Download Planning for Health Care in Retirement

Planning for Health
Care in Retirement
Kevin McGarry, CIMA, CRPC
Director – Nationwide Retirement Institute
1
Nationwide Institute Mission
SM
Providing practical thought leadership on Retirement
Income Planning, allowing advisors to differentiate
themselves from their competition.
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The Nationwide Institute
SM
• Retirement Strategies
• Sponsored Research
• Educational Presentations
• Knowledgeable Professionals
• Intuitive Tools
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Agenda
• The Retirement Income Challenge
• The Health Care Opportunity
• Understanding Health Care
• Creating a Plan to Address Health
Care Costs
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Important things to keep in mind
• Not a deposit • Not FDIC or NCUSIF insured • Not guaranteed by the institution
• Not insured by any federal government agency • May lose value
The following slides discuss annuities and living benefit riders. When evaluating the purchase of a variable annuity,
your clients should be aware that variable annuities are long-term investment vehicles designed for retirement
purposes and will fluctuate in value; annuities have limitations; and investing involves market risk, including possible
loss of principal.
A guaranteed minimum withdrawal benefit is an optional rider that is available on certain variable annuity contracts for
an additional fee.
Both the product prospectus and underlying fund prospectuses can be obtained by writing to Nationwide
Life Insurance Company, P.O. Box 182021, Columbus, OH 43218-2021. Carefully consider the fund’s
investment objectives, risks, charges and expenses.
All guarantees and protections, where available, are subject to the claims-paying ability of Nationwide Life Insurance
Company. And, while they do not guarantee the actual performance of the variable accounts, they do offer a level of
protection against investment loss.
The data presented in this presentation are hypothetical and may not be used to project or predict actual
performance. The income benefit base is calculated based on no withdrawals and does not include any fees
assessed. Your clients’ experience may be different and investment results may be higher or lower, depending on the
options chosen, fees and expenses. Does not include any up-market performance. These results are not reflective of
any gains in the market and are assuming guaranteed interest amounts provided by the products used as examples
in the case studies.
Nationwide, Nationwide Financial, the Nationwide framemark, Nationwide Institute, INCOME Promise Select, The
Nationwide Lifetime Income Rider, Nationwide Platinum V, Nationwide Income Architect,
and Nationwide YourLife are service marks of Nationwide Mutual Insurance Company.
America's marketFLEX is a service mark of Nationwide Life Insurance Company.
© 2014 Nationwide Financial Services, Inc. All rights reserved.
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The Retirement
Income Challenge
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The Retirement Income Challenge
Percentage of Private-Sector Workers Employed By Establishments
Offering Health Insurance to Retirees, 1997–2011
Source: Employment-Based Retiree Health Benefits: Trends in Access and Coverage, 1997‒2011.
EBRI. October 2012. No. 377.
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The Retirement Income Challenge
Consumer Estimate of Annual Health Care Costs in Retirement
$10,000:
8%
$6,000 to $9,999:
13%
$3,000 to $5,999:
25%
$1,500 to $2,999:
$0 to $1,499:
Don’t Know:
12%
16%
26%
79% have
underestimated,
or don’t know their
medical costs
Nationwide Survey “Health Care Costs in Retirement.” Consumer study of 625 respondents, January 2012.
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The Health Care
Opportunity
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The Health Care Opportunity
• Managing the cost of health care is one of
the most complex issues facing society
• Will likely be among your client’s greatest
expenses in retirement
“Fidelity Investments Estimates Couples Retiring in 2013 Will Need $220,000 to Pay Medical Expenses
In Retirement.” Fidelity Annual Survey of Retiree Health Care Costs. 2013.
Fronstin, Paul. "Savings Needed to Fund Health Insurance and Health Care Expenses in Retirement:
Findings from a Simulation Model | EBRI." Employee Benefit Research Institute | EBRI. May 2008.
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The Health Care Opportunity
Health care is an important concern:
77%
2nd
largest
5.8%
1
2
3
Affluent Americans identify health care
costs as their top financial concern for
retirement1
Expense in retirement – second only to
housing when it comes to the major
expenses in retirement2
Projected annual growth in health
care spending through 20223
Merrill Lynch Affluent Insights Quarterly survey, 2012.
“Average Annual Expenditures and Characteristics,” Consumer Expenditure Survey, 2012,
Bureau of Labor Statistics. (Percentage of total expenditure for 75+ year olds).
National Health Expenditure Projections, 2012–22: Slow Growth Until Coverage Expands and
Economy Improves. Health Affairs. September 2013.
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The Health Care Opportunity
Consumers want help:
79%
Nearly
2/3
45%
4
5
6
Are unable to accurately estimate
health care costs in retirement4
Plan to seek out health care information
with a year5
Would like to discuss health care
with a financial advisor6
Nationwide Survey “Health Care Costs in Retirement.” Consumer study of 625 respondents , January 2012.
Survey conducted via telephone to 376 respondents March 4–14, 2010, by Infogroup/ORC of Princeton, N.J.
Helping Clients Plan for Healthcare Costs in Retirement, FA Strategy Guide,
Merrill Lynch Wealth Management, Bank of America Corporation, 2010.
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The Health Care Opportunity
Advisors’
self-rating7
65%
84%
19%
7
Percent very capable discussing client
retirement needs in the areas of…
Guaranteed Income Sources
Retirement Income Overall
Medicare and other
Health Care Programs
GCD Research and Practical Perspectives – Retirement Income Insights 2013.
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Understanding
Health Care
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Understanding Health Care
Health care expenses
Medicare
cost-sharing
provisions
32%
Premiums for
Medicare,
Part B & D
45%
23%
$255,000 – $360,000:
Out-of-pocket health care
expense estimate for
a 65-year-old couple8
8
Out-of-pocket
prescription drug
expenses
Savings Needed for Medigap Premiums, Medicare Part B Premiums, Medicare Part D Premiums and Outof-Pocket Drug Expenses for Retirement at Age 65 in 2013. Assuming a 90% chance of having enough
savings. Source: Amount of Savings Needed for Health Expenses for People Eligible for Medicare: More
Rare Good News, by Paul Fronstin, Ph.D., Dallas Salisbury, and Jack VanDerhei, Ph.D., EBRI. October
2013.
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Understanding Health Care
Option 1
Option 2
Original Medicare
Part A and Part B
Medicare
Advantage (Part C)
+
Secondary Insurance
GHI, MedSup
OR
+
1. Hospitalization,
2. Medical
3. Rx (MA-PD)
Rx Coverage
Part D or GHI
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Understanding Health Care
Option 1 – Medicare Part A: Hospital Insurance11
• Inpatient
Hospitalization
Patient costs for an in-hospital stay
Days 1 - 60
$1,216 deductible
• Skilled Nursing
Facilities
Days 61 - 90
$304 per day copay
• Home Health Care
Days 91 - 150
$608 per day copay
Days 150+
All costs
• Hospice
11
Medicare.gov. Medicare 2013 & 2014 costs at a glance.
http://1.usa.gov/190ejwx.
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Understanding Health Care
Option 1 – Medicare Part B: Medical Insurance12
• Doctors/Providers
• Preventive Benefits
• Durable Medical
Equipment
• Outpatient Services
Individual Pays
• Monthly premium (based on MAGI)
• $147 deductible
• 20% coinsurance on doctors’ services and
outpatient care
12 Medicare.gov.
Medicare 2013 & 2014 costs at a glance.
http://1.usa.gov/190ejwx.
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Understanding Health Care
Option 1 – Medicare Part B: Monthly Premiums13
If Your Yearly Income in 2012 was:
13
You Pay
Filed Individual Tax Return
Filed Joint Tax Return
$85,000 or less
$170,000 or less
$104.90
$85,000 - $107,000
$170,000 - $214,000
$146.90
$107,000 - $160,000
$214,000 - $320,000
$209.80
$160,000 - $214,000
$320,000 - $428,000
$272.70
above $214,000
above $428,000
$335.70
Medicare.gov. Medicare 2013 & 2014 costs at a glance.
http://1.usa.gov/190ejwx.
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Understanding Health Care
Option 1 – Medicare Part D: Prescription Drug Coverage (2014)
** Premiums vary by insurer
95% Medicare benefit
(catastrophic coverage)
You pay
Medicare pays
The doughnut
hole is large
and expensive
Beneficiary pays 5% (min. co–pay)
$2.55 generic or $6.35 brand
$4,550 out-of-pocket reached
$6,765 in total drug costs
Beneficiary pays 100% or $3,605
100%
No Medicare coverage
in doughnut hole
• 47.5% of the cost for brand name
medications
• 72.0% of the cost of generic
medications
$2,850 in total drug costs
75%
Medicare benefit
(initial coverage)
Beneficiary pays $635 (25% or flat
co-pay amounts based on formulary)
$310 Deductible
Beneficiary pays 100% or $310
Source: Medicare and You, 2014. Medicare.gov
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Understanding Health Care
Option 1 – Medigap: Medicare supplemental insurance
• Pay only after Original Medicare (Parts A & B)
• Flexibility to see any doctor who accepts Medicare
• Open Enrollment - 6 months beginning with Part B effective
date at age 65 or older
• Does not cover prescriptions
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Understanding Health Care
Cost of Medicare Premiums:
14
15
16
Monthly
Annual
Medicare Part A
$0
$0
Medicare Part B
$104.90
$1,258.8014
Medicare Part D
$39.90
$478.8015
Medigap Policy
$ 185.00
$ 2,220.0016
Total Per Person
$329.80
$3,957.60
Per Couple
$659.60
$7,915.20
Medicare.gov. Medicare 2013 & 2014 costs at a glance. http://1.usa.gov/190ejwx.
Kaiser Family Foundation. "Medicare Part D: A First Look at Plan Offerings in 2014." October 10, 2013. Weighted average
premium for Medicare Part D Stand-Alone Prescription Drug Plans".
Medicare.gov. Median cost for Medigap Policy C in Columbus, Ohio. Ranges from $117 to $253.
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Creating a plan to address
Health Care costs
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Start with a Health Care Cost Assessment
Determine individual health care costs
• The Nationwide Financial Personalized
Health Care Cost Assessment
– Powered by calculations from one of the world’s
leading actuarial firms
– Provides a personalized estimate of possible
annual health care expenses
– Includes estimates for Medicare, out-of-pocket
and long-term care expenses
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Health Care Cost Assessment
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Health Care Cost Assessment
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Health Care Cost Assessment
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Health Care Cost Assessment
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Health Care Cost Assessment
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Client Fact Finder
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Case Study:
Retirement Plan Savings for Health Care
Client
• “Paul and Suzanne,” a 50-year-old couple
• They plan to retire at 67
• They are contributing $17,500 a year each to their plan
• They are concerned about health care costs
Goal
Develop a plan to save enough to help cover their health
care costs in retirement
These projections are hypothetical in nature and are not meant to show actual projections of performance.
There is no guarantee an investor will experience these returns. The assumptions used are approximations
and are for illustrative purposes only; actual results will vary based on the product used.
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Case Study:
Retirement Plan Savings for Health Care
Paul and Suzanne run a Health Care Cost Assessment
...
•
Average annual health care costs
•
Per Month Costs
$ 21,381
$ 1,782
These projections are hypothetical in nature and are not meant to show actual projections of performance.
There is no guarantee an investor will experience these returns. The assumptions used are approximations
and are for illustrative purposes only; actual results will vary based on the product used.
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Case Study:
Retirement Plan Savings for Health Care
Calculate balance needed to fund the plan
Annual
Income Need
$21,381
Balance Required
$427,620
Systematic
Withdrawal
5%
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Case Study:
Retirement Plan Savings for Health Care
• Achieve goal of $427,620 to fund health care
• Each contribute $495 a month to get there in 17 years
Period to Invest
Monthly
Investment
Annual
Investment
Age 50 to 67
$990
$11,880
Total Per Person
Age 50 to 67
$495
$5,940
These projections are hypothetical in nature and are not meant to show actual projections of
performance. There is no guarantee an investor will experience these returns. The assumptions used
are approximations and are for illustrative purposes only; actual results will vary based on the product
used. Annual rate of return is projected to be 8%.
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Case Study:
Retirement Plan Savings for Health Care
• Begin catch-up contributions at age 50
Period to Invest
Age 50 to 67
Total Potential Savings
Catch-Up
Contribution
Combined CatchUp Contribution
$5,500
$11,000
$197,907
$395,814
• $395,814 is 93% of the $427,620 needed to fund
Health Care
These projections are hypothetical in nature and are not meant to show actual projections of
performance. There is no guarantee an investor will experience these returns. The assumptions used
are approximations and are for illustrative purposes only; actual results will vary based on the product
used. Annual rate of return is projected to be 8%.
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Summary:
•
•
•
•
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The Retirement Income Challenge
The Health Care Opportunity
Understanding Health Care
Creating a Plan to Address Health Care Costs
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Institute of Retirement Income
1. Regional Vice Presidents
2. Income Planning Desk
Phone: 1-877-245-0763
Fax: 1-614-435-1997
Email: [email protected]
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