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Find out about the clientrsquos current physical and mental health prognosis of any developing or latent condition relevant past medical history and estimation of future health care needs including personal care or need for medical assistance This information may affect the viability of certain estate planning or elder law strategies

Making Health Care a Permanent Part of Your Clients’ Plans

Breaking the planning process into smaller pieces will make it seem more attainable.

By Tom Halloran

The average life expectancy in America today is higher than any period in history, with research showing that more than three out of five 65-year-olds will reach 80. However, Voya Financial data shows that 77 percent of baby boomers have never estimated the amount of health care expenses they expect to incur throughout retirement. Odds are that you’re speaking with clients about life insurance on a regular basis—in doing so, ask yourself this question: “What’s more likely—that your client will pass away prematurely or that they will incur health care expenses in retirement?”

Eighty-one percent of Americans have never estimated the cost of health care in retirement and—spoiler alert—it’s not a small expense. For example, a couple with median medication costs will need approximately $265,000 if they want a good chance of covering health care expenses in retirement. That’s not to say the burden rests entirely on their shoulders, necessarily. But even robust portfolios may be unfit to absorb costs of that magnitude, and yet many retirement-aged Americans tend to underestimate or avoid planning for those expenses altogether.

When planning for retirement, it’s critical to understand how health care expenses add up. Here are three considerations to keep in mind when helping your clients calculate how much they’ll need to save to pay for health care costs in their retirement years: 

1. Find out what they’ll get from their employer.

While you’re not managing your client’s workplace benefits, it’s critical that you have a conversation about what’s available to them to better address health care costs in a holistic manner. For instance, some state and federal employees will receive health care insurance in retirement, meaning they’ll have to cover significantly less than someone on Medicare. If, on the other hand, they have a high-deductible health plan, make sure they understand the power of a health savings account, known as an HSA. HSA offers tax-free contributions, tax-deferred growth and tax-free withdrawals if used for qualified health care costs. Also, the “catch-up” provision for HSAs allows people aged 55 to 65, who are not enrolled in Medicare, to contribute an additional $1,000 above the annual maximum for people under 55.

2. Determine how much they’ll get from the government.

Chances are you’re already reviewing your client’s Social Security statement and making a plan for when they’ll start to receive benefits. Make sure to also spend time discussing what Medicare will cover by visiting www.medicare.gov. There’s often a misconception that Medicare will seamlessly pick up where an employer’s health plan left off, but Medicare part A is the most-basic level of retirement health care coverage. Many are surprised to find that Medicare generally only covers about 62 percent of the cost of health care services for beneficiaries 65 and older. Routine vision and dental care, skilled nursing and assisted living, and prescription medical costs are not covered by Part A, often referred to as “Original Medicare.”

3. Calculate what they’ll need to save themselves.

By subtracting employer and government benefits from the total amount of money they’ll need for health care in retirement, your client will have a much clearer picture of what they’ll need to save, either in their HSA, 401(k), IRA or other savings vehicle, to address medical costs. With various competing financial priorities, it may not be possible for them to step up their long-term savings to address health care costs. In that case, it might make more sense to implement a solution that shifts the risk to a third party. This could be in the form of an annuity, long-term care coverage or Medigap plan.

The bottom line: The inertia of action is strong, especially when it comes to tackling important topics like health care and retirement. But, breaking the planning process into smaller pieces will make it seem more attainable for your clients, and they’ll have a little more confidence in their plan with each completed step. 


Tom Halloran is president of Voya Financial’s retail wealth management firm, Voya Financial Advisors, Inc.

 

 

 

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