Barron’s recently gathered a panel of experts to discuss the issues retired people need to think about, from finances to the emotional aspects that go into planning a satisfying retirement. This story has some helpful tips.
Barron’s: What are the insurance needs for retirees?
Kathleen Weber (Leads the Weber Nagan Group at Morgan Stanley):
Once someone turns 65, they need to register for Medicare, even if they’re still working. If they don’t, they’ll pay a penalty in the form of higher monthly premiums for the rest of their life. If they’re no longer working, they’ll also need a Medigap policy. Medigap policies, which cover some costs Medicare doesn’t, such as copayments, coinsurance, and deductibles, are regulated on a state basis; different states have different choices. Getting the right Medigap policy for the client’s lifestyle is important.
Geri Eisenman Pell (Pell Wealth Partners, an Ameriprise franchise):
There’s also Part D, for prescription drug plans. People should make a list of the medications they take, talk to their doctor or pharmacist and see which plan is the most appropriate for them. The drug prices are surprisingly different on different plans.
Barron’s: Beyond Medicare, what health-care options do you recommend?
Pell: I have a lot of clients using concierge plans. For about $1,800 a year in Florida, maybe $2,500 a year in New York, you get access to your physician 24/7/365. They gather all of your information, so they see your entire picture.
Every appointment is an hour; there’s no rushing. It includes a much more thorough physical. And you can contact your doctor by e-mail or phone whenever you need. I paid for a concierge physician for my mother before she passed away, because I thought she needed that coordinated care, and I knew I could talk to her doctor at 4 o’clock on a Saturday afternoon, instead of missing her call when I was working.
Weber: The reason there is demand for concierge medicine is because, in the past, physicians were not paid for time spent e-mailing. That was not a billable transaction; an office visit is. Boomers are driving innovation in this area, as well as others like in nursing homes. They don’t want to be warehoused.
Pell: I read a fascinating article about a group of friends that got together, bought some property in Colorado, built condos in a circle and had one reserved for a nurse to live in, that they all chipped in to pay for. More of that sort of innovation is going to happen with friends, extended families.
Barron’s: That brings us to one of the most confusing aspects of health and wealth planning — whether or not to buy long-term care insurance.
Weber: There are two kinds of long-term care. The first is a use-it-or-lose-it, where you pay an annual premium for a specific amount of care. If you never need long-term care, the money is just gone. Also, the insurer can raise the premium over the years, as long as the company raises it for everybody with that kind of policy in your state.
Debra Brede: (Runs the firm D.K. Brede Investment Management):
These policies typically cost $6,000 a year for a healthy 59-year-old, for a pool of $328,000 that can be put towards long-term care, with a maximum of $300 per day.
Barron’s: That sounds pretty straightforward. What’s the second kind?
Weber: The other kind is a hybrid product. You pay an initial lump sum for a certain amount of care later. There are no further annual payments. In a typical scenario, you can get your principal back after a period of time, or your heirs can get two times your principal if you die without using the insurance, or you could get five times that amount in long-term care benefits.
Barron’s: When should people start thinking about long-term care insurance? Their 40s? 50s?
Brede: Their 50th birthday is when I start talking to them about it.
Sharon Oberlander: (Leads Merrill Lynch’s the Oberlander Group):
And the conversation can take years to make a decision.
Pell: When people are in their 50s and 60s, and can afford the premium and not have it change their lifestyle at all, then long-term care insurance is usually a no-brainer.
Barron’s: So the options are to pay an annual premium, which can be increased without notice, for decades, or to carve out a large chunk of your portfolio, with benefits that aren’t adjusted for inflation, all while people are still saving for retirement. That’s a lot to ask.
Brede: You can also get a hybrid policy that has inflation protection. In the same example, 3% inflation protection is an option, but then you start out with only $180 a day maximum coverage, rather than $300. The first example gives me the most coverage, and is a better deal if I need it between age 59 and 82. But if I don’t need the coverage until I’m 90, the inflation protection is a better deal, because it will give me a lot more total coverage.
Barron’s: Should couples get a joint policy?
Pell: Yes, you get a big discount when you insure together, usually between 10% and 20% less than the price of two separate policies. And you don’t have to be married, just living together.
Brede: A joint policy could cover six years for both people, rather than two three-year policies. But if the first spouse needs five years of care, the second spouse would only have one covered. But it’s usually the first one that causes the biggest takedown in finances; the second spouse would then have more saved.
Barron’s: What’s the downside to long-term care insurance?
Weber: The universe of companies has changed — 20 years ago there were all kinds of long-term care policies. Now we’re down to four companies that sell it. Insurers were surprised at the number of claims.
Barron’s: Do you tend to use the hybrid product or the use-it-or-lose-it version of long-term care insurance?
Oberlander: The hybrid has more appeal to people because everyone thinks they are never going to use it. People are very optimistic about their health, and they hate this idea that they are going to be paying, paying, paying a premium for maybe 30 years.
Pell: Exactly, even though we all pay homeowner’s insurance every year, and I don’t think I’m going to get robbed.
Read the story here.