Most investors think the greatest risk to their retirement portfolio is the stock market. As such, many of us have a myopic focus on returns, performance and investment risk. But are we ignoring a far greater risk—our health care burden?
Let’s say you have amassed $1 million in savings toward your retirement. If faced with another stock market decline similar to 2008-2009 (year-over-year decline of 38% on the S&P 500 Index) or the cost of meeting your lifetime Medicare premiums, which has more risk?
The 2017 Retirement Health Care Costs Data Report, put together by Health View Services, a data resource for financial advisors, reveals that the total retirement health care costs for a 65-year-old-couple retiring this year is $404,253. And that is in today’s dollars, which does not account for the medical inflation rate of 6%.
These lifetime premiums include Medicare Parts B, D, supplanted insurance, dental, vision, hearing, plus deductibles, copays and any other out-of-pocket costs. It is a conservative number because the 6% medical inflation rate does not include a variety of additional medical costs that the typical person would pay. Just to be sure, I asked my partner Zack Marcotte, who just loves to crunch numbers, to figure out my health costs. My lifetime bill tallies up to be $420, 696. Now, let’s look at market risk.
You would have incurred a $380,000 stock market loss in the financial crisis, if you were fully invested in equities and took no action. Remember, too, that the 2008-2009 periods was the worst stock market loss since the 1929 crash. Many believe that the risk of another financial crisis like that occurring again in your lifetime is minimal. The healthcare risk, on the other hand, is a certainty.
And yet, time after time, when prospective clients come in to see me, they ask about asset allocation risk, how much income they can take out of their portfolio per year, and whether or not they can live out the remainder of their life on the assets they have accumulated. They want to know how I will protect their money if another financial crisis were to occur but rarely, if ever, will they even mention healthcare. That is despite the fact that many elderly potential clients already suffer from multiple physical ailments.
Over the past few months, I have written several columns on healthcare. I know that the present battle over the nation’s healthcare system has been a newsworthy topic, but that is not why I keep focusing on the subject. I am convinced that rising health care costs, particularly as we Americans continue to live longer, have become an overriding concern and a pivotal point in your retirement planning. From Medigap options, to long-term care and other hybrid insurance policies, to planning explicitly to protect yourself from the financial costs of a physically disabling event; all of the above should be at the top of your financial planning lists. For most, they are not.