With the oldest baby boomers turning 66 this year, many are worried sick about the rising cost of health care. And no wonder. Health care expenses in retirement can run hundreds of thousands of dollars — not exactly pocket change.
As Adam Koos, president of Libertas Wealth Management Group in Dublin, Ohio, observes: “Five years ago, I’d be the one bringing it up in conversation as we talk about expenses. Now, I find clients are bringing it up before we even get to that line item. There’s a sense of urgency around this that didn’t exist before.”
Yet many financial advisors are currently “ill equipped,” as one expert puts it, to deliver the health-care-cost planning advice that clients have begun to demand as part of the advisor-client engagement.
“This is hard for advisors to hear because they want to think they are meeting all of their clients’ needs. Unfortunately, they’re not,” says Kathryn McCabe Votava, founder of GoodCare.com, a health care consulting firm headquartered in Washington, D.C. and Pittsford, N.Y. “A fair number of them include it at the big-picture level — the biggest-picture level — but get a smidgeon below that, and they are ill-equipped. Simply put, this has never been a part of their training.”
Moreover, the knowledge gap is occurring just as wealth care and health care are converging for millions and millions of Americans. As Sean Dowling, president of Stamford, Conn.-based Dowling Group Wealth Management, frames it: “They’re two sides of the same coin. What good is growing a portfolio if you don’t protect it from events that are not only likely but can be catastrophic to an investment plan?”
What has pushed health care onto the advisor’s plate? For starters, cost-conscious companies are continuing to shed their retiree health coverage, causing individuals across income brackets to procure benefits for themselves. On top of that, health-care costs are rising at a rate of 7 to 8 percent a year, faster than inflation. Finally, with personal responsibility comes choice — and the choices involving Medicare, other health insurance and long-term care can be hugely complex. It goes without saying that there’s a notable downside to making the wrong choice.
When Ron Mastrogiovanni, a co-founder of the wealth-management-solutions firm FundQuest, began helping his elderly parents with health-care decisions a few years ago, he was shocked at what he didn’t know.
“I found out I had no idea what someone who’s retired goes through in terms of health care, Medicare, Social Security. It was completely foreign to me and I was considered an expert in retirement planning,” says Mastrogiovanni, who now heads HealthView Services, a Danvers, Mass.-firm that builds software solutions for the health-care and financial-services industries to address out-of-pocket health-care costs that retirees will face.
Mastrogiovanni said advisors until recently never had to become experts in health-care cost planning, but that they need to do so now.
“The question becomes: How can we effectively plan if we are excluding the largest expense we face in retirement? We’re in the financial planning business and we’re able to estimate the cable bill in 2032 but we’re ignoring the largest expense? That’s ridiculous,” he says. “We have to get up to speed.”
The Road Ahead
No doubt advisors who do step up to the plate will engender significant client loyalty. Consider: the Merrill Lynch Affluent Insights Survey in August revealed that 70 percent of affluent Americans cite the rising cost of health care as their top financial concern — as they have since the survey began in October 2009.
After Sandra Adams, a lead planner with the Center for Financial Planning in Southfield, Mich., staged a client seminar featuring a Medicare analyst, she received a call from a longtime client. “She told me it was the best thing I’d ever done for her. He ended up saving her $200 to $300 a month and you see that immediately in your cash flow,” said Adams, a certified financial planner. “With pension plans going away, my clients are making decisions they didn’t think they’d have to make. This is the new normal.”