More Advisors Budgeting Health Care Costs in Retirement Planning

When Dr. Carolyn McClanahan, a financial planner and former emergency medicine physician, became a financial planner about a decade ago, she didn't discuss retirement health care costs with clients.

Fast forward 10 years and McClanahan, a fee-only planner, has a full calendar of invitations to speak to advisor groups about making health care costs part of the retirement planning discussions.

“I do about 20 events a year now and I’m turning people down,” said McClanahan, director of financial planning for Life Planning Partners in Jacksonville, Fla.

More than 1,100 miles to the north, in the Boston suburb of Danvers, Mass., health care consultant Ron Mastrogiovanni, CEO of HealthView Services, said his company’s platform receives more than a million requests a month for cost projections. The company provides retirement health care data and planning tools.

“Three years ago, it was a fraction of that,” he said.

There’s no question there’s been “movement,” at least anecdotally, among advisors to integrate health care costs into the retirement planning equation.

But whether that is related directly to consumers taking on a greater portion of rising health care costs, awareness about health costs in retirement or even the passage of the Department of Labor’s fiduciary rule is impossible to say, he said.

Medical Spending Part of Conversation

No reliable figures exist about how many of the nation’s 300,000 financial advisors incorporate medical costs into their client’s retirement planning.

Safe to say, though, that the intersection of retirement planning and medical spending in retirement has arrived and that no serious retirement planning can take place without talking about present and future medical spending.

With medical expenditures taking up a greater share of a retired household’s expenses, some planners might even go so far as to consider discussing medical spending in retirement a fiduciary duty.

Talking about medications, past surgical procedures and whether chronic conditions run in the family – the kinds of questions often asked by doctors and nurses – affect the kind of insurance coverage worth buying.

“If you identify health issues before the client applies for insurance, you discover things to lower the premium and more importantly not get turned down” for coverage such as disability, life and long-term care, McClanahan said.

In 2011, the average annual out-of-pocket health care cost for a head of household between 65 and 74 years old was $4,383. That was about 11 percent of total household spending, according to a 2015 analysis from the Employee Benefit Research Institute (EBRI).

For head of households 85 and older, the average out-of-pocket health care cost was $6,603, or 19 percent of household expenses, EBRI’s analysis found.

Lifetime Health Costs

When Medicare premiums are factored into the equation, the lifetime retirement costs are significant.

The present value of lifetime health care costs for a 65-year-old couple retiring today would come to about $404,000, according to HealthView’s 2017 Retirement Health Care Costs Data Report released last week.

Included in that $404,000 are health care premiums for Medicare Parts B, D, supplemental and dental insurance, deductibles, copayments, hearing, vision and dental out-of-pocket costs.

For a 55-year-old couple retiring today, lifetime health care costs are estimated at $499,000, according to HealthView.

Unlike with property – homes and cars, for instance – that allow retirees to gradually downsize as needs change, health care offers no similar flexibility, Mastrogiovanni said.

Retirement health cost inflation is projected to rise by 5.5 percent annually for the next decade, more than twice the amount of estimated cost-of-living allowances granted by Social Security, according to HealthView’s data.

The average cost of supplemental health insurance will rise at 7 percent annually, HealthView projects.

With very little or no wiggle room in terms of cost, and health care costs eating larger fractions of the retired consumer’s household budget, the answer is to include health care expenditures early on as part of the retirement planning.

The more comprehensive and holistic a financial plan, the more accurate a spending picture clients are likely to walk away with and health care expenses needs to be a standard part of financial planning now, McClanahan said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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