All clients know that the costs of post-retirement health care are rising, making planning for these expenses critical to financial security in retirement. It's perhaps more important for advisors to remember that health expenses will impact all clients during retirement—even high net worth clients who may frequently overlook the need to plan for post-retirement health expenses.
When the costs of long-term care are factored in, studies estimate that those nearing retirement could need as much as $400,000 to cover post-retirement health expenses. Because high net worth clients are unlikely to ever qualify for means-based Medicaid coverage, a tax-efficient strategy for covering these expenses can be even more important—and permanent life insurance can provide a creative, tax-preferred savings bank that is particularly attractive to the affluent client.
Rising Post-Retirement Health Costs
Even when clients specifically plan for post-retirement health expenses, many fail to account for all of the health-related expenses that they are likely to encounter. Premiums for Medicare Parts B and D (prescription drug coverage) and supplemental coverage are only the tip of the iceberg for may retirees—and for high net worth clients, the costs of these premiums are subject to increase based on income levels. When the "Doc Fix" law becomes effective next year, the highest earners will pay even more in Medicare premiums.
What clients often overlook are the expenses that are not covered by Medicare. Coverage for dental and vision care is limited, and most of the costs associated with long-term care are not covered by Medicare at all. Further, expenses that are not strictly medical—such as the cost of home assistance—often must be funded out-of-pocket.
The Life Insurance Funding Strategy
