In this special report, Financial Advisor magazine looks at how more advisors are helping clients consider the impact of sky-rocketing health-care costs on retirement.

    The actual price that soaring health-care costs is having on Americans is becoming a fast wake-up call for many professions, but perhaps none more profoundly outside the medical arena than investment advisors. Ailments, skyrocketing medical and prescription costs, limited access to quality care and insurance considerations can not only postpone early retirement indefinitely, they can force one or more members of a household back to work just as they enter a period in their lives when they may be more frail or infirm. While doctors come and go, an advisor they've had for years or even decades is often the one person many consumers feel they can turn to when crisis hits. "I can't tell you how many clients come to me to help them deliberate if they should go back to work after retiring so they can get or pay for health-care benefits," says Martin Siesta, a longtime investment advisor in New Jersey.

While the price for health care may be shocking, equally alarming perhaps is the fact that only a minority of investment advisors take the full range of health-care questions and costs into consideration when building financial and investment models for clients. "Right now, very few folks are planning for the fact that people are living longer, but in a less-healthy fashion. We have to change that and quickly," says Brad White, the staff liaison to the Financial Planning Association's health-care task force, which authored a new health-care white paper urging that the organization get involved in the development of public policy and encouraging advisors to use health-care costs and decisions in the planning process. (See Bottom.)

    But all of that is about to change, and change quickly. Why? Consumer demand and advisors' response to it have taken on a life of their own, to the extent that some advisors are creating businesses specifically devoted to helping clients clearly understand and coordinate health-care choices-for themselves and sometimes even for family members who live in other parts of the country. "It's clients who are driving this," says Siesta, an FPA director and one of a handful of planners spearheading its group's health-care initiatives.

Whether someone is considering early retirement and needs to buy health-care insurance, has suffered benefits cuts, struggles with an illness that preempts insurance purchases, pays huge prescription costs or assists ailing parents, it can wreak havoc on a financial plan, say a growing number of investment advisors who have begun to incorporate health-care considerations into their planning process.

As the population ages it's a tale that advisors are likely to hear more often, particularly with more than 75 million baby boomers marching toward retirement. In 2006, the U.S. Census Bureau estimated 35.5 million people in the United States were 65 years and older. In 2030, the boomers will all be between 66 and 84 and they alone will account for 57.8 million people who are 65 or older, the bureau estimates. And because people are living longer, more boomers in the next several years may find themselves not only worrying about their own health problems but those of their parents or possibly a special-needs son or daughter.

Add to that the fact that 66% of Americans are overweight and 32% are obese, according to the Center for Disease Control (CDC). While America's increasing girth is routine fodder for late-night comedy monologues, it increases Type 2 diabetes, heart disease, bladder disease and even breast, colon and endometrial cancers. A person just 30 pounds overweight has a 32% greater chance of developing heart disease than an average person.

And that's at a time when health-care costs are skyrocketing. Total national health expenditures rose 6.9%-two times the rate of inflation-in 2005 (the latest year for which data is available) and is expected to increase at similar levels for the next decade, reaching $4 trillion by 2015, according to the National Coalition on Healthcare (NCH).

As for health-care insurance, workers contributed $3,000, or 10% more in 2005 than they did in 2006, when average premiums for a family of four hit $11,500. NCH analysts are already suggesting that the $200,000 in savings Fidelity Investments suggests an average couple would need just to pay for basic medical coverage after age 65 is at least $100,000 too low.

    As for quality-of-care issues, horror stories abound (and we'll get to a few), even for folks in their forties and fifties, and especially for those who have seen parents or grandparents battle poor care, benefits reductions and inferior facilities.

What's clear is the need to incorporate realistic costs and challenges into the planning process. Easy to say, but where does that leave advisors, who in any given week may get hit with questions from clients regarding shrinking workplace health-care policies, the need to shop for affordable health-care insurance for early retirement and even queries about aging out-of-state parents in need of nursing-home care.

Dire circumstances require quick thinking and meaningful solutions, not makeshift fixes. The seasoned group of advisors we spoke to are beginning to think about how they can incorporate health-care costs and questions into planning in a whole new way and are even finding business opportunities in the challenge.

Veteran planner Lewis Walker, who helms Walker Capital Management Corp. in Norcross, Ga., is one of those planners. Walker has been striving for years to go beyond the numbers and look at qualitative issues such as how health-care profoundly impacts his clients' investment and retirement objectives.

How critical is the issue of health care to investors' financial plans? "Health and wealth are intricately tied together, and they're a much bigger issue than they were in the past," says Walker, who is using a care-based approach to build out this part of his business. "You just have to look at the demographic wave. We have clients dealing with these issues for themselves and for their parents at the same time. And I cannot tell you how many clients we have who also have special-needs children with hefty health-care expenses."

Walker says he does a tremendous amount of digging in the client discovery process to determine what clients want and need regarding their health. "We've found it's a lot easier to ask about health concerns than [health] problems on our life transition worksheets, but if we don't get answers, we'll also ask the questions directly," says Walker. "'Have you ever had cancer or a heart attack? Are your parents alive? What did they die of? What are you worried about?'"

The next task is to find the alternatives for dealing with client conditions and concerns. "What type of health care do they want? What assets do they want to tap for care? What are expenses likely to be?" Walker asks. Questions may include the possibility of using a reverse mortgage if a client wants to age in place.

For clients who need to live off assets in retirement or before, Walker likes to set up what he calls a "paycheck fund." The fund has enough cash to cover three years of a client's expenses and is invested in an FDIC-insured money-market account, so it can withstand a significant bull market. "I have clients with cancer, lupus and MS, and you need much larger cash reserves for these folks," Walker says.

Individual health-care needs also inform the way Walker builds out a customized investment plan for a client and allow him to determine, within reason, the risk and returns of a portfolio. "Ultimately, you come back to what the client wants. It's not uncommon for folks here to want $100,000 a year in after-tax income. If you use a 20% marginal tax rate, you need a 9.3% return to be able to back out taxes and inflation and stick to a 5% withdrawal rate," Walker says.

How does he ensure his clients get the type of health-care and insurance coverage they want? Walker says it's critical to work with specialists. "You have to have a team. You cannot step out of your areas of expertise or court unnecessary liability," says Walker, who uses vetted insurance brokers to assist clients with health-care, Medigap and long-term-care (LTC) insurance coverage, as well as Medicare choices.

Like a growing number of advisors, Walker thinks LTC insurance coverage is getting better, especially from insurers such as Genworth, John Hancock and MetLife. "It's less expensive, and they have a lot of benefits to keep you in your home, and everyone likes that better," the advisor says. "The other feature that works is shared care for couples. In the past they each had to buy policies, but with shared care you can purchase any period of coverage you want and share it. With the couples discount, the economics tend to be much better."

As another concession to possible liability, Walker offers LTC insurance to all his clients as part of their comprehensive life plans, and if they choose to self-insure instead, has them sign a waiver stating they've declined coverage.

Walker has worked extensively with Dan Taylor, a former planner in North Carolina who is at the cutting edge, incorporating comprehensive financial, life and health care into a planning model and charging separately for the services. Walker believes there is a strong market for what he terms "transition services." Such services, offered from a family office setting, give clients assistance with a host of life changes, including retirement, the sale or creation of businesses, caregiving and expert help and resources for aging parents. They dovetail nicely with advisory services, but are not one and the same and can be billed separately, Walker adds.

Taylor himself is leading a two-day, $7,500 seminar this month to help advisors design and structure their practices around a full-scale care model, in the manner suggested by Taylor's book: The Parent Care Solution ( "I think advisors are making a terrible mistake betting their business on an assets-under-management fee model, when it's a commodity that is shrinking," says Taylor, who will also launch an executive-style adult-day care facility in Charlotte, N.C., in November, which he is hoping to franchise nationwide.

Can advisors be more proactive up front in helping clients get a handle on their health and attendant costs? Grady Cash, a consultant and health and retirement expert, believes that not only should advisors tackle health more aggressively with new clients, but that they can also help clients zero in on wellness care. "What we want to do is raise client awareness and let them know there are costs associated with certain lifestyles, and that they do have more control over their health than they want to admit."

    To aid advisors, Cash, a former planner who is an honorary member of the FPA's health-care task force, is developing an assessment tool that will not only tell consumers what their likelihood of certain diseases and shorter life spans are, but what their out-of-pocket costs will be. The latter will be a first in the assessment world, one Cash hopes will motivate people to take corrective action when possible. "I think, given the state of the health-care industry, it's critical for folks to stay as healthy as possible for as long as possible, so if we can say, 'Your costs will be 200% higher, but there are things you can do to get healthier and reduce those expenses,' we'll be giving investors a true advantage."

Another tool of Cash's trade is, which is designed to provide a reality check to clients who think they will work long into their retirement to finance their health care. Realage is a Web site that-you guessed it-assesses investors' real ages based on a host of in-depth medical and family questions. "If they're 65 and believe they can work 15 more years, but tells them they have the health of an 80-year-old already, it's a wake-up call," the consultant says.

Where do consumers turn for care once they get these in-depth assessments? Cash suggests there will be a rise in "health-care coaches" who will be trained to discuss assessment findings and counsel consumers to tackle health-care issues with medical attention, drug management and changes in exercise, diet and lifestyle-an arena not many advisors may feel qualified to tackle or want the liability for discussing.

He is also a big advocate, as are other advisors, of sending clients to "executive physicians" who will do an in-depth series of diagnostic tests often not covered by insurance. "I tell people it will cost them about what they pay for a 60,000-mile tune up on their Lexus ($1,000 to $2,000)." The tests establish a baseline and help clients and their doctors discover and monitor any problems that may be uncovered. "It gives advisors, doctors and coaches the ability to qualify risks and raise client awareness, so that everyone knows what the variables are," Cash says.

Walker underwent an executive checkup himself, which to his surprise uncovered that he was a borderline Type 2 diabetic. "I made major changes to the way I exercise and eat and it's under control," says the advisor, who admits to being grateful for the wake-up call.

Having the facts is intrinsic to saving clients from adverse health insurance decisions as well, say a wide spectrum of planners. Don Whalen, president of Versailles Financial LLC in Alpharetta, Ga., says using a broker can help reduce a client's chance of being turned down for insurance, a decision that must be reported when applying for subsequent policies. "I don't sell insurance, but having a good broker is a mandatory part of building out your team. We had a client who had a diagnosis of depression, and the broker we use was able to steer him away from companies that discriminate against depressions and use exclusions to reduce coverage," Whalen says.

    A good insurance broker also can help clients buy coverage before they give up existing health insurance, as in the case of early retirement. "We don't like clients to wait. We want to see what coverage will cost up front. It goes into the equation of what their retirement is going to look like and cost," Whalen says.

When the FPA develops its national health-care database and online communities, it will be a resource for many planners, but for now advisors seem to be innovating as needed, especially in areas where they see the need.

Lauren Locker, president of Locker Financial Services in Little Falls, N.J., says that beyond her stock questions about money and goals she has asked clients for years, "Do you have any health issues?"

"We'll hear things like, 'I have a little heart issue.' We'll also ask what medications they're on, so if they start to get confused, we can try to assist them with medical care," she says.

With an aging client base, Locker is also asking clients entering their sixties if they will sign a general release form saying that "if we notice changes in them, we can contact a family member or friend. More and more, I'm starting to see clients who really need me to let family members know they're having some difficulty, so we're trying to be prepared," Locker says.