planning for health care in retirement - · pdf file10/10/2013 · planning for...

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Planning for Health

Care in Retirement

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Kevin McGarry, CIMA, CRPC

Director – Nationwide Retirement Institute

2 NFM-9512AO.13 (02/14) FOR BROKER/DEALER USE ONLY—NOT FOR USE WITH THE PUBLIC

Nationwide InstituteSM Mission Providing practical thought leadership on Retirement

Income Planning, allowing advisors to differentiate

themselves from their competition.

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The Nationwide Institute

• Retirement Strategies

• Sponsored Research

• Educational Presentations

• Knowledgeable Professionals

• Intuitive Tools

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SM


Agenda

• The Retirement Income Challenge

• The Health Care Opportunity

• Understanding Health Care

• Creating a Plan to Address Health

Care Costs

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Important things to keep in mind

The following slides discuss annuities and living benefit riders. When evaluating the purchase of a variable annuity,

your clients should be aware that variable annuities are long-term investment vehicles designed for retirement

purposes and will fluctuate in value; annuities have limitations; and investing involves market risk, including possible

loss of principal.

A guaranteed minimum withdrawal benefit is an optional rider that is available on certain variable annuity contracts for

an additional fee.

Both the product prospectus and underlying fund prospectuses can be obtained by writing to Nationwide

Life Insurance Company, P.O. Box 182021, Columbus, OH 43218-2021. Carefully consider the fund’s

investment objectives, risks, charges and expenses.

All guarantees and protections, where available, are subject to the claims-paying ability of Nationwide Life Insurance

Company. And, while they do not guarantee the actual performance of the variable accounts, they do offer a level of

protection against investment loss.

The data presented in this presentation are hypothetical and may not be used to project or predict actual

performance. The income benefit base is calculated based on no withdrawals and does not include any fees

assessed. Your clients’ experience may be different and investment results may be higher or lower, depending on the

options chosen, fees and expenses. Does not include any up-market performance. These results are not reflective of

any gains in the market and are assuming guaranteed interest amounts provided by the products used as examples

in the case studies.

Nationwide, Nationwide Financial, the Nationwide framemark, Nationwide Institute, INCOME Promise Select, The

Nationwide Lifetime Income Rider, Nationwide Platinum V, Nationwide Income Architect,

and Nationwide YourLife are service marks of Nationwide Mutual Insurance Company.

America's marketFLEX is a service mark of Nationwide Life Insurance Company.

© 2014 Nationwide Financial Services, Inc. All rights reserved.

• Not a deposit • Not FDIC or NCUSIF insured • Not guaranteed by the institution

• Not insured by any federal government agency • May lose value

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The Retirement

Income Challenge

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The Retirement Income Challenge

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Percentage of Private-Sector Workers Employed By Establishments

Offering Health Insurance to Retirees, 1997–2011

Source: Employment-Based Retiree Health Benefits: Trends in Access and Coverage, 1997‒2011.

EBRI. October 2012. No. 377.


79% have

underestimated,

or don’t know their

medical costs

The Retirement Income Challenge

Nationwide Survey “Health Care Costs in Retirement.” Consumer study of 625 respondents, January 2012.

8%

13%

25%

12%

16%

26%

$10,000:

$6,000 to $9,999:

$3,000 to $5,999:

$1,500 to $2,999:

$0 to $1,499:

Don’t Know:

Consumer Estimate of Annual Health Care Costs in Retirement

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The Health Care

Opportunity

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The Health Care Opportunity

• Managing the cost of health care is one of

the most complex issues facing society

• Will likely be among your client’s greatest

expenses in retirement

“Fidelity Investments Estimates Couples Retiring in 2013 Will Need $220,000 to Pay Medical Expenses

In Retirement.” Fidelity Annual Survey of Retiree Health Care Costs. 2013.

Fronstin, Paul. "Savings Needed to Fund Health Insurance and Health Care Expenses in Retirement:

Findings from a Simulation Model | EBRI." Employee Benefit Research Institute | EBRI. May 2008.

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1 Merrill Lynch Affluent Insights Quarterly survey, 2012. 2 “Average Annual Expenditures and Characteristics,” Consumer Expenditure Survey, 2012,

Bureau of Labor Statistics. (Percentage of total expenditure for 75+ year olds). 3 National Health Expenditure Projections, 2012–22: Slow Growth Until Coverage Expands and

Economy Improves. Health Affairs. September 2013.

Affluent Americans identify health care

costs as their top financial concern for

retirement1

Projected annual growth in health

care spending through 20223 5.8%

77%

Expense in retirement – second only to

housing when it comes to the major

expenses in retirement2

2nd largest

Health care is an important concern:

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4 Nationwide Survey “Health Care Costs in Retirement.” Consumer study of 625 respondents , January 2012. 5 Survey conducted via telephone to 376 respondents March 4–14, 2010, by Infogroup/ORC of Princeton, N.J. 6 Helping Clients Plan for Healthcare Costs in Retirement, FA Strategy Guide,

Merrill Lynch Wealth Management, Bank of America Corporation, 2010.

Are unable to accurately estimate

health care costs in retirement4

Would like to discuss health care with a financial advisor6 45%

79%

Plan to seek out health care information

with a year5 Nearly 2/3

Consumers want help:

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Advisors’

self-rating7

Medicare and other Health Care Programs

19%

Percent very capable discussing client

retirement needs in the areas of…

84%

65%

Retirement Income Overall

Guaranteed Income Sources

7 GCD Research and Practical Perspectives – Retirement Income Insights 2013.

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Understanding

Health Care

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45% 32%

23%

Health care expenses

Premiums for

Medicare,

Part B & D Medicare

cost-sharing

provisions

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Understanding Health Care

Out-of-pocket

prescription drug

expenses

8 Savings Needed for Medigap Premiums, Medicare Part B Premiums, Medicare Part D Premiums and Out-

of-Pocket Drug Expenses for Retirement at Age 65 in 2013. Assuming a 90% chance of having enough

savings. Source: Amount of Savings Needed for Health Expenses for People Eligible for Medicare: More

Rare Good News, by Paul Fronstin, Ph.D., Dallas Salisbury, and Jack VanDerhei, Ph.D., EBRI. October

2013.

$255,000 – $360,000: Out-of-pocket health care

expense estimate for

a 65-year-old couple8

16 NFM-9512AO.13 (02/14) FOR BROKER/DEALER USE ONLY—NOT FOR USE WITH THE PUBLIC 16


Option 2

Medicare

Advantage (Part C)

1. Hospitalization,

2. Medical

3. Rx (MA-PD)

OR

Option 1

Rx Coverage

Part D or GHI

Original Medicare

Part A and Part B

Secondary Insurance

GHI, MedSup

+

+


• Inpatient

Hospitalization

• Skilled Nursing

Facilities

• Home Health Care

• Hospice

11 Medicare.gov. Medicare 2013 & 2014 costs at a glance.

http://1.usa.gov/190ejwx.

Patient costs for an in-hospital stay

Days 1 - 60 $1,216 deductible

Days 61 - 90 $304 per day copay

Days 91 - 150 $608 per day copay

Days 150+ All costs

Option 1 – Medicare Part A: Hospital Insurance11

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• Doctors/Providers

• Preventive Benefits

• Durable Medical

Equipment

• Outpatient Services

Individual Pays

• Monthly premium (based on MAGI)

• $147 deductible

• 20% coinsurance on doctors’ services and

outpatient care

Option 1 – Medicare Part B: Medical Insurance12

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If Your Yearly Income in 2012 was: You Pay

Filed Individual Tax Return Filed Joint Tax Return

$85,000 or less $170,000 or less $104.90

$85,000 - $107,000 $170,000 - $214,000 $146.90

$107,000 - $160,000 $214,000 - $320,000 $209.80

$160,000 - $214,000 $320,000 - $428,000 $272.70

above $214,000 above $428,000 $335.70

Option 1 – Medicare Part B: Monthly Premiums13

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$310 Deductible Beneficiary pays 100% or $310

75% Medicare benefit (initial coverage)

Beneficiary pays $635 (25% or flat

co-pay amounts based on formulary)

100% No Medicare coverage in doughnut hole

Beneficiary pays 100% or $3,605 • 47.5% of the cost for brand name

medications

• 72.0% of the cost of generic

medications

95% Medicare benefit (catastrophic coverage)

Beneficiary pays 5% (min. co–pay)

$2.55 generic or $6.35 brand

The doughnut

hole is large

and expensive

$2,850 in total drug costs

$4,550 out-of-pocket reached

$6,765 in total drug costs

** Premiums vary by insurer

You pay

Medicare pays

Option 1 – Medicare Part D: Prescription Drug Coverage (2014)

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Source: Medicare and You, 2014. Medicare.gov


• Pay only after Original Medicare (Parts A & B)

• Flexibility to see any doctor who accepts Medicare

• Open Enrollment - 6 months beginning with Part B effective

date at age 65 or older

• Does not cover prescriptions

Option 1 – Medigap: Medicare supplemental insurance

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Medicare Part A

Monthly Annual

Medicare Part B

Medicare Part D

Medigap Policy

Total Per Person

Per Couple

$0 $0

$104.90 $1,258.8014

$39.90 $478.8015

$ 185.00 $ 2,220.0016

14 Medicare.gov. Medicare 2013 & 2014 costs at a glance. http://1.usa.gov/190ejwx. 15 Kaiser Family Foundation. "Medicare Part D: A First Look at Plan Offerings in 2014." October 10, 2013. Weighted average

premium for Medicare Part D Stand-Alone Prescription Drug Plans". 16 Medicare.gov. Median cost for Medigap Policy C in Columbus, Ohio. Ranges from $117 to $253.

$3,957.60

$7,915.20

$329.80

$659.60

Cost of Medicare Premiums:

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Creating a plan to address

Health Care costs

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• The Nationwide Financial Personalized

Health Care Cost Assessment

– Powered by calculations from one of the world’s

leading actuarial firms

– Provides a personalized estimate of possible

annual health care expenses

– Includes estimates for Medicare, out-of-pocket

and long-term care expenses

Start with a Health Care Cost Assessment

Determine individual health care costs

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Health Care Cost Assessment Client Fact Finder

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These projections are hypothetical in nature and are not meant to show actual projections of performance.

There is no guarantee an investor will experience these returns. The assumptions used are approximations

and are for illustrative purposes only; actual results will vary based on the product used.

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Case Study:

Retirement Plan Savings for Health Care

Client

• “Paul and Suzanne,” a 50-year-old couple

• They plan to retire at 67

• They are contributing $17,500 a year each to their plan

• They are concerned about health care costs

Goal

Develop a plan to save enough to help cover their health

care costs in retirement


• Average annual health care costs $ 21,381

• Per Month Costs $ 1,782

These projections are hypothetical in nature and are not meant to show actual projections of performance.

There is no guarantee an investor will experience these returns. The assumptions used are approximations

and are for illustrative purposes only; actual results will vary based on the product used.

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Case Study:


Paul and Suzanne run a Health Care Cost Assessment

. . .


Systematic Withdrawal

Annual Income Need $21,381

5%

Calculate balance needed to fund the plan

Balance Required $427,620

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Case Study:



Case Study:


Monthly

Investment Annual

Investment

Period to Invest

$990 $11,880

$495 $5,940

• Achieve goal of $427,620 to fund health care

• Each contribute $495 a month to get there in 17 years

Age 50 to 67

Total Per Person

Age 50 to 67

These projections are hypothetical in nature and are not meant to show actual projections of

performance. There is no guarantee an investor will experience these returns. The assumptions used

are approximations and are for illustrative purposes only; actual results will vary based on the product

used. Annual rate of return is projected to be 8%.

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Case Study:


• Begin catch-up contributions at age 50

These projections are hypothetical in nature and are not meant to show actual projections of

performance. There is no guarantee an investor will experience these returns. The assumptions used

are approximations and are for illustrative purposes only; actual results will vary based on the product

used. Annual rate of return is projected to be 8%.

Catch-Up

Contribution Combined Catch-

Up Contribution

Period to Invest

$5,500 $11,000

$197,907 $395,814

Age 50 to 67

Total Potential Savings

• $395,814 is 93% of the $427,620 needed to fund

Health Care


Summary:

• The Retirement Income Challenge

• The Health Care Opportunity

• Understanding Health Care

• Creating a Plan to Address Health Care Costs


Institute of Retirement Income

1. Regional Vice Presidents

2. Income Planning Desk

Phone: 1-877-245-0763

Fax: 1-614-435-1997

Email: [email protected]

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