Preparing For The Day When...


There is a process to planning for the financial needs of retirement.

A person asks the question “How much money am I going to need to live the life I want to live in retirement?” The next step is determining how they want to live, and the cost of the lifestyle they hope to attain and maintain.

But there is a curveball in the computations. No one can know for sure what the future holds in terms of personal health, and no one can know for sure how much it is going to cost to treat the health issues that come up.

That’s why investors, advisors and providers spend so much time discussing the eventuality of needing health care in retirement. And it is why it is so surprising that some investors do not prepare themselves properly for the financial needs of retirement related to health issues.

Spectrem delves into the topic of the financial matters related to future health costs in its study The Convergence of Health and Wealth. Investors detail the funding they currently have in place for the future, how they expect to pay for costs in retirement, and how much their family is or will be involved in decision-making related to health care and eventual living arrangements.

“Our annual studies always ask investors to list their personal concerns, and their own health and the health of their family is always at or near the top of the list,’’ said Spectrem president George H. Walper Jr. “Our new study examines the personal details which indicate their level of concern, and the plans that are made or need to be made to handle the matter of major health issues when they come up later in life.”

The study includes the role to be played by a financial advisor in making decisions about preparing for the financial needs of health care in retirement. But nearly every page of the study involves a topic that should be brought up in meetings between advisors and investors who have retirement on their mind.

Investors who are still in the workplace were asked to place their level of concern about certain aspect of retirement on a 0-to-100 scale, and “a healthcare event that requires a much greater level of care than I presently have” earned the top mark at 58.43. That is not a particularly high level of concern, but it is an average of all investors, and the response was similar among investors based on their net worth. So all investors seem to worry about that one big blow to their health and its impact on their financial picture.

The next two responses by ranking were “my spouse’s health” (57.15) and “my health” (55.86) indicating that health issues are top of mind for investors who are still in the workplace and uncertain about the future.

Those investors at least know where their future expenses lie. Asked to rank the No. 1 cost they expect in retirement, 51 percent chose “medical expenses", double the rate of selection for “housing expenses", which was selected by 25 percent of working investors.

The problem with medical expenses, as opposed to housing expenses, is that investors have no real control over what they spend in terms of medical needs. They will spend what it takes to treat the problem, and most investors do not know what the problem is going to be. Health concerns require a deep investigation into family health history, available family assistance and the continuing climb in drug and health care costs.

Considering the complication of the topic, it would seem wise to discuss options with as many people as possible who have some sort of “skin in the game’’, for whom the health of the investor matters personally. However, according to The Convergence of Health and Wealth, only 48 percent of investors have discussed their future health and living concerns with children and other family members to some degree. Only 21 percent have had in-depth discussions with family members on the topic.


Top Takeaways for Advisors

Advisors are not physicians, so cannot wisely speak to the actual health concerns of investors. But advisors can discuss the financial matters which can crop up due to unforeseen health issues, as well as the financial need to prepare for predictable health matters based on an investor’s family medical history. Such conversations are practically necessary to protect an investor’s portfolio from significant damage due to the cost of medical care.


©2018 Spectrem Group