The rising cost of health care has become one of the biggest and most complex issues facing our country—in fact, it’s likely to be your Boomer clients’ greatest or second greatest expense in retirement. Up until recently, the financial-services industry has not addressed this critical issue. But with the help of educational reports and sales tools, you can help your clients plan to fund their health-care costs in retirement.
Most Americans aren’t thinking about—much less planning for—their health-care costs in retirement. Many assume their employers will continue to pay their premiums during retirement or erroneously believe that Medicare will cover their health-care expenses.
The health-care portion of retirement planning is, right now, a void in the financial-planning process, full of nebulous averages that don’t mean anything to the average consumer and are difficult to integrate into the planning process. What you need to do to fill this void is to personalize the numbers for your clients.
There are a number of tools that you can use to demonstrate how important these numbers are, some web-based, others illustration software. I can talk about WorldCare North America’s HealthView Report, which can help you show clients how their personal health might affect their retirement. With this tool, you would help them complete an online questionnaire covering basic health information. medical coverage, lifestyle, medical conditions and family history, and that will generate a personalized HealthView report that you can print up for your client. The report tells the client about his health risks, estimated life expectancy based on those risks and projected out-of-pocket healthcare during his retirement.
What to look for
These tools help consumers realistically evaluate their health and plan accordingly. Staying healthy is the best way to save on medical costs. A thorough personal health-risk analysis should identify areas of health concern or risk and provide suggestions for preventive actions as well as tips for maintaining and improving health.
Additionally, the analysis should help you determine what your clients need to invest today to fund their health-care costs during retirement. You can benefit from calculation tools that allow for “what-if” scenarios. For example, a client has the right profile to retire early and live longer than the actuarial data estimates. How will these changes affect your client’s out-of-pocket health-care costs? This type of calculation tool can help you complement the rest of the client’s retirement-planning portfolio with dedicated funds for their health-care costs.
Specific scenarios can help illustrate how these tools give your clients a clear picture of their long-term health-care costs. You could take two individuals with the same profile except one has type 2 diabetes. The person with diabetes can expect to pay 16 percent more for their health-care costs per year in retirement than the person that does not have the condition.
Or, say you have a 50-year-old white male with the following profile:
- Healthy height/weight ratio
- High blood pressure
- Healthy cholesterol level
- Exercises 30 minutes a day four or five times a week
- Healthy diet
- No major medical conditions or diseases
- Plans to retire at age 65.
- Plans to have as medical coverage: Medicare, Medigap, prescription drug coverage
This patient will need $259,483 to cover his medical costs during his retirement. It is important to understand that this out-of-pocket cost includes expenses for his hearing, dental care, eye care, and prescription drugs.
Educate your clients
When you help clients understand the amount of money they will need to cover their medical costs in retirement, they become open to discussing financial solutions to get them to the dollars they will need.
You can share articles from major newspapers or other news stories about these issues. You can include them in prospecting letters and or hold seminars that address health-care costs in retirement. Be a resource for your clients, and share research with them. For instance, do they know:
- 55 percent of retirees spend the same or more money in retirement years than in their preretirement years.
- Medicare will only cover 51 percent of their medical expenses.
- 55 percent of people underestimate their medical costs or do not know their medical costs in retirement. (And, of course, you obviously don’t want your client to be in this situation.)
- Medicare does not cover long-term care.
Give them this information and talk about their preparedness. Ask them what their plans are for health-care coverage, making sure they’re aware of when their employer-sponsored health benefits will end and when their Medicare benefits will begin. This is even more important if a client has an eye on retiring early, since Medicare is not linked to retirement age.
Consumer awareness is the key. You need to be viewed as a trusted resource for your clients, so it’s in your best interest to learn as much as you can about health care and health-care costs and communicate these issues to your client regularly. As you become a trusted resource, these “touches” will lead to discussions about the financial solutions you can help them find.
Ron Mastrogiovanni is president and CEO of WorldCare North America in Cambridge, Mass. He can be reached via Joanna Flynn at 617-875-4063.