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.”