Retirement Health Care Incorporate Health Care Cost into Retirement Planning Ted Denbow - VP Head of Sales

Planning healthcare costs in retirement It is estimated that an average, healthy 65-year-old couple will need $245,000 to pay for medical expenses for the remainder of their lives. This does not include long-term care costs* 2nd largest expense in retirement** Medicare only covers about half of healthcare costs in retirement*** *Fidelity Investments retiree health costs estimate, 2015. Healthcare and nursing home costs may vary by state. ** Take Control of Your 6 Biggest Retirement Expenses,” U.S. News & World Report, August 2015 *** U.S. News & World Report, Take control of your 6 biggest retirement expenses, August 2016

A Hospital insurance B Medical insurance C Medicare Advantage Medicare program A Hospital insurance B Medical insurance C Medicare Advantage D Prescription drug Many people are under the impression that Medicare will cover most of their healthcare costs during retirement. But the fact is, Medicare only covers about half of healthcare costs in retirement. [Source: U.S. News & World Report, Take control of your 6 biggest retirement expenses, August 2016]

Part A Deductible and Coinsurance Amounts A Hospital insurance Medicare part A Provides hospital coverage Medicare part A has no out of pocket premium, but Part A Deductible and Coinsurance Amounts Day 1 to 60 $1,288 -Inpatient hospital deductible Day 61 to 90 $322 per day coinsurance Day to 90+ $644 per day coinsurance for lifetime reserve days 90-day hospital stay could cost $10,948 Source: https://www.cms.gov/Newsroom/MediaReleaseDatabase/Press-releases/2015-Press-releases-items/2015-11-10.html

File Individual Tax Return B Medical Insurance Medicare part B provides non-hospital medical coverage except vision, dental Annual deductible $166 20% coinsurance on doctor’s services and outpatient care Monthly premium based on AGI File Individual Tax Return File Joint Tax Return Monthly premium $85,000 or less $170,000 or less $121.80 above $85,001 up to $107,000 above $170,001 up to $214,000 $170.50 above $107,001 up to $160,000 above $214,001 up to $320,000 $243.60 above $160,001 up to $214,000 above $320,001 up to $428,000 $316.70 above $214,000 above $428,000 $389.80 Source: https://www.cms.gov/Newsroom/MediaReleaseDatabase/Press-releases/2015-Press-releases-items/2015-11-10.html

C Medicare Advantage A type of Medicare health plan offered by a private company that contracts with Medicare. Provide all Part A and Part B benefits. Medicare Advantage plan may include Vision, Dental, Hearing coverage. Medicare Advantage Plans include HMO, PPO, Private Fee-for-Service Plans, Special Needs Plans, and Medicare Medical Savings Account Plans.

Coverage Gap “Donut Hole” ($4,850 total out-of-pocket) D Prescription Drug Average Medicare Part D monthly premium is $41.46* First $3,310 of Drug Costs Annual $360 deductible Beneficiary pays 25% of the rest or $737.50 Coverage Gap “Donut Hole” Next $3,752.50 of Drug Costs Beneficiary pays 100% of out-of-pocket expenses ACA drug discounts: Name brand 55% Generic 42% After $7,062.50 of Drug Costs ($4,850 total out-of-pocket) Beneficiary pays greater of 5% of costs, or $2.95/generic $7.40/brand name Medicare pays the balance of costs Total out-of-pocket threshold is $4,850 Source: https://www.cms.gov/Newsroom/MediaReleaseDatabase/Press-releases/2015-Press-releases-items/2015-11-10.html

Example of estimated annual health care cost Category Cost items Annual Cost Medicare Premium Part A premium $0 Part B premium $1,464 Part D premium $497 MediGap plan F premium $2,400 Out of Pocket Out of Pocket for dental/vision/other $1,000 Total $5,361

Medicare Decisions Option 1 Option 2 Sign up Original Medicare Part A/B Sign up Part D if you need Prescription drug Do you need MediGap Policy? Option 1 Sign up Medicare Advantage Sign up Part D if not included in Medicare Advantage(most do) No Need for MediGap Policy Option 2 Our next Medicare webinar helps you with considerations on choosing option for your clients.

Women need care longer (3.7 years) than men (2.2 years)** Long term care cost Someone turning age 65 today has almost a 70% chance of needing some type of Long Term Care Services and supports in their remaining years * Women need care longer (3.7 years) than men (2.2 years)** Average $74,820 per year for nursing home. $39,516 per year for assist living *** $374,000 nursing home cost w/ 2 yr for male and 3yr for female * http://longtermcare.gov/the-basics/how-much-care-will-you-need/ ** http://longtermcare.gov/the-basics/how-much-care-will-you-need/ *** http://longtermcare.gov/costs-how-to-pay/costs-of-care/

Long term care cost Almost 37% will spend more than $50,000 on long-term care More than 25% will spend more than $100,000 More than 15% will spend $250,000 or more Expected LTC costs from age 65 to death for those turning 65 in 2015 – 2019 (thousands)** Sources: * National Clearinghouse for Long Term Care Information, U.S. Department of Health & Human Services ** NAIC State of the Market May 2016, citing U.S. Department of Health and Human Services

Case Study: Not planning for health care in retirement can be costly

Case Study: Meet the Brady's Mike and Amanda: Married Current ages: 56/54 Target retirement age: 65/65 Salary: $200,000/ $50,000 Social Security: 70 Monthly expenses in retirement: $9,000 Invested assets: $ 1.0mm qualified $ 100,000 non qualified

The Brady's have not considered retirement health care costs Target retirement age: 65/65 Target retirement expense of $9,000 per month Brady has not considered any health care related expense or long term care expense.

Retirement health care significantly impacts their plan Target retirement age: 65/65 Retirement expense of $9,000 per month Annual retirement heath care: $5,328* Two year of long term care: $41,440 Health inflation of 5% per year Fidelity’s retirement health care study indicates an national average out of pocket annual cost of $5,328 for retirees on Medicare. Genworth Long Term Care study indicates national average annual long term care cost for home care cost of $41,440.

Making proper adjustments to bring the client back on track Delay retirement by two years to age 67 Reduce retirement expense from $9,000 to $8,500 Save $500 more per month today Annual retirement heath care: $5,328 Two year of long term care: $41,440 Health inflation of 5% per year

Take Aways Take Aways Health care cost is the 2nd largest expense in retirement Medicare covers about half of the cost Very important to consider retirement health care costs Send us your CFP Board ID before end of day for your CPF CE Book a demo at www.rightcapital.com