I write a lot about the mandatory costs in retirement (Medicare), along with the need for long-term care planning. Remember, long-term care planning does not always mean insurance. Sometimes it may be a plan for how and where you will age and who will help you, with or without insurance. In my opinion, these are issues that many in the financial services industry ignore for a variety of reasons. Let’s face it, it not sexy like the hottest new investment trend. It can be very depressing.
What Happens When You Get Sick?
Tracey Lawrence, a colleague who shares many of my views on this subject, told me she likes to ask her clients and prospective clients the following simple question: "What happens when you get sick?" This is very important because chances are the client and/or the current advisor(s) never thought about this situation. Or, worse, they think they can grow their way out of the problem because Fidelity Investments reported that you need about $260,000 in savings today to tackle health expenses in retirement. This is not including long-term care costs. (For more from this author, see: The One Mandatory Cost in Retirement.)
In a future article, I will dissect the $260,000 figure. It is way too low. Using data from Social Security, Medicare, average Medicare Part D prescription drug plans and average Medigap Plan F premiums in each state, you can prove that this number to be much higher. Again, this is just for premiums and without the expenses associated with long-term care.
Recently, a client told me her dad took a turn for the worse. I knew he was in a nursing home for rehabilitation. He already met his required stay (admission, not observation status) at a local hospital. So, Medicare was covering his stay at the rehabilitation facility (skilled nursing home).
Sometimes in stressful and scary situations, people just blurt out things. “Rob, my daughter is helping me and she said the facility said my dad has awesome insurance.” Her dad retired after years of working in one of the construction trades. His health and welfare fund is from a powerful local union. They apparently negotiated a wonderful supplemental insurance plan to complement Medicare, which is in effect a Medigap plan.
Now here's where it gets scary. About two years or so ago, the daughter called me because her dad kept getting mail from her mom's former employer. Her mom died years ago, but had a good job at General Electric. GE, like many employers in recent times, was getting out of the healthcare benefit business for retirees. Apparently because my client's late wife was a GE employee, my client was eligible for survivor benefits. They kept hounding him by mail and phone and even sent someone to his home to remind him to sign up.
Had my client's daughter not reached out to me, she and her dad could have unenrolled my client from the superior supplemental plan and picked a lower cost option (based on premiums) Medicare Advantage plan. That would have been awful because Advantage plans restrict you to networks and many have caps on what they pay. Or, they could have taken a costlier Medigap plan. Remember, once you leave your employer's supplemental plan you are not allowed back in.
So as my client is in a facility, he is going to have 100 days of coverage. This includes what Medicare pays and what the supplemental plan will pay (what Medicare won't cover). No wonder why the facility told the granddaughter that grandpa has great coverage. They know they are getting paid.
I have asked many financial advisors about these situations, specifically those who claim to be experts advising older clients with their financial matters. If you are an individual or couple, do you know about the differences with Medicare supplement plans and Medicare Advantage plans? Do you know what you are going to do about health coverage in retirement?
A Giant Disconnect
This is exactly why I do what I do. You have mandatory retirement costs (Medicare) and likely costs (long-term care needs). In my opinion, there is a giant disconnect with those realities when you seek retirement advice. Fortunately, the solutions to help plan for situations I describe above exist right now. Unfortunately, they are not always implemented. It does not have to be that way. (For more from this author, see: Your Wants vs. Needs in Retirement.)