Retirement Income Summit: As boomers become their parents, boning up on health care is key

A productive retirement income dialogue requires financial advisers to make their baby boomer clients’ health-care expenses a high priority, and that means thinking beyond long-term-care insurance, industry observers noted.

Health issues are gaining prominence in financial planning as boomers observe their own parents’ difficulty in dealing with medical costs.

“The boomers are watching what’s going on with their parents and wondering ‘Will this happen to me?’” Lewis J. Walker, a certified financial planner at Walker Capital Management Corp. in Norcross, Ga., said at InvestmentNews‘ 2008 Retirement Income Summit in New York last week.

He led a panel along with Kathryn McCabe Votava, president of GoodCare.com, a Washington-based health-care consulting firm.

Longer life expectancies, higher incidences of chronic illness, as well as pressure on health-care dollars and fewer health-care professionals, are all problems advisers must keep in mind, she said.

“The three factors for advisers to include in retirement planning are health-care inflation, regional health-care cost variation and out-of-pocket health-care costs,” Ms. Votava said. “People focus on the long-term-care cost issue.”

This calls for a holistic approach that looks past LTC insurance and addresses the out-of-pocket costs left uncovered, Ms. Votava said.

Health-care inflation is running at an estimated 8.16% and costs paid by the consumer are skyrocketing. Exclusive of LTC costs, the range of out-of-pocket expenses is now between $5,543 and $6,712 a year.

That could jump to as much as $55,398 to $64,746 in 20 years if health-care inflation rises to 12% by then, Ms. Votava said.

To combat this, advisers not only need to factor the health-care inflation rate into their plans, but they must also become familiar with the costs of health care in the states in which their clients plan to retire. As of last year, nursing homes charged $100 a day on average in Texas, but more than three times that in Connecticut.

“The reason we have such variation across the United States is that there are tremendous differences in practice patterns — the way we take care of people,” Ms. Votava said.

Advisers also need to make room for Medicare Part B, which covers outpatient health-care expenses, as annual premiums are expected to rise. Beneficiaries in the highest income brackets will see their costs rise the most: Married couples with an annual income of more than $410,000 will pay $2,861 this year for Medicare Part B premiums.

Advisers should shop around for health insurance for clients, but they may want to consider looking at a high-deductible plan in tandem with a health savings account to save money, Ms. Votava said. Cash reserves covering at least three months of LTC costs should be set aside — and more money should be added if a move to a nursing facility is imminent.

‘FAMILY OFFICE’ REDEFINED

Boomers’ changing needs will also require advisers to get involved in their clients’ physical health concerns, redefining the term “family office,” Mr. Walker observed. Advisers who don’t make that change risk getting eliminated as aging clients consolidate the financial services they seek.

“People narrow down their advisers,” he said. “When you get to be the last one, you have to have resources.”

Elder-care workers, geriatric care managers and people familiar with the health-care world can provide those services to clients who need help managing their parents’ medical costs while planning for their own futures. But advisers need to be ready to hear out retirees’ concerns in order to remain useful.

“Think of the number of women in their 50s with sick parents and teenagers at home,” Mr. Walker said. The major conversations in the new family office include the realities of retirement, including health-care costs and the death of a spouse, as well as other issues, such as business succession. Medical concierge services fit into this new family-oriented niche, he said.

“Boomers are bringing their parents to you to buy long-term-care insurance — they are paying those expenses themselves,” Mr. Walker said. “They don’t want to do the same to their kids.”

E-mail Darla Mercado at [email protected].