Health, Wealth, and Living Longer: What This Means to You and Your Clients

The Most Important New Metric for Retirement Planning

60% of Americans fear running out of money in retirement more than they fear death. [1] Are your clients planning to live to be 100 years old? Or 95? More importantly, are you suggesting to clients they need to plan for a longer life span than ever before? 

We strongly suggest you work with your clients to discover every way they can increase their retirement savings, including taking advantage of changes in recent Federal laws which have increased “step-up” provisions for amounts you can contribute to a QRP and other retirement plans. Beyond this, your clients need to save more as they approach the pre-retirement years from 55 and older.

Living Longer Will Increase Out-of-Pocket Health Care Costs in Retirement

Life expectancy at birth in the U.S. is approximately 78 years, but that is the mean, so 50% of people are on one side, and 50% are on the other. But if you plot client wealth and lifespan on a bell curve, your high-net-worth/ultra-high-net-worth (HNW/UHNW) clients will be in the top 1% or 2% of Americans who will live the longest.

The most significant expense in retirement is one many of your clients have not thought about, and that is the natural increase in out-of-pocket health care costs you incur as you advance in years. Illnesses that killed people a handful of years ago can now be cured, mitigated, or managed. But costs of new miracle drugs and treatments are often costly.

Living Longer Adds Years Of Medical Expenses

The U.S. Bureau of Labor Statistics predicts insurance premiums and other health care costs will average $5,756-per year for every person over 65. But this figure is static and unadjusted for the annual increases in health care costs or inflation.

 “The Centers for Medicare and Medicaid Services project that healthcare expenditures will increase by 5.9 percent each year.” [2] So, $336 will be added to your healthcare expenses every year before inflation. As you move into your 80s and 90s, healthcare costs will be even higher.

Further, to estimate a rational figure of how much money your clients will need to save, you must factor in long-term care costs, assisted living, or the cost of a home health aide.

Medicare Doesn’t Cover Dental Expenses, Eye Or Footcare

Before they become eligible for Medicare, many believe Medicare covers all of their medical expenses, but this isn’t the case since the program doesn’t cover dental expenses, eye care, foot care, and many other conditions. [3]  When your clients reach 65 and are eligible to enroll in Medicare, they will be surprised by the amount of Medicare and Medigap premiums, deductibles, and copays. Even with the additional coverage provided by a Medigap policy, pharmaceutical costs can be far higher than people believe.

Who Will Pay The Out-Of-Pocket Medical Expenses?

Your HNW/UHNW clients will pay these costs with after-tax dollars. (Out-of-pocket medical expenses can only be deducted if they exceed 7.5% of your Adjusted Gross Income). Medicare premiums are adjusted for income, so your HNW/UHNW clients will pay more than the average when they enroll in Medicare.

You can find the sliding scale of additional premium costs associated with your client’s  MAGI (Modified Adjusted Gross Income) here. 

The golden years are exactly that. You need gold to enjoy them.

Resources:

[1] www.nbcnewsmany-retirees-are-hanging-their-savings-

[2] cnbc.com/2017/06/28/how-much-it-will-cost-you-to-live-to-100

[3] money.usnews.com/medicare-out-of-pocket-costs-you-should-expect-to-pay

Contributing Writer: Subject Matter Expert Charles McCain

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