Convergence of health care costs and retirement planning

For years, financial advisers have relied on financial planning software to track investment portfolios, calculate clients’ expenses and project their retirement income from a variety of sources. But one of the big unknowns — and a top concern of many current and future retirees — is how to estimate health care costs.

Several financial software companies now offer products to help advisers estimate health care expenses and incorporate those costs into a retirement income plan.

WealthConductor, a fintech firm that provides retirement income planning software, recently announced the launch of a new product, Health+ as part of its IncomeConductor program. Through the integration of HealthView Services data, advisers are able to incorporate personalized actuarial longevity projections, Social Security claiming options and health care expense projections, including both Medicare premiums and out-of-pocket costs, into their clients’ plans.

“Oftentimes, advisers and clients must base decisions on best guesses or go by outdated rules-of-thumb and may even avoid the uncomfortable conversation about the client’s longevity and health altogether,” Sheryl O’Connor, CEO and co-founder of WealthConductor, said in a statement accompanying the announcement of the new Health+ program. “Having reliable data and instantly seeing the relational impacts of assumptions based on these data with IncomeConductor will undoubtedly lead to more reliable income plans.”

Separately, 65 Inc., a Medicare consulting firm, recently announced the launch of i65, a suite of software tools to help financial advisers and their clients optimize health care choices in retirement.

“Savvy advisers are beginning to realize that optimizing Medicare — with a technology partner that doesn’t sell insurance and thus can act as an unbiased fiduciary — is good for their clients and good for their practice,” said 65 Inc. co-founder Melinda Caughill. "Medicare is complicated. If an individual makes a poor choice, it could cost them thousand of dollars and could mean they don’t get the care they need."

The i65 Medicare planning software is made up of three modules that help advisers engage their clients in meaningful conversations about health care decisions and costs.

The Needs Assessment module introduces the topics of health care, Medicare, and long-term care to pre-retirees with a customized report that explains how to avoid the most common and costly mistakes. The iEstimates module combines detailed personal information with actuarial data to estimate longevity and health care costs. Finally, the Medicare RoadMap helps advisers and clients learn when to enroll in Medicare and the best type of Medicare coverage based on their unique needs and circumstances.

Currently, more than 64 million people are enrolled in Medicare. Slightly more than half — 54% — are enrolled in original Medicare Parts A and B and the remainder are enrolled in all-inclusive Medicare Advantage plans. Regardless of the way seniors choose to receive their Medicare coverage, most pay a standard monthly premium of about $170 per month for Medicare Part B, which covers doctors’ fees and outpatient services.

Higher-income beneficiaries pay more. Individuals with income above $91,000 and married couples whose joint income exceeds $182,000 are subject to high-income surcharges, officially known as an income-related monthly adjustment amount or IRMAA. The bulk of Medicare premiums and any IRMAA surcharges are deducted directly from Social Security checks.

In 2022, IRMAA surcharges for Medicare Part B range from an additional $68 per month to an additional $408 per month — on top of the standard $170 monthly premium. Married couples where both spouses are enrolled in Medicare pay twice as much.

Rising Medicare premiums and surcharges threaten to take an even bigger chunk out of retirees’ budgets in the future unless individuals take steps now to funnel some money into tax-free vehicles such as Roth IRAs, health savings accounts or cash-value life insurance, warned Craig Cheney, co-founder of IRMAA Solutions, a software tool that helps financial advisers calculate clients’ future health care costs based on their current age, income and financial assets.

“Our software shows the importance of understanding IRMAA, Social Security and 401k plans and how they mesh together in retirement planning,” Cheney said. “Failing to incorporate all three of these pieces into a plan is likely catastrophic for the retiree.”

A recent white paper from fintech provider Covisum notes that financial advisers with the right tools and knowledge can now deliver smart, sophisticated retirement income plans that employ complex strategies and tap multiple income streams.

“While we still refer to retirement savings as a singular ‘nest egg,’ the reality is that Americans have a carton of eggs — multiple possibilities for retirement income — and that those who crack the right eggs at the right time will get more bang for their buck,” according to the paper, "The Extinction of the Nest Egg."

(Questions about new Social Security rules? Find the answers in Mary Beth Franklin’s new 2022 ebook at Maximizing Social Security Benefits)