How to help clients plan for health care costs in retirement

Advisers can utilize cutting-edge financial planning tools to help ease clients' concerns by showing them how they can save to cover medical expenses during retirement.

With Covid-19 vaccines steadily rolling out more than a year after the start of the pandemic, we are finally beginning to see light at the end of the tunnel. However, the “third wave” of Covid cases in Europe, and the spreading of multiple variants of the virus, remind us that we are not out of the woods yet. Health, and the cost of medical care, continue to be primary concerns for Americans during this time.

A survey of 1,000 Americans aged 18 and over, published in December and conducted by the Certified Financial Planner Board of Standards Inc. in collaboration with consulting firm Heart + Mind Strategies, found the cost of health care is the top financial concern among Americans — and that more than half of Americans (54%) are experiencing high or very high levels of stress.

The pandemic has understandably heightened anxiety and stress regarding health care costs among Americans. Due to their ages, retirees and the elderly remain a high-risk group for the spread of the coronavirus. The greater emphasis on health and wellness during the past year requires financial advisers to develop a serviceable level of expertise about the impact of health care costs on clients’ finances in retirement. After all, financial planning and retirement planning are not only about living expenses and lifestyle choices in a couple’s golden years — they also need to take into consideration the impact of health care and medical expenses, especially as the couple ages.

In my experience, too many advisers are hesitant to discuss health care costs with clients because they feel they don’t have enough specialized knowledge about this area. But modern-day financial planning technology solutions can give advisers the power to forecast health care expenses in retirement with greater confidence.

For example, advisers can harness tools that enable them to run through multiple, or even unlimited, retirement planning scenarios with clients, via interactive client portals, to demonstrate how health care costs related to an illness or long-term home care would affect clients’ overall expenses and wealth in retirement. These planning scenarios can show clients how much they would need to save to cover health care costs after they retire and as they get older — and advisers can incorporate health care expense planning into the financial and retirement plans that they create for clients, and which clients can access at any time through client portals.

Also, if an adviser’s financial planning technology platform is integrated with a provider of smart health care data and analytics, the adviser can provide clients with more accurate, and personalized, estimates about medical costs in retirement. These types of planning solutions allow clients and prospects to securely enter details about their health, family history, goals and location into a self-directed portal. Then, via the integration with the health care data and analytics provider, clients and prospects can view their likely health care expenses in various stages of retirement — alongside leisure and living costs in each stage.

The average American couple retiring at age 65 will need $295,000 in after-tax savings to meet health care expenses in retirement, according to the 2020 Fidelity Retiree Health Care Cost Estimate. However, the CFP Board’s survey finds that Americans who work with a financial planner are less concerned about health care costs than those who do not (with 36% of Americans working with a financial planner expressing concern about health care expenses, versus 43% of their counterparts who do not).

This presents an enormous opportunity for advisers to utilize cutting-edge financial planning tools to help ease concerns for clients and prospects by showing them how they can save to cover health care expenses in retirement.

Tom Burmeister is vice president of financial planning at Advicent, the financial planning technology provider for more than 140,000 financial professionals across nearly 3,000 firms worldwide.