Would you like to be able to provide your clients a proven strategy to pay for most of their health care costs, if not all of them?
Well, in this blog post we’ll explain a strategy that agents and advisors can use to do that (even if you're not a Medicare agent and don't want to become one). Keep reading for the details...
Don’t worry, what we'll explain today is nothing complicated but could be an “ah-ha” moment…
Especially if you want to help clients estimate the costs of health care and figure out how to pay for it.
As you probably already know, health care costs like prescription drugs, hospital care and physician services, may be on the rise for some.
There are a couple of main reasons for this: government policy and lifestyle changes.
To put it simply -- because the government developed programs like Medicare, it created a greater demand for healthcare services. And that increase in demand caused an increase in price.
The second reason for rising costs of health care is the increase in chronic health conditions that lead to an "epidemic of preventable diseases."
And everyone pays for it.
For those who have to pay for Part A, they're looking at somewhere around $252 or up to $458 each month in 2020, while the per month costs for Medicare Part B range from $144 to $492. And these will likely continue to go up. (Medicare.gov)
Compensating for rising healthcare costs
Retirees know they may have health care needs in retirement and understand they’ll have to pay Medicare premiums…
But what they may underestimate is how big of a chunk will go to Medicare premiums as well as any other expenses they’ll have if they want to maintain their current lifestyle in retirement.
Since health care is a necessary expense, if retirees don't adequately plan ahead, they may be forced to cut costs in other areas (like travel or entertainment) in order to make sure they can afford their Medicare payments each month.
This uncertainty can lead to additional stress during a time when they’re supposed to be kicking back, relaxing and enjoying the fruits of their labor.
But there's a really good chance you could help...
You don't have to be a Medicare agent to help clients align resources to account for this lifetime expense.
What many retirement strategies lack
You may not be a Medicare agent, but you probably understand that those costs factor into an overall retirement strategy.
And you might meet with people who feel pretty confident in the amount they'll need in retirement...
But many times they estimate incorrectly.
Part of the problem is that pre-retirees are typically encouraged to devote a lot of time to strategies around saving money but may not know exactly what to expect or plan for when it comes to spending money in retirement.
One of our advisors has found that in working with clients, retirement spending assumptions are often short by 20% to 30%. Meaning that folks are grossly underestimating how much they will need to spend in retirement to maintain their pre-retirement standard of living.
That’s backed up with research done by financial institutions and various think tanks. And when polled, folks who are already retired routinely report having underestimated what they will need to spend to maintain a desired standard of living.
Why retirees might miscalculate what they need in retirement
Retirees are underestimating what they’ll spend in retirement partially because during working years, big expenses that can’t be avoided like taxes and health care premiums, are automatically deducted from their paycheck.
Those costs are already accounted for before they start spending their money.
But in retirement…
That may not be the case. Your client could have their Medicare expenses taken out of their Social Security check but might have completely overlooked the need to account for that when planning for retirement. So, they struggle to make ends meet.
This is why there needs to be as much focus on spending in retirement as there is on saving for retirement so your clients can enjoy their golden years with confidence.
A different way to pay for healthcare expenses
As part of a “spending plan,” clients may want to take some of their retirement assets and specifically earmark that to pay for Medicare.
That’s where this "underutilized" strategy we mentioned comes in.
Just like during their working years, clients need a strategy where they don’t come up short after paying Medicare premium and instead, prepare for the premiums to be paid.
This way, they can feel comfortable and confident in any other spending they want or need to do in retirement.
Medicare premiums are a guaranteed lifetime expense for each individual client. So, why not set up an income stream for a client that would cover most, if not all of that cost –
Without the client having to worry about it...
Or risk taking distributions from other places and possibly being forced to downsize their lifestyle.
Of course, guaranteed income from an annuity isn’t appropriate in every situation, but it could definitely be the right strategy for covering the cost of Medicare premiums.
To figure out how much the client would need to put into an annuity to generate the amount needed for health care costs, let’s do some math.
Here’s how it would work
If we focus on an individual using a single annuitant strategy rather than a joint annuitant strategy, then if one person passes and their income stream ceases, it won’t harm the other spouse. Plus, a single life annuity payout will be greater than a joint life payout.
As an example, we’ll assume the following costs for a 65-year old:
Part A $0
+ $144.6 Part B
+ $117 Medicare Supplement Plan G (most popular)
+ $25 Part D - (Prescription Drugs)
+ $60 Dental/Vision
= $346.60
That’s an estimated expense of $4,159.20 per individual each year.
Using an annuity tool you can get access to when you’re contracted with Partners Advantage, we’d learn that for this example, it would take $78K in premium to generate the income payments needed.
Also, keep in mind that the premiums would likely be coming from pre-tax money, so it might be worth grossing up by 20% for taxes (15% fed and 5% state). That would bump the annuity premium in this example up closer to $98K.
Now, there is a good chance Medicare premiums may go up slightly each year and a steeper increase can be expected every few years.
However, this can still be a good strategy to cover the initial base expenses of Medicare coverage.
If you want to quickly calculate these expenses yourself when working with clients without having to become an expert in Medicare...
Grab the worksheet down below. It'll help you tally up these costs quickly and easily when meeting with clients on their retirement income strategy.
Executing the strategy properly
We’ve found annuity products that work extremely well for this strategy and can:
- Provide a larger monthly payment, beginning in 30 days of issue, than many single premium immediate annuities (SPIAs), or even corporate pensions
- Allow the owner to maintain control over the balance of the account value
- And even provide a death benefit to the beneficiaries if the owner passes early
We’d love to walk through this with you on any case you’re working on and help you find the carrier and product to fit your client’s needs.
Complete the form to get the health care cost estimate client-use worksheet. Then, if you're looking for new ideas and possibilities to drive stronger results, schedule a strategy call with your Partners Advantage representative.
