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If health is wealth, what would be the financial consequence if one of your clients lost his or her physical and/or mental independence?
That is difficult to assess, but getting a handle on future health care costs in retirement is of vital concern for financial advisers.
And those costs are substantial.
A recent study by Fidelity Investments of Boston suggested that individuals in retirement need a reserve of $225,000 to cover out-of-pocket medical costs, including prescriptions, deductibles and Medicare premiums.
Not included were the costs of over-the-counter medications, most dental procedures and long-term care.
A study by the Kaiser Family Foundation of Menlo Park, Calif., estimated that Medicare covers just 45% of beneficiaries' total health care costs.
Our job as advisers is to educate clients about reality.
And health care planning is becoming a bigger part of reality as the age tsunami rolls in.
While advisers aren't health care professionals, they should be aware of a few health basics that affect retirees and those about to enter retirement — the typical client base of most advisers.
Health maintenance must be approached proactively. For those entering retirement, this is critical. Exercise, a sensible diet, activities that challenge the brain, preventive medicine and checkups, a sense of purpose and being loved are all important to maintaining the net worth of anyone's three most important assets: body, mind and soul. An active and well-funded plan that accomplishes these goals should be part of all retirement-planning conversations.
Bad things happen. Although we can deal only in probabilities when it comes to health care expenses, it is wise not to exclude the possibility of a significant medical event or events. The incidence of breast cancer, for example, has increased from one in 20 in 1960 to one in eight today. According to USA Today, about 14 million, about 18%, of America's 79 million baby boomers can expect to develop Alzheimer's or some other form of dementia. About 5.2 million people have the disease, which can take more than 10 years to destroy the patient's mind and the quality of life of caregivers.
About 10% of those afflicted were diagnosed prior to age 65, and about 70% live at home, often at substantial financial, physical and mental cost on the part of spouses, other family members and friends.
Expect big expenses. Expensive surprises are a reality as we age. A recent survey found that retirement expenses were higher than expected among 36% of respondents 60 to 69, 52% higher among those 70 to 79, and 66% higher for those in their 80s. Despite the realities of higher expenses, most retirees don't plan to cut back on their active lifestyles.
Since the average age of widowhood in the United States is 55, widows not eligible for Medicare can face unexpectedly high costs for medical insurance, especially if a pre-existing condition is a complicating factor.
Those retiring before age 65 may be able to stay covered under COBRA provisions for up to 18 months, but a sudden illness or accident could complicate obtaining other coverage.
Planning isn't just about long-term-care insurance. While the long term is important, planning is also about having enough life insurance on a key breadwinner to give a surviving spouse security in the event of a death prior to retirement. It is about increasing savings targets to fund true financial independence, with contingencies built in. It is about checkups, healthy habits, selecting the right coverage and making sure health care powers of attorney are in place and accessible.
It is also about adult children having conversations ahead of time with aging parents to discuss what should be done about the parents' home, money, possessions, pets, health care and legacy when the time comes that the elderly parent no longer can act on his or her own behalf.
Health care planning may mean plugging into a network of resources such as geriatric-care managers, continuing-care facility directors, elder-care attorneys, home health care companies, Medicare and -disability specialists, medical--evacuation services for travelers, and medical concierge and advocacy services, for example.
Lewis J. Walker is president of Life Transitions Advisors LLC in Norcross, Ga., which has $300 million under management. He can be reached at lewis@lifetransitionsadvisors.com.
For other IN Retirement columns visit InvestmentNews Retirement Center.
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