Find yourself struggling to manage your health-care costs in retirement? You’re not alone.
As the cost of health care continues climbing faster than the rate of inflation and an aging population is living longer, many financial advisors are focused on the line item in their retired clients’ budgets more than ever.
“It’s a cost we see that’s ever-present and it’s gone way up over time,” said certified financial planner Kelly Wright, director of financial planning for Columbia, Maryland-based Pinnacle Advisory Group. Pinnacle ranked No. 80 on the CNBC FA 100 list of top advisor firms for 2019.
The ability to pay for health-care needs is one of the most critical issues of retirement.
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The U.S. spent about $3.5 trillion on health care in 2017, or about $11,000 per person. By 2027, that outlay is expected to climb to $6 trillion, or about $17,000 per person, according to the Centers for Medicare and Medicaid Services.
The average 65-year-old male-female couple retiring in 2019 will spend an estimated $285,000 on health care over the rest of their lives, according to Fidelity Investments. That figure excludes expenses related to long-term care — help with daily activities such as bathing and dressing — which advisors typically calculate separately.
“One of the things we want to do is make sure clients have the appropriate health insurance coverage and understand what it does and doesn’t do,” said CFP Victoria Trumbower, managing member of Trumbower Financial Advisors in Bethesda, Maryland. Trumbower Financial also ranked on the CNBC FA 100 list, at No. 22.
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And, like many other expenses in retirement, health-care spending occurs over many years, if not decades, which means it generally should be factored into a client’s cash flow. And while not everyone will even reach the average amount, others will shell out even more.
“Part of the conversation should be exploring how your client uses the health-care system,” said CFP Stacy Francis, president and CEO of Francis Financial in New York. “It can be drastically different from one person to another, which means their expenses can be drastically different.”
For example, she said, some clients stick to in-network doctors and use health-care services in an economical way. Others, however, approach their care with gusto.
“Some clients have concierge doctors and are paying a private fee for that service,” Francis said. “Or some have significant costs with alternative types of health services like acupuncture or other alternative therapies.”
Financial advisors who try to pinpoint an amount on a yearly basis aim to gather as much information as they can to come up with that number.
“It’s a lot of work, but you can look back one or two years, detail and categorize all their expenses and really see what they spend,” Francis said. “If you ask someone what they spend, they’ll miss things.”
It’s also important to revisit that number every year.
“Some advisors do a plan and then don’t revisit it,” said Carolyn McClanahan, CFP and founder of Life Planning Partners in Jacksonville, Florida.
“You need to go back every single year and use that year’s current health-care costs and do projections,” McClanahan said.
You need to go back every single year and use that year’s current health-care costs and do projections.
Carolyn McClanahan
Founder of Life Planning Partners
Making those forecasts can be tricky, because the rate of inflation is largely an unknown, especially the further out you go. However, health-care spending has outpaced overall inflation on an annualized basis for decades — which means many advisors err on the side of caution and assume that will continue.
Francis said her firm uses 4.5% for when making health cost projections.
“It’s a hefty number, but unfortunately it’s the real one,” she said.
Another way advisors can help clients make sure they are managing their health-care dollars properly is to review their Medicare coverage. Some advisory firms have Medicare specialists in-house who can review a client’s options. Other firms refer clients to someone who does — such as a licensed Medicare broker.
“We use a consultant for selecting policies for clients, customized to their medical conditions and history,” said CFP Grant Rawdin, founder and CEO of Philadelphia-based Wescott Financial Advisory Group, another firm to make the CNBC FA 100 list, at No. 77. “We also have another consultant who is an advocate when clients have insurer or hospital issues.”
Ken Waltzer, co-founder and managing partner of KCS Wealth Advisory in Los Angeles, said he’s learned the ins and outs of Medicare so that he can look closely at his clients’ coverage and recommend how they can make any necessary changes.
“The level of responsibility we have is to help clients in some way with that,” Waltzer said. “Whether you want to learn it yourself or refer them to a Medicare broker doesn’t matter.”
For advisors working with pre-retirees, the younger the client is, the less specific the health-care portion of their retirement savings needs to be, McClanahan said.
“If they’re in their 20s or 30s, they should just save as much as they comfortably can for the future in general,” she said.