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Another look at the $240,000 health care cost in retirement number

August 13, 2012 By Leave a Comment

There has been a lot of talk about Fidelity’s $240,000 healthcare-expense-in-retirement estimation.  I tried to examine it from an unbiased perspective and came to two distinct possibilities:

 

1)      Fidelity has solved the healthcare crisis, or

2)      We need to step back and rethink the number.

 

Let’s look at an example of a 30-year-old working today.  Let’s call him Phil.  Phil Delity.

 

Phil is working for a large company that has provided him with a fair benefits package.  He can expect to pay roughly $215 per month for his premiums, or about 25% of the total, with the employer picking up the remaining 75%.

 

Projecting for the year, Phil will pay a total of $2,580, while his employer will cover the remaining $7,594, so his yearly premium will cost roughly around $10,200.  This seems to be a fairly accurate assessment according to a 2011report from the Houston Business Journal, which used AON Hewitt data to peg total healthcare costs per employee at $10,770 annually, while Milliman pegs a family’s healthcare costs to exceed over $20,000 in 2012.

 

So if Phil stays with the company until he is 50 and incurs approximately $10,000 in healthcare cares costs per year, his total coverage costs should slightly exceed $200,000. (This does NOT take inflation into account.)

 

Still with me?

 

Now Fidelity has led the financial industry to believe that when Phil reaches 65, enrolls in Medicare with his spouse (Phil got married along the way), the two of them should only expect to pay $240,000 for their healthcare for the rest of their lives.

 

Now the question becomes: How does one healthy individual over a 20-year period pay roughly $200,000 for healthcare, but TWO elderly people who live to 80 —with additional variables such as increased medical testing, prescription drug dependency, and long-term care—expect to pay only $40,000 more in costs?  This figure also fails to take into account that Medicare is now means tested, which translates to the “more you earn, the more you pay.”

 

Either Fidelity wants everyone to believe that no one will live that long (so why bother even planning anyway) or they have figured out a way to lower health costs for everyone as they age.

 

I hope that I am not the only one baffled by this.

 

Now if we turn to Healthview Services, an industry leader healthcare cost planning, we will see, by using their revolutionary RetireMark Software, that a couple who is 65 today and only plans to live until age 80 can expect to incur $274,000 in retirement. This number changes drastically if the couple’s income ever exceeds $170,000, they move to a more expensive state, or they live to their actual life expectancy. (88 years for the male and 90 for the female, which will result in approximately $620,000 for their healthcare costs.)

 

Something just doesn’t add up, and unfortunately this misinformation will lead to erroneous planning in which the only real losers will be the clients.

Filed Under: Retirement Tagged With: , , , , , , , , , , ,

Impact of Medicare’s defintion of income on Defined Benefit Plans

August 6, 2012 By 1 Comment

Small business owners who have set up a defined benefit plan for themselves and/or key employees may NOT be helping themselves out at all, especially if it comes in the form of a lump sum at retirement and is not structured inside a life insurance product.

 

Why? You may ask…

 

Medicare is now means tested.

 

Translation?

 

Medicare is now using income in retirement to determine premiums for Parts B & D.   Unfortunately defined benefit plans aren’t looking as attractive as they used to since the income will count against beneficiaries in the eyes of Medicare.

 

For example, a 55-year-old who retires from a credible health plan at age 65, enrolls in Medicare when eligible, plans to live until age 85, and earns under $85k a year in income (as defined by Medicare) can expect to incur over $199,180 in costs to just cover Part B & D premiums – source Healthview Services.

Notice, however, what happens if this person sells a property and jumps into a higher income bracket:

Earnings Basic Healthcare Costs Difference
$85,000 – $107,000 $275, 819 38%
$107,000 – 160,000* $293,738 97%
$160,000-$214,000 $509,436 155%
Over $214,000 $626,483 214%

 

*Once an income bracket is reached, there is significant red tape to revert back to a lower bracket.  Many may remain at the highest level for the rest of their lives—even if total income eclipses a higher bracket for only one year.

 

According to Medicare, there are only five occasions when a bracket can be changed:

  •  You married, divorced, or became widowed;
  • You or your spouse stopped working or reduced your work hours;
  • You or your spouse lost income-producing property due to a disaster or other event beyond your control;
  • You or your spouse experienced a scheduled cessation, termination, or reorganization of an employer’s pension plan; or
  • You or your spouse received a settlement from an employer or former employer because of the employer’s closure, bankruptcy, or reorganization. 

 

Please note that Medicare defines income as the total of your adjusted gross income and tax-exempt interest income you may have. These are the amounts on lines 37 and 8b of IRS from 1040. Some examples of income are: wages, salaries, tips, taxable interest, certain dividends, business income, capital gains, and unemployment compensation, as well as annuities, Social Security payments and some pensions.  This includes all gains and dividends from investments, no matter what they are.  Even municipal bond dividends get added to total income.

 

What isn’t income?  Distributions from Roth IRA’s and cash values inside permanent life insurance policies.

 

Perhaps it’s time to redefine defined benefit plans or those that do receive them must realize that there are more than just taxes to contend with.

Filed Under: Medicare, Retirement Tagged With: , , , , ,

HVS Financial Launches the Most Comprehensive, Accurate Long-Term Care Calculator To Help Boomers Plan for LTC Costs in Retirement

May 17, 2012 By 2 Comments

HVS Financial Launches the Most Comprehensive, Accurate Long-Term Care Calculator To Help Boomers Plan for LTC Costs in Retirement

 

Danvers, Massachusetts (May 17, 2012) ~ It is an indisputable fact that healthcare expenses rise exponentially in the final two years of life, and the main source of these costs are assisted living facilities and nursing homes.  According to the Department of Health and Human Services, 70% of individuals over 65 will need some level of long-term care (but not everyone will qualify), and the average expenditures can range from $20,000 to $150,000 per year in out-of-pocket expenses.  Another significant problem is that these figures are based on today’s dollars, offering little in the way of long-term projections to help people plan for the future.

 

In an effort to provide financial institutions and advisors with more realistic calculations for long term care planning, HVS Financial recently added the industry’s most comprehensive and accurate long-term care cost projector to its RetireMark suite of retirement planning software tools.  The LTC cost projector offers an extensive range of calculations and reporting features including:

 

  • a forecast of when a person is most likely to need long term care
  • a projection of future costs based on expected length of nursing home or assisted living stay, residency, and health issues.

 

According to HVS Financial’s President and CEO Ron Mastrogiovanni, “Although Baby Boomers are beginning to educate themselves about the threat of rising healthcare costs in retirement, the proverbial elephant in the room is long term care,” he explained. “These costs could exceed three quarters of a million dollars for some people.  However, very few are actively planning for this event.  Our mission is to offer the most accurate, effective software planning tools that provide advisors with concrete data to help clients prepare for the tremendous impact of future LTC costs.”

 

While planning for the final two years of life may seem excessive to some, HVS Financial believes that there is growing concern that a lifetime of saving and hard work may go to LTC facilities, rather than children or other family members.  “We believe that with a little foresight and stable investments, nobody has to lose his/her lifetime savings—assets that could be passed down to devoted family members—to a hospital, nursing home, or LTC facility,” he concluded.

 

About HVS Financial (www.hvsfinancial.com)

HVS Financial is a software firm specializing in healthcare cost planning and health risk assessment tools and solutions. It is one of the only firms in the country that builds solutions that address healthcare and long-term care costs individuals will face during retirement.

Filed Under: Healthcare Tagged With: , , , , , , , , , ,

What do 97% of all retirees have in common?

May 15, 2012 By 2 Comments

Nationwide recently released its Survey on Healthcare Costs, and the most startling statistic—actually the very first statistic cited—was that of the retirees polled who were age 65 and older, 97% stated that they were enrolled in Medicare.

 

How many human-related activities can be measured at 97%?  Do 97% of Americans finish high school?  Have a bank account?  Get regular haircuts?

 

NINETY SEVEN PERCENT. 

 

Despite the fact that more than nine-tenths of Americans will eventually subscribe to Medicare, most financial plans never address what it actually costs. 

 

Ultimately it ends up being an afterthought—a line item in the expense column during the planning process.  This may be why the vast majority of Americans are under the false assumption that Medicare is actually free (or at least extremely affordable).  It is also why the financial services industry must address this variable as 78 million Boomers march to retirement.

 

97% of retirees deserve to know what their future holds:

 

Part A – No premium for those who qualify, but there are some hidden costs like deductibles and co-pays for services (For more on Part A, click here.)

Part B – a $99.90 monthly premium for those earning under the average amount plus other deductibles, co-pays, and excess charges (For more on Part B, click here.)

 

Part D (Drug Coverage) – Premiums (also based on income), deductibles, co-pays & other charges based on the terms & conditions of the insurance company selling the plan. (For more on Part D, click here.)

 

MediGap – This form of coverage takes care of the co-pays, deductibles, & excess charges of Parts A and B, but here are fairly high premiums. (For more on MediGap plans, click here)

 

Other Out of Pocket Expenses – Medicare does NOT cover dental, vision, hearing, podiatry, or routine exams/physicals. Medicare will only cover procedures after a beneficiary has been admitted as an inpatient to a hospital.

 

Medicare Advantage Plans – are administered by private insurance companies and must follow the rules & regulations of Medicare. They offer the same coverage as original Medicare (with the exception of a MediGap policy), but also provide opportunities to purchase coverage for non-Medicare services like dental, vision, hearing, podiatry, and routine physical exams.

 

These seemingly small monthly premiums may not seem like much, but factor in all of the additional out-of-pocket expenses—the co-pays, uncovered medications, eye exams—over the long-term, and the cost of simply staying alive can utterly consume the savings of unprepared retirees. 

 

A healthy 60-year-old couple earning less than $170,000 per year can expect to incur over $685,000, just in Medicare costs, through age 90.  If that same couple happens to make $1 more than the allotted $170,000, they can expect to pay over $825,000 over those same 25 years.

 

With projections of this magnitude likely to affect almost our entire population, one question begs to be answered:

 

How can industry professionals, whose sole purpose is to help people plan for retirement, ignore the greatest expense of 97% of their clients?

Filed Under: Medicare Tagged With: , , , , , , , , , , , , , , , ,

5 Myths of Medicare

May 14, 2012 By Leave a Comment

Myths of Medicare

1)      Myth; Medicare is free 

There is a misconception that Medicare is “free” once a person reaches the magical, worry-free age of 65. While Medicare is subsidized through payroll taxes (the rate is a total of 2.9%of total gross income paid by both employer & employee) there are still plenty of costs connected to the plan.  Unfortunately, not only do subscribers continue to pay as if they are working, they actually can expect to pay even more.

Fact – Medicare has several components; all have which have significant costs attached.  Even Part A, which is labeled as “free,” can have hidden fees, including deductibles, co-pays for service, and possible excess charges.

According to HVS Financial’s unique RetireMark Software—the only tool on the market that allows financial advisors to calculate their client’s health costs on an actuarial basis—an “average” 65-year-old couple retiring at age 65 & living to 90 should expect to incur about $650,000 in Medicare premiums alone.

A 55-year-old couple should expect to incur over $930,000 in costs for their healthcare premiums

 

2)      Myth; Medicare covers all of healthcare needs in retirement.

Fact – With original Medicare, little things like routine physicals in which diagnostic tests are run are NOT covered.

Fact – Medicare will only cover procedures that occur when the beneficiary is admitted as an inpatient to a hospital.  Because of this rule, services like routine dental, vision, hearing, exams, & podiatry are not covered at all; thus, a 65-year old couple can expect to incur over $310,000 in related costs over a 25-year retirement.

 

3)      Myth; Everybody pays the same.

Since the passing of the Affordable Care Act & the Modernization of Medicare Act, Parts B & D are now means-tested. 

Fact – For subscribers, this translates into the more you earn, the more you pay. 

The Medicare definition of income is “the total of your adjusted gross income and tax-exempt interest income you may have.  These are the amounts on lines 37 and 8b of IRS from 1040. Some examples of income are wages, salaries, tips, taxable interest, certain dividends, business income, capital gains, and unemployment compensation, as well as annuities, Social Security payments and some pensions.”

Fact – Not only is what you pay affected by income, but also state of residency.  Where you live may increase your out-of-pocket expenses by as much as 30%! (Keep in mind that Medicare Part D & MediGap plans are sold by private insurance companies that can charge what they want; supply and demand are factors.)

To give you an example from HVS RetireMark software, a 65-year-old couple earning less than the Medicare average, residing in California, will incur $529,000 in costs to cover Medicare Parts B, D, and a MediGap policy.

If they move to Florida, the cost will be $551,000.

If they move to Hawaii, the cost will be $415,000.

 

4)      Myth; There is a choice when it comes to Medicare.

The only choice comes if you purchase a Medicare Advantage Plan. These are constructed and sold by private insurance companies and they must meet the guidelines of Medicare. (They are also subsidized by Medicare, too.)

Fact – with the passing of the Affordable Care Act (ObamaCare) it has been ruled that a person receiving Social Security Benefits MUST also enroll into Medicare when they become eligible.

 

5)      Myth; Currently there is no way to calculate what these healthcare costs will be.

Fact – HVS Financial has designed a unique yet practical software platform that assists financial professionals in projecting their clients’ health care costs in retirement.

HVS RetireMark software was designed by financial professionals who have lived through these expenses firsthand. The company has partnered with the country’s leading actuarial firm and a board of medical physicians to provide much-needed healthcare-cost information to the financial services industry.      

Filed Under: Medicare Tagged With: , , , , , , , , ,

Type II Diabetes and Food Pyramid

April 23, 2012 By 1 Comment

Something that is sort of funny, the US Government came out with a “Food Pyramid” in 1992 and it highly recommended eating plenty of Breads & Grains along with encouraging plenty of Fruits & Vegetables (though the “Pyramid” has changed, it hasn’t changed that much).

Basically, the Government was and is encouraging citizens to eat about 11 to 20 servings of carbohydrates while only digesting 2 to 3 servings of protein while eschewing oils as much as possible.

 

This is where the funny part comes in, we have learned through science that carbohydrates, and we mean all carbohydrates, create glucose in the body when consumed.

How does this happen and why is this important?

Well we asked Mark Sisson of Marksdailyapple.com about Insulin & Carbohydrates and here is what he had to say;

“Every type of carbohydrate you eat is eventually converted to a simple form of sugar known as glucose, all the bread, pasta, cereal, potatoes, rice (stop me when you’ve had enough), fruit, dessert, candy, and sodas you eat and drink eventually wind up as glucose. While glucose is a fuel, it is actually quite toxic in excess amounts unless it is being burned inside your cells, so the body has evolved an elegant way of getting it out of the bloodstream quickly and storing it in those cells.

It does this by having the liver and the muscles store some of the excess glucose as glycogen. That’s the muscle fuel that aerobic exercise requires. Specialized beta cells in your pancreas sense the abundance of glucose in the bloodstream after a meal and secrete insulin, a peptide hormone whose job it is to allow glucose (and fats and amino acids) to gain access to the interior of muscle and liver cells.

But here’s the catch: once those cells are full, as they are almost all the time with inactive people, the rest of the glucose is converted to fat. Saturated fat.

Insulin was one of the first hormones to evolve in living things. Virtually all animals secrete insulin as a means of storing excess nutrients. It makes perfect sense that in a world where food was often scarce or non-existent for long periods of time, our bodies would become so incredibly efficient. How ironic, though, that it’s not fat that gets stored as fat – it’s sugar. And that’s where insulin insensitivity and this whole type 2 diabetes issue gets confusing for most people, including your very own government.”

So a diet high in carbohydrates plus a sedentary lifestyle will most likely lead to high glucose or insulin production in an individual, which can directly lead to Type II Diabetes.

Also, from Science Blogs, it has been reported that glucose may even be feeding all different types of cancers, to quote from the article “To put it briefly, many cancers (approximately 60-90%) favor glycolysis, even in the presence of adequate oxygen for oxidative phosphorylation, leading to a voracious appetite for glucose.”

 

As we can see from the chart, 1993 was a turning point for the explosion of Type II Diabetes, about the same time that the US Government put out the original “Food Pyramid”. Since then the number of people in the country with Type II Diabetes has just about tripled and there seems to be no end in sight.

And what did we get from the American Diabetes Association?

Their “Food Pyramid” without a whole lot of changes, actually it was identical to the US Government’s at first

Again we have plenty of Carbohydrates with very little protein which equates to a whole lot of glucose and what does that mean to you?

The higher risk of having Type II Diabetes especially if you happen to have a sedentary life style and that will lead to a whole lot of other financial issues in retirement.

Since then the ADA has distanced themselves from their “Food Pyramid” and has adopted the “Plate Method” where an individual will split their plate into 3 sections with two being equal & the third being the largest. The largest section is for “non starchy vegetables” then the other two are for starchy foods like pasta & bread and the last is for protein.

Once again, with their change, they are recommending a plate tilting towards more glucose & insulin with little protein and where will this all lead?

Just by looking to HealthView Services’ RetireMark software we can calculate what the out of pocket healthcare costs will be for a male & a female both ages of 55 who will retire at age 65, plan on living until age 100 while having Type II Diabetes.

For the male, he can expect to incur close to $1.6 million in health care costs in those 35 years

For the female, she can expect to incur close to $1.35 million in health care costs in the same time frame.

The wakeup call; Using the RetireMark software a user will see that Type II Diabetes is the most expensive disease state when a user out lives their actuarial life expectancy.

So as our population ages and the Baby Boomer generation increases their life expectancy (see a report from the CDC), the costs to treat Type II Diabetes will become their most expensive burden in retirement and this can all be stopped by just understanding carbohydrates, glucose, lack of activity and diet.

For more information please see;

www.Marksdailyapple.com

www.diabetes.org

Filed Under: Healthcare Tagged With: , , , , , , , , ,