Many producers are already aware that health and wealth are intricately linked. A person’s health status and health care expenditures largely determine how they will spend their retirement and whether there will be enough money to finance the entire span. But exactly how to factor health care into retirement planning is still a bit elusive for insurance advisors. When should the conversation begin?
What types of programs and messages should clients receive from their advisors about health care? Should advisors help their clients lead healthier lives?
“In a lot of ways, health care has been left outside the whole financial planning process,” said Ruth Papazian, chief marketing officer with LPL Financial. “There is no single source for a person to go to.”
Instead, she said, clients are often left on their own to patch together what they need from Medicare, private insurance, their own funds, and friends and family. Many don’t address this need until they are face to face with it — which is usually at the time of illness.
No. 1 concern
But health considerations consistently top most clients’ fears about retirement. Health issues affect the overall quality of those years and raise the question of whether assets can withstand the onslaught of any health-related costs. There is good reason to be concerned: According to Fidelity Investment’s annual survey of health care costs, a 65-year-old couple retiring today can expect to have $250,000 in out-of-pocket costs not covered by Medicare – before long term care is even factored into the equation. The National Center for Policy Analysis estimates that by 2024, medical costs will account for half of seniors’ total yearly consumption.
“We have to answer the question for our clients, ‘What are we going to do about health care?’” said Craig Brimhall, vice president of Retirement Wealth Strategies with Ameriprise Financial. “It’s a major expenditure to the point of being debilitating for many people.”
Yet advisors may not be experts on the topic. They may not know which Medigap policy is the best option for covering health expenses, or have an opinion on which long term care insurance riders are needed.
“An excellent financial advisor will take into account services that he or she may not necessarily provide,” Brimhall said. “We as a company do not sell health insurance products, but we need to understand how that fits into the overall retirement picture.”
When advisors take health costs into account, they have very different conversations with their clients, say experts. They can look at a client’s financial picture holistically.
“Many advisors are trying to get in front of this issue with their clients,” said Myles Lambert, national co-head of insurance business at Morgan Stanley Smith Barney. “They will look at the family history and talk about whether to self-insure or explore some kind of long term care insurance.”
Advisors can also position retirement portfolios to finance health care.
“We should be smart enough to have a sinking fund (in addition to long-term investments), which we can use to pay for things like deductibles or dental — things that are generally not covered by Medicare,” said Brimhall. “We will want to keep that fund fairly liquid in case there’s an unexpected medical cost that needs to be paid right away.”
A real opportunity
In an industry on the front lines of the baby boomer retirement wave, figuring out a way to help older people deal with health care is more than an academic issue for financial advisors.
Papazian believes any professional offering financial advice must go beyond just the funding issues involved and delve deeper. For example, it is not unusual for one spouse to retire with excellent benefits from either a private employer or the military, while the other spouse needs to piece together sometimes inadequate coverage. Some pre-retirees may also be worried about restricted access to their doctors once they retire, given that many doctors do not accept Medicare’s notoriously low reimbursement rate.
“All these things have implications, and advisors need to be thinking about them,” Papazian said.
But can advisors be realistically expected to take so much into account?
“Advisors should know how Medicare and Medigap work,” said Brimhall. “But do we have to have Medicare A, B, C, and the rest of that alphabet soup memorized? No. We do need to make sure we know the appropriate specialists to go to. We quarterback it.”
Catherine J. Weatherford is president and CEO of the Insured Retirement Institute. She can be reached at 202-469-3000.