One of the new realities of retirement is that health-care costs loom large for most retirees, especially since fewer companies are offering retiree health-care benefits.

Medicare premiums, deductibles and out-of-pocket costs are more expensive than many people realize, and these may climb higher as the country grapples with how to pay for the program as the baby boomers retire. Research by the Employee Benefits Research Institute estimates that a 65-year-old couple who retired in 2012 will need about $227,000 in order to have a 75 percent chance of covering their health-care expenses in retirement.1 

Yet, only 28 percent of seniors who work with a financial advisor discuss Medicare with their advisor, according to the Allsup Medicare Advisor® Seniors Survey: Seniors With Financial Planners, a national survey of 1,000 randomly selected seniors. This suggests a significant, untapped opportunity for advisors.

Your Clients Need Guidance, Before And After Retirement

As a financial advisor, you can offer valuable guidance to your current clients, and attract new ones, by helping them understand and prepare for the health-care costs they will face in retirement.

People approaching retirement may not have a realistic view of what their retirement health-care costs will be. A study of high-net-worth individuals, conducted by Harris Interactive for Nationwide Financial, found that three out of four people approaching retirement didn’t know what percentage of their health-care costs Medicare would cover.

When asked to estimate how much they think they will spend on health care each year in retirement, the respondents, on average, underestimated by almost 50 percent.2

Seniors, on the other hand, are feeling a sense of urgency about the issue. The Allsup Medicare Advisor Seniors Survey found that the No. 1 retirement concern of seniors is the future of Medicare. A Merrill Lynch survey of affluent Americans reports that 83 percent of those over age 65 cite health-care costs as their top concern.3 

Yet, the Allsup survey also uncovered that almost 70 percent of seniors did not make saving for health-care costs a part of their financial planning for retirement. The survey also found that, of those who did save for health-care costs, 40 percent did not know how much they had saved and 47 percent had saved less than $200,000.4

Prepare Your Pre-retirement Clients For What To Expect With Medicare

It’s vital that your clients save specifically for health care as an integrated part of their retirement planning. Your clients may need to be educated that, even with Medicare coverage, their health-care expenses in retirement may be substantial.

If you have clients who were born in 1948, 1949 or 1950, now is the time to get them ready to make decisions about their Medicare coverage.

If these clients receive health insurance through an employer, they may not appreciate how much more complex Medicare will be. They may be accustomed to choosing among two or three prescreened coverage options. With Medicare, they’ll have to navigate an intricate set of enrollment rules, an unfamiliar cost-sharing structure and dozens of coverage options.

Each client’s individual circumstances will affect the decisions they should make about Medicare when they turn 65. Will the client continue to work after age 65? Will they continue to have access to employer-sponsored insurance? If so, they need to consider when it makes the most sense to sign up for Medicare Part B. A goal should be to avoid paying for more coverage than they need while also steering clear of late-enrollment penalties and protecting their Medigap open enrollment period. If they will have a retiree health plan, how will these benefits coordinate with their Medicare coverage? Do they have a spouse or dependent who relies on their coverage?

Your pre-retirement clients may find significant value in this type of guidance. More than one-half of the high-net-worth respondents in the Nationwide study said they would be more likely to stay with their current financial advisor if the advisor could help them plan for health-care costs in retirement, including the role of Medicare.

Medicare Planning Is Asset Protection

For your clients who are enrolled in Medicare already, you’ll want to examine whether they are paying more for their coverage than they should be. A study conducted at the University of Pittsburgh found that 95 percent of seniors with Medicare Part D drug plans overspend on their coverage, failing to find and enroll in the plan that meets their medication needs at the lowest cost.5 

It’s no wonder that seniors find it difficult to make the most cost-effective decisions about their Medicare coverage. Medicare presents beneficiaries with a complicated decision tree. They must decide which path to take -- traditional Medicare (usually with Part D and a Medigap supplement plan) or Medicare Advantage. Then, with either path, they must choose from among dozens of plan options. Even one-third of physicians can’t pick the most cost-effective Medicare plan when they have numerous plans from which to choose, according to study findings published in Health Psychology.6

A senior who makes a less-than-optimal choice of Medicare coverage can end up paying hundreds, or even thousands, of dollars in extra out-of-pocket costs over the course of a year. By selecting the appropriate coverage and actively managing costs, your clients can protect their retirement savings.

Make Health-Care Planning Part Of Your Client’s Annual Financial Review

Just as you periodically rebalance your client’s investment portfolio, it’s important to advise your clients to review their Medicare coverage every year. Plans change from year to year, as do health-care needs. A Medicare plan that worked well one year may not provide the best, most cost-effective coverage for your client the next year.

The approach to Medicare planning can be similar to the way an advisor and client make investment decisions. Assess your client’s healthcare needs and budget and offer guidance on how their coverage decisions may affect their annual costs and retirement savings.

The Allsup Medicare Advisor Seniors Survey found that 71 percent of seniors with financial advisors said they plan to review their income and expenses in the next 12 months, but only 58 percent plan to review their healthcare needs in this timeframe. You can provide a valuable service to your current clients, and grow your client base, by making healthcare costs a key component of your clients’ financial plan and retirement savings strategy.

Mary Dale Walters is senior vice president of Allsup and the Allsup Medicare Advisor®, a nationwide Medicare plan selection service that helps financial advisors ensure their clients choose the Medicare coverage that best matches their needs and preferences. Allsup Medicare Advisor® is an unbiased Medicare plan selection service that serves as a trusted resource for financial advisors and seniors. Allsup Medicare specialists can work with your clients one-on-one to assess their needs, research their Medicare options and help them choose cost-effective coverage that protects their health and their retirement savings. Financial advisors may contact (888) 220-9678 or go to for more information.

1Employee Benefit Research Institute, Notes, Vol. 33, No. 10, October 2012: 2-7.
  2Harris Interactive, Healthcare Costs in Retirement Consumer Study, February 2012 ; “Study: Nearly half of soon-to-be-retired, high-net-worth Americans ‘terrified’ of health care costs in retirement,” Nationwide Financial press release, May 7, 2012.
  3Merrill Lynch Global Wealth Management Affluent Insights Survey, September 2012.
  4Allsup, Allsup Medicare Advisor® Seniors Survey: Medicare Planning and Trends Among Seniors With Financial Planners, October 2012.
  5University of Pittsburgh, Chao Zhou and Yuting Zhang, “The Vast Majority of Medicare Part D Beneficiaries Still Don’t Choose the Cheapest Plans That Meet Their Medication Needs,” Health Affairs, Vol. 31, No. 10, October 2012: 2259-2265.
  6Hanoch Y, Miron-Shatz T, Cole H, Himmelstein M, Federman AD, “Choice, Numeracy, and Physicians-in-Training Performance: The Case of Medicare Part D,” Health Psychology, Vol. 29, No. 4, July 2010: 454-9.