Data & Research March 8, 2016

Confronting Health Care Cost Fears With Hard Data

Sometimes it just takes a little insight to dispel a lot of fear and uncertainty—especially when it comes to financial planning and the future cost of health care. 
Reported by

The 2016 Guide to Retirement from JP Morgan Asset Management provides a range of insights about what financial challenges individuals should expect in retirement, including hard figures on Medicare premiums, long-term care costs and other critical aspects of retiree health care.

Reading the guide will be a troubling experience for anyone not already versed in the retirement challenges faced by workers in the United States, notes JP Morgan Asset Management Global Head of Retirement Solutions Anne Lester. “A lot of the numbers we cover are going to be discouraging for a lot of people to read,” she says.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

For example, a 65-year old in 2016 should now expect to pay upwards of $4,660 per year on health care, and that’s just at the median. This includes $400 for vision, dental and hearing care; $1,900 on Medicare “Medigap” Plan F; between $900 and $4,000 on Medicare Part D premiums and prescription out-of-pocket costs; and another $1,460 in Medicare Part B coverage.

“And these are just the predictable costs,” Lester warns. “There will be additional premiums per person for families with modified adjusted gross income above approximately the $85,000 threshold. And then there are the true uncertainties of things like health care inflation, Medicare solvency issues, long-term care needs, etc.”

Chief Retirement Strategist Katherine Roy predicts that, should current demographic and pricing trends hold, health care costs will inflate by upwards of 6% or 7% per year through the 2020s and 2030s. “Projecting the current numbers forward, that would mean the individual turning 65 today would be paying $18,000 per year for health care by age 85.”

NEXT:  Where’s the good news? 

Perhaps most troubling in the updated Guide to Retirement report, Roy points out that the likelihood of at least one member of a married couple turning 65 today requiring professional long-term care is “now alarmingly high.” For women, a whopping 73% will require such care at some point in their lifetime, while just 35% of men will require long-term care from a non-family professional. 

“This is yet another important outcome of women’s increased longevity over men. They live longer and are far more likely to die alone than their male spouses, so this must be planned for,” Roy warns.   

One piece of good news is that long-term care is not always as expensive as one might fear, and there is an emerging ecosystem of tools and advice to help individuals confront these vexing questions. According to the JP Morgan research, there is a one in three chance that a long-term care need will last less than six months, and just a one in 10 chance it will last five or more years. Further, many families are able to pull together and provide some aspects of long-term care directly for their loved ones, but this is often a strain both financially and practically.

“In the end, many people realize nursing home care or in-home care is going to be expensive, but they should also know there is significant cost variation depending on where and how care is utilized—so smart consumers and planners can protect themselves and their families,” Roy says. “Nursing home care, especially, varies a great deal state-by-state, and between urban and non-urban settings. These are all things to think about well in advance of retirement.”

Lester concludes that investment-based tools such as health savings accounts (HSAs) will have to play a big role in helping people confront these incredible cost projections. “The next step for us at JP Morgan is to get really empirical and dive deeply into the real spending patterns of our clients as they enter retirement and start paying for all these things from accumulated assets. We will be looking for insights to help those people who still have a long time to plan, and those people already facing these challenges.”  

Data & Research March 8, 2016

Advisers Give Big Boost to Financial Wellness Programs

Participants who engage with a financial professional have better results than those who just use online tools.
Reported by

Employees who engage in multiple live interactions with a financial professional experience a much higher degree of positive behavioral change towards financial wellness than those that engage solely online, a new analysis from Financial Finesse suggests.

The Year in Review: 2015, found overall financial wellness levels increased only slightly to 4.8 out of 10 vs. 4.7 in 2014. Liz Davidson, CEO of Financial Finesse, notes that the changes in each category of financial wellness are pretty small and it’s a large sample size. But, she tells PLANSPONSOR the biggest variable is the difficult economic times. “Wages are stagnating, there is concern about market uncertainty, and there is more pressure on employees to fund more of their own benefits,” she says.

The analysis shows that while technology was helpful in increasing employee awareness of their financial vulnerabilities, online interactions alone did not improve employee financial wellness. By contrast, employees who had five interactions, including conversations on the phone or in person with a financial professional, showed substantial progress. For these regular participants, 98% contribute to their retirement plan, compared to 89% of online-only users; 48% are on track for retirement, compared to 21% of online-only users; and 64% are confident in their investment strategy, compared to 42% of online-only users. In addition, 80% have a handle on cash flow, compared to 66% of online-only users, and 72% have an emergency fund, compared to 50% of online-only users.

NEXT: Gender gap narrows, differences by ethnicityA look at 31 key financial wellness questions revealed the overall gender gap in financial wellness declined from seven percentage points in 2014 to five percentage points in 2015. Davidson noted that 71% of employees that repeatedly used their financial wellness programs were women, and this has likely contributed to narrowing the gender gap. But, she also says she’s noted a resurgence of a different kind of feminism. “Women are more comfortable taking control of financial issues; it’s the early stages of social change,” she says. “We observe increased confidence.”

Seventy-one percent of employees chose retirement planning as a top concern in 2015, making it the most often cited concern, but it was actually getting out of debt that topped the list of concerns for African American (75%) and Latino (66%) employees.  The presence of problematic debt may be affecting retirement preparedness, Financial Finesse says.

Debt may also be affecting reported levels of financial stress. Three in ten Latino employees (30%), and nearly four in 10 African American employees (38%), reported feeling high or overwhelming levels of financial stress. Both cohorts indicated a lack of control over their current financial situation as the main cause of their financial stress. This lack of financial control has been a barrier to saving for retirement.

NEXT: Who to target in financial wellness programs

Davidson says plan sponsors should focus more on lower-income employees and those most financially stressed in financial wellness programs, and help them reduce immediate emergency stress.

Greg Ward, CFP, director of the Financial Finesse Think Tank, suggests employers that offer financial wellness programs consider tailoring communications to address these vulnerabilities in particular:

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

  • 58% may not be saving enough for retirement, with only 16% of Millennials on track to achieve their retirement goals;
  • 51% don’t have an emergency fund. While this declines with age, a worrisome 25% of employees 65 and older still don’t have an emergency fund;
  • 34% may be living beyond their means. For employees with family incomes of $100,000 or lower, less than half pay off their credit cards every month;
  • 33% may have serious debt problems. Debt may be hurting African American and Latino employees the most, with 75% of African American and 66% of Latino employees saying getting out of debt is a top concern; and
  • Concern over market volatility is high. Many employees grew nervous about their retirement plan savings in the past year and turned to their financial wellness program for guidance about how to handle these market fluctuations.
Davidson concludes: “Live interaction with a certified financial planner is important. Online wellness tools are a key component—they can reach more employees, and employees will make progress using them—but a human can coach employees and hold them accountable.”

«