Certified financial planner Ken Waltzer has an older female client who suffers from congestive heart failure. Given the high cost of her prescriptions, Waltzer recently became concerned by how much money she and her husband were spending.
“I suggested that maybe I should talk to her doctor about her medications,” said Waltzer, co-founder and managing partner of KCS Wealth Advisory in Los Angeles. “They were the most expensive in their class, and there were less expensive options.”
Offering to help get those costs down is not unusual for Waltzer, who once was a practicing physician and also worked at a large insurance company.
Yet with retirees trying to stretch their savings across their lifetime — and often fearing that they won’t be able to — other advisors also are digging deeper instead of giving that line item just a once-over.
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“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 Financial in New York. “For some expenses, individuals don’t truly have a grasp on their total spending, and that happens with health care.”
The average 65-year-old male-female couple retiring in 2019 will spend an estimated $285,000 on that category over the rest of their lives, according to Fidelity Investments. That figure excludes expenses related to long-term care — help with daily activities such as bathing and dressing — which advisors typically calculate separately.
Yet, like many other expenses in retirement, health-care spending occurs over many years, if not decades, which means it generally should be factored into a client’s cash flow. And while not everyone will even reach the average amount, others will shell out even more.
“Part of the conversation should be exploring how your client uses the health-care system,” Francis said. “It can be drastically different from one person to another, which means their expenses can be drastically different.”
For example, she said, some clients stick to in-network doctors and use health-care services in an economical way. Others, however, approach their care with gusto.
“Some clients have concierge doctors and are paying a private fee for that service,” Francis said. “Or some have significant costs with alternative types of health services like acupuncture or other alternative therapies.”
The median annual health-care cost 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 found the yearly range to be $3,000 to just over $26,000. The study also shows a difference depending on the person’s health.
As that 65-year-old ages, however, there’s a greater likelihood that those expenses will rise due to both inflationary pressure and the higher chance for medical issues later in life.
Financial advisors who try to pinpoint an amount on a yearly basis aim to gather 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 categorize all their expenses and really see what they spend,” Francis said. “If you ask someone what they spend, they’ll miss things.”
It’s also important to revisit that number every year.
“Some advisors do a plan and then don’t revisit it,” said 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 current health-care costs and do projections,” said McClanahan, who also started out her career as a medical doctor.
Making those forecasts can be tricky, because the rate of inflation is largely an unknown, especially the further out you go. However, health-care spending has outpaced overall inflation on an annualized basis for decades — which means many advisors err on the side of caution and assume that will continue.
Francis said her firm uses 4.5% for when making health cost projections.
“It’s a hefty number, but unfortunately it’s the real one,” she said.
Another way advisors can help clients make sure they are managing their health-care dollars properly is to review their Medicare coverage. Some advisory firms have Medicare specialists in-house who can review a client’s options. Other firms refer clients to someone who does — such as a licensed 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 recommend how they can make an necessary changes.
“The level of responsibility we have is to help clients in some way with that,” Waltzer said. “Whether you want to learn it yourself or refer them to a Medicare broker doesn’t matter.”
For advisors working with pre-retirees, the younger the client is, the less specific the health-care portion of their retirement savings needs to be, McClanahan said.
“If they’re in their 20s or 30s, they should just 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 needs to get serious about planning specifically for health-care costs for the client, McClanahan explained.
McClanahan had some general advice 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 wasting those important health-care dollars.