Data & Research December 7, 2016

Aggressive Saving Needed to Meet Retirement Health Care Costs

The average expected future retirement health care premiums for Medicare and supplemental insurance for a healthy woman retiring this year and living to 89 are projected to be $235,526.
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Health care costs could take a bite out of anyone’s retirement income, but assuming average longevity for women and men, women need to plan for much higher retirement health care expenses than men, according to a report from HealthView Services, a provider of retirement health care cost data and planning tools to the retirement industry.

The average expected future retirement health care premiums for Medicare B, D and supplemental insurance for a healthy woman retiring this year at 65-years-of-age and living to 89 are projected to be $235,526 ($153,079 in today’s dollars), significantly more than the $199,946 ($135,321) for men, who are expected to live to 87, the company’s projections found. Adding in all out-of-pocket costs, hearing, vision and dental, women’s total lifetime health care costs rise to $314,673 ($205,468), compared to $267,395 ($181,625) for men. These numbers assume Modified Adjusted Gross Income (MAGI) in retirement will not trigger Medicare Surcharges (Less than $85,000 or $170,000 for a couple).  

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Among the unique challenges facing women are lower lifetime earnings resulting from gender pay disparities and time out of the workforce to take care of family members. These two variables inevitably impact retirement savings and Social Security income. 

According to “The High Cost of Living Longer: Women & Retirement Health Care,” on average, husbands live two years fewer and are 2.3 years older than their wives. This suggests women will spend approximately four years at the end of life on their own. 

NEXT: How much savings will women need?

For a healthy 55-year-old-woman living to 89, total health care costs between 85 and 89 are projected to be $146,471 ($75,200 present value), excluding long-term care. For women who will live longer, the costs will be even higher.

Meeting long-term care needs will be an additional challenge. The report uses a blended approach that reflects the probability of care to calculate reasonable savings to cover this potential expense. For a 55-year-old woman retiring at 66, the savings recommended to plan for end-of-life care are estimated to be $372,631 ($194,215 present value).  

The paper explores savings required to meet end of life needs. It shows that a 55-year-old woman can allocate $25,500 growing at 6% annually to cover her projected $146,471 total health care costs in the final four years of life. Alternatively, she could address $72,932 in basic Medicare premiums (Parts B and D) by investing $12,700 today at an estimated 6% annual return or increase 401(k), or health savings account (HAS) contributions by approximately $25.00 per pay period (assuming 26 pay periods) based on an employer match.

"While the challenges facing women should not be underestimated, with careful planning and preparation, financial security in retirement is an achievable goal for many," says Ron Mastrogiovanni, founder and CEO of HealthView Services. "It is our intention for the data in this report to serve as a starting point for discussions leading to plans that reflect the future needs of women in retirement."

Client Service December 7, 2016

Providers Should Shift From Sole Focus on Baby Boomers

The 35 million households of Generation X currently control more than $5.7 trillion in investable assets, yet they remain a “relatively underserved segment” of the investment advisory marketplace. 
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A new research report from Cerulli Associates, “Overlooked Gem? The Underserved Generation X,” finds that Gen Xers have received far less attention from financial services providers than members of the Baby Boomer generation.

And it’s not just individual investors who are losing out as a result; by structuring their offerings with only the categories of “Baby Boomers” and “Millennials” in mind, many providers are overlooking the fact that Gen Xers average more than $160,000 in savings each. People in this age range have distinct financial needs and goals from either Baby Boomers or Millennials, Cerulli asserts.

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“During the past decade, financial advice and product providers have made it a priority to focus on the Baby Boomer generation. Rightly so, households in this segment average more than $400,000 of investable assets and control more than $9.5 trillion,” states Scott Smith, director at Cerulli. “On the other hand, the rise in digital advice platforms has caused providers to pivot attention to the ‘Next Big Thing’ in investing: Millennials.”

Focusing on Millennials is positive for the long-term future, according to Cerulli, but the real sweet spot today for advice providers looking to build a base of younger clients could be Generation X. The generation includes some 35 million member households currently in control of more than $5.7 trillion in investable assets.

“While their assets are increasing, many of these portfolios are tied up in employer-sponsored retirement plans that limit their appeal to traditional advisory channels,” Smith notes. “Instead of viewing these as challenges, forward-thinking advice providers need to embrace Gen X to reinforce the true breadth of their value proposition with respect to comprehensive wealth management.”

According to Cerulli, reviewing existing retirement plan assets and helping define long-term goals can both serve as useful entry points into the discussion of comprehensive wealth management with Gen X.

“Many of the households in the Gen-X segment are entering the most complex segments of their financial lives,” Smith explains. “Insights from a comprehensive financial planner to weigh the complete financial impact of decisions they face would greatly benefit Generation X.”

Given that the majority of Gen-X households believe it is important to have a written financial plan, and looming regulations will increase the importance of comprehensive planning in wealth management relationships, the Cerulli research concludes it is essential that advisers and providers optimize their platforms to address the needs of younger clients.

Information about obtaining Cerulli Associates reports is available here. 

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