Effective Conversations Lead To Effective Planning
May 2017 Newsletter
We know our clients are concerned about retirement health care costs. A couple of facts really stand out when you look at recent pre-retiree consumer polls:
- Retirement Health Care is now ranking as your clients’ top concern.
- This concern not only spans across income levels, but actually increases among the more affluent households.
It is obvious that we need to connect with clients on this topic. How do we accomplish this in a way that will spur our clients to take action and as a result, alleviate some of the concern?
Much of the popular press tells a 65-year-old retiree to plan on $130,000 for routine health care costs in retirement (this excludes any custodial care expenses). I would encourage you not to start your conversation with this figure. First of all, it is far too low. Secondly, despite being too low, it may overwhelm your client.
If you have heard me present or follow my newsletters, it is easy to calculate that the average 65-year-old retiring today will spend approximately $6,700 per year for routine health care. A particularly healthy client will usually come in below that cost but an unhealthy individual or affluent client (income exceeding $85,000) will usually spend more.
| Coverage | Estimated Cost |
| Medicare Part A | $0 |
| Medicare Part B | $1,608 |
| Medicare Part D | $409 |
| Medigap | $2,370 |
| Out of Pocket | $2,385 (vision, dental, D co-pays) |
| Total | $6,772 |
Approaching the conversation with a current, annual cost figure will allow the client to grasp the significance of the expenditure while recognizing that a comprehensive retirement income plan, backed by a well-diversified portfolio, can meet this cost. Advisors will need to understand how higher incomes impact Medicare Parts B & D premiums as well as the meaningful difference tax-free cash flows make in comparison to taxable investments. Ideally, advisors will incorporate Health Savings Accounts, Roths, Annuities and other tax-efficient investments into wealth accumulation strategies.
These accumulation strategies become increasingly important when you realize that $6,700 inflated at 5% per year (historic level of health care inflation) equates to $223,000 over a 20-year retirement. Even at a mere 2% inflation rate the cost is over $164,000. These figures can grab headlines but once again, usually overwhelm our clients. Use the annual or even a monthly approach to the discussion while recognizing the importance of addressing this issue because of the enormous cost spanning the retirement years.
In conclusion, everything we discussed covers routine health care costs. Make sure to use this conversation to address the need for custodial care planning. This will be further discussed in a future newsletter.
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The information in this presentation is provided as a general overview. It is derived from the Internal Revenue Code, Medicare.gov and other government publications, all subject matter sources reasonably believed to be reliable. Tax law and the laws governing Medicare/Medicaid are complex and subject to change. Clients should consult with their attorney and/or qualified tax advisor when making decisions regarding these matters.