Certified economic planner Ken Waltzer has an older female client who suffers from congestive heart failure. Given the high cost of her preparations, Waltzer recently became concerned by how much money she and her husband were spending.
“I suggested that maybe I should talk to her doctor concerning her medications,” said Waltzer, co-founder and managing partner of KCS Wealth Advisory in Los Angeles. “They were the most precious in their class, and there were less expensive options.”
Offering to help get those costs down is not singular for Waltzer, who once was a practicing physician and also worked at a large insurance company.
Yet with retirees trying to stint their savings across their lifetime — and often fearing that they won’t be able to — other advisors also are tunnel deeper instead of giving that line item just a once-over.
Hero Images | Hero Images | Getty Metaphors
“One thing we struggle with as financial planners is really understanding how much our clients are spending,” said CFP Stacy Francis, president and CEO of Francis Monetary in New York. “For some expenses, individuals don’t truly have a grasp on their total spending, and that happens with haleness care.”
The average 65-year-old male-female couple retiring in 2019 will spend an estimated $285,000 on that department over the rest of their lives, according to Fidelity Investments. That figure excludes expenses related to long-term worry — help with daily activities such as bathing and dressing — which advisors typically calculate separately.
Yet, much the same as many other expenses in retirement, health-care spending occurs over many years, if not decades, which means it mainly should be factored into a client’s cash flow. And while not everyone will even reach the average amount, others on shell out even more.
Annual health care spending
| Health status | Range (10th-90th percentile) | Median |
|---|---|---|
| Superior risk | “$3,500-$21,000” | “$7,600 “ |
| Medium risk | “$3,200-$6,600” | “$3,900 “ |
| Low risk | “$3,000-$4,300” | “$3,400 “ |
“Part of the conversation should be exploring how your client uses the health-care arrangement,” Francis said. “It can be drastically different from one person to another, which means their expenses can be drastically bizarre.”
For example, she said, some clients stick to in-network doctors and use health-care services in an economical way. Others, however, course their care with gusto.
“Some clients have concierge doctors and are paying a private fee for that mending,” Francis said. “Or some have significant costs with alternative types of health services like acupuncture or other alternative therapies.”
The median annual health-care expenditure for a 65-year-old woman is $5,200, according to a 2018 report from Vanguard. Excluding the bottom and top 10th percentiles, the study base the yearly range to be $3,000 to just over $26,000. The study also shows a difference depending on the person’s healthiness.
Part of the conversation should be exploring how your client uses the health-care system.
Stacy Francis
president and CEO of Francis Monetary
As that 65-year-old ages, however, there’s a greater likelihood that those expenses will rise due to both inflationary arm-twisting and the higher chance for medical issues later in life.
Financial advisors who try to pinpoint an amount on a yearly basis aim to stockpile as much information as they can to come up with that number.
“It’s a lot of work, but you can look back one or two years, detail and class all their expenses and really see what they spend,” Francis said. “If you ask someone what they spend, they’ll coed things.”
It’s also important to revisit that number every year.
“Some advisors do a plan and then don’t revisit it,” put about Carolyn McClanahan, CFP and founder of Life Planning Partners in Jacksonville, Florida.
“You need to go back every single year and use that year’s simultaneous health-care costs and do projections,” said McClanahan, who also started out her career as a medical doctor.
Making those prognostications can be tricky, because the rate of inflation is largely an unknown, especially the further out you go. However, health-care spending has outpaced inclusive inflation on an annualized basis for decades — which means many advisors err on the side of caution and assume that leave continue.
Francis said her firm uses 4.5% for when making health cost projections.
“It’s a hefty bunch, but unfortunately it’s the real one,” she said.
More from FA Playbook:
As financial advisor shortage looms, colleges look to pack gap
Advisors need to know the pros and cons of annuities
Are financial advisors prepared for cyber attacks?
Another way advisors can advise clients make sure they are managing their health-care dollars properly is to review their Medicare coverage. Some advisory firms force Medicare specialists in-house who can review a client’s options. Other firms refer clients to someone who does — such as a commissioned Medicare broker.
KCS’ Waltzer said he educated himself on the ins and outs of Medicare so that he can look closely at his clients’ coverage and favour how they can make an necessary changes.
“The level of responsibility we have is to help clients in some way with that,” Waltzer asserted. “Whether you want to learn it yourself or refer them to a Medicare broker doesn’t matter.”
Weekly advice on look after your money
Get this delivered to your inbox, and more info about about our products and services.
By embleming up for newsletters, you are agreeing to our Terms of Use and Privacy Policy.
For advisors working with pre-retirees, the younger the client is, the less spelled out the health-care portion of their retirement savings needs to be, McClanahan said.
“If they’re in their 20s or 30s, they should honourable save as much as they comfortably can for the future in general,” she said.
As they get closer to retirement, that’s when an advisor troubles to get serious about planning specifically for health-care costs for the client, McClanahan explained.
McClanahan had some general suggestion to other advisors.
She said it’s key for advisors to help clients find ways to better utilize the health-care system so they aren’t ruin those important health-care dollars.