(Seeking Alpha) Peter Stahl of Bedrock Business Results is a consultant that financial advisors turn to in order to help their clients address the retirement health care challenge, and one of the speakers at this week’s annual Schwab Impact event for financial professionals. Below he shares some of his thoughts on issues such as the importance of building accurate health care costs into financial portfolios and the value of using Health Savings Accounts and Roth IRAs as savings tools.
Seeking Alpha: For perspective, let’s start with some key numbers: How much will an average couple pay for health care during retirement?
Peter Stahl: A couple retiring in 2018 should budget approximately $13,500 per year for routine health care. At a 5.1% inflation rate, that would equate to $450,000 over a 20-year retirement. A healthy couple would spend less, but a wealthy couple will spend more. This estimate does not include custodial care costs.
Well, then, how can financial advisors, or independent investors, cope with this challenge of funding health care in retirement? And what would you say to those who assume that Medicare will take care of most of their health care expenses?
We need to recognize that health care will be our largest retirement expenditure and get serious about investing for it. Health Savings Accounts and the Roth IRA / 401(k) provide excellent vehicles to do so. Medicare, even as it exists today, is not free. It has means-tested premiums. The cost to the consumer and the means testing will accelerate as Medicare is on a path to fiscal insolvency. In addition, more investors need to work with their advisors to incorporate custodial care products into their financial plan.
What are the key investing strategies that will help pre-retirees maximize their retirement health care funding, and what are the key dollar-stretching strategies that will help them keep costs down?
Build sources of tax free retirement income in Roths, HSAs and tax-deferred annuities. Make wise choices about when you should transition from company-provided group health insurance to Medicare. For those who cannot afford the most robust Medicare coverage, consider a Medicare Advantage plan to reduce costs by receiving care within a specific network of health care providers.
Should the outsized impact of health care costs on retirement change the way we think about retirement planning in general?
Yes. Stop spending money from your HSA and get it invested for retirement. Fund Roth IRAs and Roth 401(k)s and incorporate a long-term care insurance policy or asset-based solution into your financial plan.