Health-care costs are rising—especially for retirees, and many will need
long-term care. Learn the moves you can make to help prepare yourself.
Longer lifespans and rising health-care costs are driving
investors to control their financial exposure to uncovered bouts of
care—particularly in retirement.
According to the U.S. Centers for Medicare and
Medicaid Services, the U.S. spends approximately $3.5 trillion a
year on health care, or nearly $11,000 per person. Overall spending rose 4.6%
in 2017,1 faster than the
pace of inflation or wage growth. As spending rises, patients are also
shouldering a larger share of treatment costs—driving up out-of-pocket
expenses. The elderly, who require the most care, often bear the brunt of the
costs.
It is important to
take steps to minimize your financial exposure to uncovered medical costs. But
whereas your incentives for saving for retirement are easy to digest—to be able
to afford a desired lifestyle after your working years—planning for the less
palatable aspects of old age can be more challenging.
Health-Care Costs Planning
A report from the U.S.
Department of Health and Human Services estimates that about half of people
turning 65 will need some type of long-term-care services in their lifetimes.2
One year in a private
room in a nursing home costs $97,455 today and is projected to reach $176,015
in 20 years.3 Even with a
robust portfolio, you may have trouble handling such large costs with savings
on hand.
Many adults nearing
retirement age are concerned about health-care costs but unsure how to budget
for them. More than half of affluent, older Americans are unsure or can’t
estimate what their annual health care (53%) or long-term-care costs (65%) in
retirement will be.4
Those fears are
warranted. An average retired couple age 65 in 2018 may need approximately
$280,000 in after-tax savings to cover health-care expenses in retirement.
Their actual cost will depend on when they retire, lifespan, and health
situation.5
Should they encounter
serious medical trouble, the costs will be even higher. Many Americans aren’t
even aware of the uninsured costs they may face in these cases. A stroke, for
example, may cause paralysis, warranting expensive 24-hour assistance.
Medicare Part A covers
nursing facility care for a limited time, but only after a qualified
hospitalization. However, Medicare will not pay for nursing homes when
custodial care is the only care needed; nor will it pay for care for conditions
such as Alzheimer’s disease. Patients suffering from Alzheimer's or other
cognitive ailments may live for many years, all the while requiring assistance
and, as the disease worsens, expensive hands-on assistance.
Protection for Retirement Savings
By the time people
reach their 30s, they tend to have a pretty good idea of the lifestyle they
want to pursue, including in retirement, says Kristi Rodriguez, the National
Sales Manager for insurance provider Nationwide. There are a number of ways to
save for retirement with your future health-care needs in mind.
Investors in their 30s
or early 40s, Rodriguez says, may weight their retirement-funding strategies
toward a portfolio of mutual funds or a managed-account solution, to provide
upside exposure to the market. Given lower premiums for younger policyholders,
long-term-care insurance should also be a consideration, she says.
These days, only a
handful of insurers offer long-term-care insurance, so another option may be
life insurance with a long-term-care rider, which allows families to tap into
the benefits they would receive upon the policyholder's death, while he or she
is alive and requires care.
Another option for
funding long-term-care expenses is to withdraw or borrow money from life
insurance policies, or generate income from annuities. Note that either of
these options would probably fall short of covering costs if someone needs care
for many years.
Paying for Unexpected Health-Care Costs
A final consideration
is what to do when you’re faced with a large unexpected medical bill today. One
answer may be a securities-based loan, which allows qualified clients to use
the eligible securities in a brokerage account as collateral for a loan or line
of credit, often at a competitive rate. When faced with a large health-care
expense, investors often liquidate financial assets to pay for immediate needs.
However, this strategy may have unintended costs, such as tax consequences,
potential loss of future growth or an imbalance in your portfolio’s asset
allocation.
Once approved, a
securities-based loan can provide quick access to funds for a variety of needs
with the potential to maintain your long-term investment strategy. Your
Morgan Stanley Financial Advisor can provide you with
additional information and help determine if this is the right strategy for
you.
Protect Your Finances and Your Health
As health-care costs
continue to rise, it’s important to understand the options you have to help
protect the assets you’ve spent a lifetime accumulating. Your Morgan Stanley
Financial Advisor has access to multiple long-term-care products from a wide
variety of respected insurers and can help you choose the one that offers the
optimal combination of cost and benefits.
1Source: U.S. healthcare spending to climb 5.3%
in 2018 Agency: https://www.reuters.com/article/us-usa-healthcare-spending/us-healthcare-spending-to-climb-53-percent-in-2018-agency-idUSKCN1FY2ZD
2 “LONG-TERM SERVICES AND SUPPORTS FOR
OLDER AMERICANS: RISKS AND FINANCING RESEARCH BRIEF,” ASPE, February 2016, 52%
of Americans turning 65 will require long-term services and supports.
https://aspe.hhs.gov/basic-report/long-term-services-and-supports-older-americans-risks-and-financing-research-brief
3 Genworth 2017 Cost of Care Survey,
conducted by CareScout®, June 2017
Cost estimate based on 365 days of care. Estimates how much care might cost in future years based on 3% annual inflation. https://www.genworth.com/aging-and-you/finances/cost-of-care.html
Cost estimate based on 365 days of care. Estimates how much care might cost in future years based on 3% annual inflation. https://www.genworth.com/aging-and-you/finances/cost-of-care.html
4 Source: Retirement Healthcare Cost:
https://www.nationwide.com/personal/about-us/newsroom/press-release?title=062618-nf-healthcare-survey
5 Source: How to plan for rising
health-care costs:
https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs.html
© 2018 Morgan Stanley
Smith Barney LLC. Member
SIPC. All rights reserved.
CRC#2275218 10/2018
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