October 12, 2020
Wealth managers and financial advisors are responsible for all aspects of a client’s financial life — and health care costs are a large and growing piece of that.
The costs of care later in life are increasing dramatically. For standard health care alone, the average couple (65+) will spend over $295,000 in retirement, according to Fidelity Investments. This does not include long-term care expenses, of which Medicare mostly does not cover.
Knowing your healthcare options is critical, especially with the potential health care changes up in the air right now. Advisors who may have focused primarily on investments are now being asked to help clients navigate this ever changing landscape.
Medical financial planning can begin with a conversation that explores how clients use the healthcare system. This can vary greatly from one person to the next, which means that one client might be spending differently than the next.
For example, some clients might use health care services economically, being mindful of out-of-pocket expenses and staying in-network. Others might be using concierge medicine or VIP physicians, and indulging in alternative therapies that drive up costs.
Retirement-focused advisors can ensure that clients are managing their health care expenses by reviewing their Medicare coverage. Some firms do this in-house, reviewing options not only when enrolling at age 65, but also on an annual basis.
It’s important to revisit healthcare spending every year. A 65-year-old woman will spend between $5,000-5,500 on their health care this year. This number only increases as a person ages, so constant review is necessary for accurate spending predictions.
Some advisors want to wear the healthcare hat and be able to evaluate and offer resources to recommend options in relation to care and costs. But, this means looking at the probability of a particular client needing care in the future, which is based on genetics and lifestyle, which can make getting involved tricky. These conversations are frequently beyond the wheelhouse of a financial advisor, unless they have experience working in healthcare.
A study run by the Family Health Alliance showed that 70% of financial service firms play a role in the healthcare needs of clients. Involvement can range from providing referrals to actively assisting clients with assessing and managing their healthcare needs with a health care advisor.
As you can see, the involvement of a financial advisor with a client’s health care does not have to be only about healthcare finance issues in a reactive sense. Planning can be proactive and start early.
Advisors that work with pre-retirees should still be planning for health care costs - although less precisely, advising just to save as much as they comfortably can for the future.