Not all financial advisors and wealth managers are cut from the same cloth. Some focus almost exclusively on growing clients’ liquid assets. Others encourage clients to call them before making any big financial decision—”Don’t buy a car without calling me first!”
But whether you take a more hands-on or hands-off approach with your clients financial planning, health care should be included in comprehensive retirement planning.
According to the most recent estimate from Fidelity Benefits Consulting, a 65-year-old couple retiring this year will spend $275,000 on health care, not including long-term care expenses.
This is up by $15,000 from 2016, and as health care costs continue to rise, this number is likely to increase substantially every year.
Because of this, more advisors are recognizing that health care plays a role in the advice they give their clients around retirement and investing. There are two approaches advisors are taking. The first approach takes clients’ expected and unexpected health care costs into consideration. The second, more hands-on approach, adds additional customized consulting. This ensures clients not only plan for their expenses, but that they choose the most cost-effective health care strategies.
Here’s what advisors should know about each approach.
1. Planning for retirement with health care in mind
At a minimum, advisors can forecast health care expenses throughout retirement and build them into the clients’ planning strategy. This should include costs associated with Medicare, as well as long-term care costs, which Medicare will not cover. Some of the more popular planning software tools include a section on health care, and this is a good place to start.
Medicare is an expected cost, and planning for long-term care is prudent, but clients should also prepare for unexpected expenses. In other words, help your clients prepare a cushion, and it should be larger than what you initially estimate. Even for wealthy clients, a three-day stay in an out-of-network hospital can quickly top $50,000.
Planning ahead for the full expanse of possible health care needs, from a major hospital stay to long-term care, gives clients peace of mind that their retirement strategy covers all the bases.
2. Offering more customized consulting
The second approach is to consider health care advice as a competitive differentiator and offer customized advising services to clients on top of basic fiduciary advice.
In other words, the second approach includes all the considerations of the first approach, but also helps clients select a Medicare and prescription drug strategy, time the move onto Medicare and evaluate the most tax-advantaged strategy across Health Savings Accounts and other retirement accounts.
These are more than a dozen different Medicare strategies, and choosing the wrong one can cost your clients thousands of dollars per year. The same goes for prescription strategies, especially if your clients are on multiple or specialty drugs. To further complicated matters, most Medicare plans change their coverage networks and drug formularies yearly.
For clients retiring early, finding coverage option to bridge the gap before Medicare eligibility is key. For others, it will make more sense to continue working past Medicare eligibility. And what about spouses and adult children?
The need is there, and good advice is hard to find. Insurance is full of jargon and complicated comparisons that most wealth management clients would prefer to outsource to a trusted consultant. This is where financial advisors come in, and aside from providing a much-needed service, health care dovetails with existing retirement planning services.
For advisors who want to take the hands-on approach, there are several options for offering this customized advice to clients. Firms can build out their health care expertise in-house, or partner with a local insurance brokerage or team of health care advisors. You can think about health care advising like a continuum, and the more customized services you want to provide, the more it may make sense to develop a relationship with an outside health care partner.
But regardless of where your practice decides to fall on the continuum, integrating health care costs into comprehensive retirement planning is increasingly necessary for your clients’ well-being.
— Read Completing the Retirement Planning Puzzle: Where Long-Term Care Fits In on ThinkAdvisor.
Ryan McCostlin is part of the individual advisor team at Bernard Health.