Few have considered how to address health care risks and costs
By Chris Campbell
Mr. Campbell is vice president of marketing and business development for Bankers Life and Casualty Company, the national life and health insurer that focuses on the retirement market. He can be reached at chris.campbell@banklife.comDue to rapidly rising healthcare costs, many Baby Boomers’ hopes and dreams about retirement are not coming to fruition. Those who had hoped to retire early are quickly finding that they will likely have to work longer to maintain their standard of living.
Not only is healthcare typically the largest expense Baby Boomers will have in retirement, its unpredictable costs make following a plan difficult, especially for those on a fixed income.
Concerns with healthcare costs have been magnified in recent years as Americans’ life expectancies continue to increase. While most cherish a longer lifespan, it increases the likelihood of outliving one’s savings or having a serious medical issue.
Despite these startling facts, many people have delayed creating a solid plan for their retirement due to a lack of urgency, a situation professional advisors can help change.
Importance of healthy living not realized until middle age
The level of consumer procrastination was evident in a recent study conducted by my company’s Center for a Secure Retirement. While many Baby Boomers may engage in retirement savings plans, few consider how to address healthcare risks and costs during retirement.
The survey found that the overwhelming majority of middle-income retirees, 98 percent, indicated that good health was extremely or very important to having a satisfying and happy retirement. However, it was not until their latter years of life that they fully realized this, as 93 percent of respondents between 45 and 75 years of age said they have a greater awareness of healthy living now than when they were in their 20s.
Most Americans have taken at least one step toward improving their health, like improving their eating habits, reducing stress levels, exercising more regularly and performing mental health exercises. The combination of increasing their wellness through positive health habits and gaining access to healthcare has worked to varying degrees of success.
Middle America’s take on Medicare, satisfied but concerned
Medicare is the primary health insurance program for Americans age 65 and older, with more than 39 million older Americans receiving benefits. Nevertheless, with a high number of Baby Boomers turning age 65 within the next few years, the number of individuals that will go on Medicare will rise dramatically.
Perhaps because of this, 87 percent of middle-income Americans at least 47 years of age indicated they were worried about the future of Medicare, with seven in 10 expecting that the federal government will likely cut back on the benefits that Medicare provides to keep the program afloat.
However, among middle-income Americans with Medicare, most are pleased with its services. The report found that eight in 10 are extremely or very satisfied with Medicare’s access to healthcare services and the quality of healthcare it provides.
Understanding of Medicare materially lacking
Yet despite the overall satisfaction middle-income Americans have with the Medicare system, many are unclear about how the program works and what it covers. Middle-income Americans appear to be taking a ‘wait-and-see’ approach to understanding Medicare's coverage and costs in that they wait until they are using the program to actually investigate how it works.
For example, the survey found that one in three middle-income Americans with Medicare still were not sure how much the program provided for doctors’ visits and hospitalization. Furthermore, two out of three, 66 percent, admitted that they were not sure if Medicare provided for long-term care, thinking it covered more than it actually does.
Others, meanwhile, do not take advantage of all the benefits Medicare offers, as less than half of respondents said they made use of Medicare’s coverage for annual wellness visits.
With few people having a full understanding of Medicare coverage and its costs, it is frequently not until they actually start receiving Medicare benefits that they understand all of its expenses. The report found that in 65 percent of cases, middle-income Americans report paying the same or more for healthcare now that they are on Medicare compared to when they were on a private plan. This likely comes as a shock to a number of Boomers, as approximately 13 percent of them believe Medicare is free, the survey discovered.
The combination of these factors and Baby Boomers’ procrastinating about their financial preparation has left many Americans unprepared for retirement. Fortunately, there are solutions that professional advisors can recommend to their Boomer clients to get them on the right path.
Prioritize healthy living and physical activity
The survey indicated that many middle-income Americans have implemented at least one healthy activity into their daily routine. This no doubt pays off, as people in top physical condition tend to have fewer health expenses. Retirees should continue taking positive steps toward improving themselves physically – such as eating right, exercising and performing mentally stimulating tasks, as this will help them keep their healthcare costs at a minimum.
Learn about Medicare now, not later
Far too many people take a ‘learn as you go’ approach to Medicare, only learning about the program once they are actually receiving benefits. However, in many cases that may be too late, as individuals often go into retirement unaware of Medicare’s costs and benefits.
Advisors should speak with their clients about Medicare to avoid unwelcome financial surprises. Better knowledge of the program can also help them take full advantage of its benefits so they do not pay more for treatment than they need.
Conversely, Boomers should also be clear about what Medicare does not cover. For example, contrary to popular belief, Medicare doesn’t cover most long-term care needs, which may threaten the financial security of those who have not sufficiently prepared.
Being aware of the Medicare program before becoming eligible can be invaluable, as the appropriate financial savings plan can help defray uncovered expenses. Advisors and clients can get a comprehensive listing of what Medicare provides for by downloading the Medicare and You handbook at www.medicare.gov. Advisors can also find insights from the complete findings of the Center’s study Retirement Healthcare for Middle-Income Americans by visiting www.CenterForASecureRetirement.com.
Plan ahead for unanticipated costs
Even when your clients think they have accounted for all their healthcare costs, they may have forgotten certain aspects. Therefore, consider talking with your clients about costs they may have not considered, such as co-pays and uncovered services.
They should then allocate a portion of their retirement savings and income for these costs. If their retirement funds are not sufficient, it may be advisable for clients to take preemptive steps so that they can build a larger nest egg. In addition, because today’s older generation is generally living longer than their parents did, they may need to increase their retirement savings goals even further.
Encourage use of free preventive care services
If your clients are already on Medicare, they may not be taking advantage of all the services that are available to them simply by being a Medicare recipient. Encourage them to use their free annual wellness visits and cancer screenings, as early detection of health issues can help ward off expensive treatments down the road that may result when diseases are more advanced.
