New tools calculate
costs, potential savings and solutions
Sep 27, 2018 @ 10:00 am
Like it or not, financial advisers need to
factor health-care costs and funding solutions into future retirement income
plans. Clients expect it, and tools are now available to personalize cost
calculations and to provide a variety of funding solutions, according to two
new studies.
Holistic financial planning, including retiree
health-care cost projections and long-term-care funding solutions,
presents enormous opportunities for
financial advisers who seek to differentiate themselves from investment-centric
robo-advisers and to attract a new generation of clients.
With total lifetime health-care costs for a
healthy 65-year-old couple retiring this year projected to exceed $360,000,
ensuring sufficient savings are available to address health care is a growing
retirement planning challenge. By age 87, health-care costs for that same
couple are expected to be 200% higher than today, according to HealthView
Services, a provider of health-care cost data for financial services firms.
"Retirement health-care premiums and
out-of-pocket costs are guaranteed expenses that will rise faster than
inflation and Social Security cost-of-living
adjustments," Insured Retirement Institute president
Cathy Weatherford said in a statement accompanying the release of a new white
paper, "Healthcare, Annuities and
Retirement."
"Americans are increasingly focused on
ensuring they can cover these costs," Ms. Weatherford said. The paper is
the result of a collaboration between IRI and HealthyCapital, a joint venture
between the Mercy health-care systems and HealthView Services.
About half of U.S. adults have a chronic
health condition, including Type 2 diabetes, high blood pressure and high
cholesterol. In an earlier paper,HealthyCapital
calculated the potential annual savings from simple behavioral changes, such as
taking prescribed medications and managing one's diet, and analyzed the impact
of investing those savings in a retirement account.
The latest paper demonstrates how those
retirement savings could be earmarked for future annuity purchases to cover
health-care costs in retirement.
In a case study, a 30-year-old woman with Type
2 diabetes who adopts a few basic lifestyle changes can reduce her annual
health-care expenses by a range of $1,041 at age 30 to $9,713 (future value) at
64. If she invests the savings and generates a 6% annual return, she has the
potential to add $240,000 (future value) in additional retirement savings at
age 60. The same principles can be applied to different age groups.
In the case study, the woman purchases both a
variable annuity with guaranteed lifetime withdrawal benefits and a
deferred-income annuity at age 60, with payments beginning at 65, to provide a
stream of guaranteed income that will grow to meet rising health-care expenses
at different stages of retirement. Depending on her health status and actual
health-care expenses, she and her adviser could decide whether to purchase a
single premium income annuity at age 75 for additional guaranteed income.
"The laddered annuities approach outlined
in the paper offers one potential path to ensure sufficient income will be
available to cover these expenses during retirement," said Ron
Mastrogiovanni, CEO of HealthyCapital and HealthView Services. "By
including health care as part of retirement planning conversations, advisers
can work with clients to create a guaranteed income stream that meets an
individual's health care, income and even legacy goals."
In a separate report, 73% of affluent adults
said they fear out-of-control health-care costs and half are very or somewhat
concerned about having enough money to last through their retirement. Yet only
27% currently have long-term-care insurance, according to a new survey from
Nationwide Retirement Institute.
Nearly 40% of those surveyed have never
discussed long-term-care costs with their family or financial adviser. The
survey is based on an online poll of more than 1,000 adults age 50 or older
with household income of $150,000 or more.
"Financial advisers can help people plan
for and live in retirement by providing a fact-based estimate of long-term-care
costs and a unique plan to address those costs," said Holly Snyder, vice
president of Nationwide's life insurance business. "If you are putting
together someone's retirement plan and you haven't planned for this event, you
haven't done all you can to ensure that the client will achieve his or her
goal."
Ms. Snyder called insurance solutions, such as
Nationwide's hybrid universal life policy with a rider that can provide up to
eight times premium costs in long-term-care benefits as well as a death
benefit, appropriate even for clients "who can afford to self-insure but
are smart enough not to."
To encourage advisers to initiate discussions
about future health-care costs with clients, Nationwide offers a free personalized health-care
assessment tool.
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