonder of Compound Interest

You should ask younger prospects and clients to consider funding future healthcare costs using cash value life insurance, Roth IRAs, and Roth 401Ks. Using these strategies to eliminate the tax liability on future growth will allow for triple compounding on their savings: interest on principle, interest on interest, and interest on the taxes they would have paid in the future.

If you help to make sure that your clients not only can retire, but that they can actually enjoy their retirement without worrying about health care costs, you will be their super hero.

--- Read When Teaching Clients, Repetition and Questions Are Key on ThinkAdvisor.


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