Planning for Healthcare Costs: How Financial Advisers Can Guide Their Clients

An older couple laugh and smile as their financial adviser explains something. — (Image credit: Getty Images)

Healthcare planning can be one of the most important — and often overlooked — aspects of retirement preparation. With rising costs, longer life-spans and the compounding effects of inflation, financial advisers must help clients create robust plans that help secure their financial future.

Here’s a look at why this issue is pressing and some ways professionals can effectively guide clients through the challenges.

The rising tide of healthcare costs

Healthcare costs are escalating faster than many clients anticipate, posing a significant risk to retirement savings.

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A 65-year-old couple retiring today may need over $320,000 to cover healthcare expenses during their retirement — excluding long-term care, according to Fidelity Investments’ 2024 Retiree Health Care Cost Estimate.
Data from the Kaiser Family Foundation confirms that medical costs will increase at an average annual rate of 5% from 2027 to 2032.

Financial advisers should consider addressing these figures with clients to set realistic expectations for retirement budgets and help avoid unpleasant surprises later.

Longer life-spans increase financial pressure

With advances in healthcare and improved living conditions, people are living longer than before, which is both a blessing and a challenge.

According to the Social Security Administration, the average life expectancy for a man reaching age 65 on April 1, 2024, is 84.2 years. For women, it’s 86.8 years.
These extra years often come with rising healthcare requirements, including increased prescription medication usage, regular treatments and chronic condition management.

For financial planners, helping clients stretch their retirement savings and account for potential medical needs in their 80s and 90s is an important part of the planning process.

The inflation factor

Inflation compounds the problem by quietly chipping away at the future purchasing power of retirement savings. Even at a modest 2% to 3% average annual inflation rate, retirees could see their healthcare spending double over the course of 20-25 years.

Moreover, healthcare inflation has historically outpaced general inflation, making it important for financial professionals to use conservative estimates when projecting future costs.

Strategies to help mitigate healthcare costs during retirement

To help clients mitigate healthcare expenses, financial professionals can take a proactive and strategic approach. Here are a few actionable steps to help guide your clients effectively:

1. Educate clients on Medicare and its gaps

Medicare is a valuable resource, but it doesn’t cover everything. Many clients — including those nearing retirement — may not fully understand the costs and limitations involved.

Medicare typically covers hospital visits, basic outpatient care and some prescriptions but excludes most long-term care and dental expenses. In many cases, it may be beneficial to encourage clients to evaluate supplemental insurance options like Medigap or Medicare Advantage to help bridge coverage gaps and cap out-of-pocket spending.

2. Encourage early long-term care planning

Long-term care is a significant but often overlooked cost in retirement. Longer life expectancies can mean additional long-term care expenses, with costs for private nursing homes exceeding $100,000 annually in many areas, according to Genworth’s 2023 Cost of Care Survey.

Consider recommending long-term care insurance or hybrid life insurance policies with long-term care riders to help protect clients’ assets.

3. Promote health savings accounts (HSAs)

For pre-retirement clients, HSAs are a tax-efficient way to help save for future medical costs.

Contributions to HSAs are tax-deductible, grow tax-free and can be withdrawn tax-free for qualified health expenses. Encouraging clients to invest aggressively in their HSAs while they are employed may help ensure they have dedicated funds available during retirement.

4. Consider guaranteed income options

Products such as annuities can provide lifetime income that offsets the steady rise in medical costs. Fixed-indexed annuities, for example, offer growth potential with protection from market downturns and can safeguard retirees’ most critical expenses.

Discuss the suitability of such products with clients based on their risk tolerance and financial goals.

5. Use tools to estimate future costs

Leverage technology to provide clients with clear, data-driven projections. Healthcare calculators or proprietary software can help estimate how inflation and life expectancy might impact costs over time. Transparency in illustrating these numbers can help guide more informed decisions.

The financial professional’s call to action

I believe planning for healthcare costs is no longer optional — it’s essential. Rising medical expenses, increasing longevity and inflation require proactive approaches to help safeguard retirement assets.

By staying informed about Medicare and other issues and educating clients through workshops, blogs or newsletters, financial professionals can help clients avoid common healthcare pitfalls such as:

Underestimating costs
Unexpected medical events (surgeries, accidents or chronic illnesses)
Outliving savings

Talk to your clients today about healthcare planning and help ensure they’re on a path to a secure, confident retirement. It’s never too early to plan.

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Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Jake Klima has dedicated 18 years to the financial services industry, focusing on coaching elite financial advisers. In his leadership role at Advisors Excel, a market-leading financial services wholesaler, Jake partners with top-performing advisers to help them enhance their practices and build thriving businesses. Leading a coaching team of over 100 members, Jake emphasizes transforming advisory firms into scalable businesses that offer time freedom.