Retirement Terrors

Affordable Care Act debate provides advisors the perfect opportunity to discuss clients’ future health care costs

By John Carter

With all the confusion around the Affordable Care Act (ACA) these days, discussing health care costs in retirement is more than ever becoming a critical part of the retirement advisory profession. And it is no surprise why. In a new Nationwide Financial Retirement Institute survey, more than three in five (61 percent) affluent pre-retirees now say they are “terrified” of what health care costs may do to their retirement plans. That’s a 30 percent jump from the fewer than half that used the word “terrified” the previous year.

To make matters worse, nearly three-quarters (72 percent) of the affluent baby boomers we surveyed mistakenly believe the ACA will pay their long-term care (LTC) costs in retirement and are not adequately planning for those costs or not planning at all.

Whether it is the economy, concerns about the implementation of the ACA or skyrocketing health care costs, our annual survey shows America’s workers are increasingly concerned about how they will fund their health care costs in retirement. But more need to realize they can’t count on someone else to fix this problem and that they will have to fund their own health care costs in retirement.

According to the poll conducted by Harris Interactive of 801 Americans over 50 with at least $150,000 in household income, three quarters of pre-retirees say their top fear in retirement is their health care costs spinning out of control. However, 64 percent say they have not discussed their retirement plans at all with a financial advisor. Of those who have talked with an advisor, only 22 percent discussed health care costs in retirement not covered by Medicare.

The problem is when people are terrified, they freeze and don’t do anything to prepare for health care costs in retirement. A quarter of baby boomers (26 percent) told us they do not expect to retire. That is up from 22 percent the previous year. Women are twice more likely than men to think they will never retire (36 percent vs. 18 percent). Two in five boomers also say they will delay their retirement if they had to buy their own health insurance. One in four say they will delay their retirement in order to keep their adult children on their employer-based health insurance plan.

The problem gets even scarier when you add in LTC costs. Industry figures show many are in denial that they will ever need LTC, so they never plan for it. However, the U.S. Department of Health and Human Services estimates that 70 percent of Americans over age 65 will need LTC during their lifetime.

How advisors can help

Nearly four in five (78 percent) say that when they hear the term “long-term care” they think of nursing home care. In actuality, nearly half of all LTC happens at home, with a little over a quarter (27 percent) taking place in a nursing home and 24 percent in adult day care. While 71 percent of affluent pre-retirees want to receive LTC in their own home, fewer than half think they will actually receive LTC in their home. Two in five think they will end up in an assisted living facility, and one in 10 think they will be in a nursing home.

The most common mistake a financial advisor makes is his or her approach to the discussion. When an advisor says the words “long-term care,” the client often hears “nursing home.” This often causes the client to shut down. Instead, advisors should say: “Let’s talk about ways we can keep you in your home longer.” The next step is to get a fact-based estimate of what those long-term care costs may be and work to build a plan from there. Four in five advisors say they know if they can have these discussions, their clients will be more likely to stay with them.

Solutions available

To help simplify this complicated issue and encourage these discussions, Nationwide Financial has enhanced its Personalized Health Care Assessment program and now bases its calculations on the average cost of a Silver Plan in the ACA exchanges in their state. The program also uses proprietary health risk analysis and up-to-date actuarial cost data such as personal health and lifestyle information, health care costs, and medical coverage to provide a meaningful, personalized cost estimate that will help clients plan for medical expenses.

It’s much easier to have these difficult conversations when, instead of guessing, advisors can use a tool to provide a fact-based cost estimate based on their clients’ health risk and lifestyle. The assessment enables an advisor to take clients who are terrified about health care costs in retirement and turn them into someone who is confident.

In Summary

With more than 60 million baby boomers reaching retirement by 2030, there’s a lot of planning and education that is needed – especially when it comes to health care costs. Financial advisors can play a critical role in helping America’s workers avoid a looming retirement crisis. The implementation of the ACA provides a perfect opportunity to discuss with clients how they will pay for health care and LTC during retirement. Four in five advisors say they know if they can have these discussions, their clients will be more likely to stay with them.

The views and opinions expressed here are those of the writer and do not necessarily represent the opinions of Nationwide.