Back in 2018, the U.S. Census Bureau made headlines with a series of shocking population projections, including a rise in the ratio of older to working-age adults. The Census Bureau predicted that by 2020, our country would have approximately 3.5 working-age adults for every person of retirement age. Now that 2020 is here, financial advisors can take steps to position themselves as more valuable partners to both of those age cohorts by empowering them to calculate, and plan ahead for, their expenses in retirement with greater precision.
As more baby boomers reach age 65, and lifespans continue to increase, one of the biggest concerns for retirees and workers alike is the cost of health care during retirement. Fidelity’s most recent annual Retiree Health Care Cost Estimate predicts that a 65-year-old couple retiring in 2019 could spend up to $285,000 on health care and medical expenses throughout their retirement years, up from the $280,000 estimate in 2018. Fidelity also estimated that single men and women who retired last year may incur up to $135,000 and $150,000, respectively, in health care and medical expenses in retirement.
The capability to work with clients to determine how much they will likely need to cover health care costs in retirement, given their individual circumstances, goals, family health history, etc. — and then incorporate this data into a detailed financial plan that shows clients how they can save to meet both health care expenses and their life/financial goals in retirement — is a key competitive differentiator for advisors.
According to Fidelity, a 35-year-old couple planning to retire at age 65 in 2049 could save $287,846 by that time using health savings accounts (HSAs). Financial advisors play an important role in helping married and single clients figure out how much they personally would need to save for health care expenses in retirement in various scenarios, and enabling them to make adjustments in real time as needed.
Fidelity’s scenario requires a married couple to save $2,820 annually in a health savings account for 30 years. But depending on a 35-year-old couple’s current expenses and goals, and the health savings accounts available to them, they could save more or less over that time frame. Different market scenarios, including the possibility of serious changes to the U.S. health care system, or the necessity of using HSA savings for present medical expenses, can also affect planning strategies for covering health care costs in retirement.