Planning for health care in retirement “is a very modern problem,” said a speaker at the recent annual meeting of the Society of Actuaries, Schaumburg, Ill. But how are financial planners helping clients address aging-related changes? Income Planning checked with some planners to find out.
“We are a byproduct of how we are living longer and also how we are dying differently,” said Robert Friedland, a professor at Georgetown University in Washington and a founding director of the Center on an Aging Society. For instance, heart attacks and flu are not necessarily fatal ailments anymore, he said during the meeting, rather, these are now very often chronic conditions.
Research provides some sense of longevity today, he continued. For instance, almost half of those 85 and over need help to function, although most people are able to stay at home, he said. But approximately 7% t0 10% of the long term care population lives in a facility at some point, Friedland added.
How do issues like this play out in retirement income planning? One problem is that in the 1980s, there may have been downsizing but, those downsized did receive health care benefits, says Chris Cooper, a certified financial planner with Chris Cooper & Co., Toledo, Ohio. But, now those who are downsized often have no health insurance, he continues.
Many of these people are apt to continue their work-related coverage through continuation health coverage made possible by the Consolidated Omnibus Budget Reconciliation Act of 1986, according to Cooper. But, if a boomer is in the 50s, the likelihood of chronic health problems increases, so when COBRA ends and health coverage is needed, health insurance may then be unavailable or prohibitively expensive, he says.
When a client who has been downsized comes to him, one income planning item that he makes sure he impresses upon that client is to get private coverage so that in the future, bills from health care premiums or costs because of lack of coverage do not leave a lack of funds in the future.
“You need to apply for coverage right away before you end up with something awful. People truly do not know what the risk is,” he notes.
Cooper says that for clients who are retired, he does recommend Medicare Part D, the prescription drug program. He notes that the longer one waits to enroll, the more a penalty is incurred in premium charges.
Those who go without coverage for 63 days or longer after their initial eligibility for Part D and then enroll in the program face a 1% penalty for each month of delay, according to the Center for Medicare and Medicaid Services, Baltimore. But, the cost is actually higher than 1% per month because the increase is cumulative, based on the previous year’s premiums. So, a 2-year delay will result in a premium that is 24% higher, according to CMS.
However, Cooper also adds that his background as a paramedic and a nurse helps him in assessing which is the best plan for a client. He says that he gets a list of prescriptions, doses and frequency of use and examines the different plans to assess this for the client.
He impresses upon clients the importance of liquidity, too. In the past, he notes, the way to think about the possibility of a nursing home stay is renting rather than owning a home. An advisor needs to help ensure that a client has the liquidity to meet this rental, he says.
There are really only 3 things to fear in retirement, according to Larry Ginsburg, a certified financial planner with Ginsburg Financial Advisors, Oakland, Calif. He says they are: poor savings or poor investment results; out of pocket medical costs; and, out of pocket long term care costs.
If the question is, ‘hw can I guarantee income for health care?’ the answer is, “I can’t,” he says. However, if the question is, ‘hw can I plan for health care costs?’ then there are things that can be done, he says.
The first thing Ginsburg recommends is for the client to purchase long term care insurance. This is because health care costs are outpacing inflation, he says.
Also, he adds, when a client reaches age 65, he recommends purchasing the most comprehensive medical supplement plan. Many clients initially want to purchase the least expensive plan rather than a robust plan. In that case, he points out that it is often a matter of ‘pay me now, or pay me later,’ where initial thrift becomes more expensive in the long run.
Ginsburg also recommends that his clients buy the most comprehensive Medicare Part D coverage available–not plans that are the lowest in cost. By purchasing the most expensive coverage, most medications are covered in nearly all cases, he explains.
Medications that clients need today may not match their needs in the future, he cautions.
Getting older clients to spend for better coverage can mean overcoming fear associated with the loss of those funds, Ginsburg says. But, “the unintended consequences of not spending” can result in even greater losses, he adds.
One way in which Ginsburg says that he reduces this fear, is by starting to talk about issues with clients 5-10 years before they come up. In that way, he says, clients have time to become more comfortable with potential future changes.