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.