In a recent client meeting to discuss retirement planning with a FRS retiree we reviewed the employer benefits designed to subsidize health care costs during retirement. The retirement benefit provides significant sums to my client, but was it enough to offset expected health and custodial care costs? What we found is Florida Retirement System (FRS) Pension Plan retirees face significant risks from uninsured health and custodial care costs. FRS retirees enrolled in the Pension Plan are protected from investment and longevity risks because the FRS assumes these risks. No matter what investment returns are realized by the FRS Pension Plan and no matter how long you live, FRS retirees will receive monthly pension payments, along with the Cost of Living Adjustments (COLA) they have vested. Nonetheless, FRS Retirees face statistically significant risks from health and custodial care costs which can outstrip your expected FRS pension plan and social security income. FRS Retirees should develop retirement plans which include expected health and custodial costs based on your individual age, health status, family medical history, gender and state of residence.
Medical Health Care Costs in Retirement
FRS Pension Plan Retirees receive monthly income based upon an average income/years of service formula and the survivorship/beneficiary election that is made. In addition, social security retirement income benefits should be included, as a part of the retirement income/expense analysis. According to HealthView Services: 2016 Retirement Health Care Costs Data Report©, which includes data from over 50 million medical health care cases, predicts health care cost inflation is expected to average 5.1% annually over the next 20 years. The report estimates that the total projected lifetime health care premiums (Medicare Parts B, D and supplemental insurance) for a healthy 65-year-old couple in 2016 is expected to be $288,400 in today’s dollars. The report details additional costs including out-of-pocket health costs such as deductibles, co-pays, hearing, vision, and dental care, resulting in total expected costs grow to $377,412 in today’s dollars. Furthermore, Medicare “means-testing” thresholds may be raised that which could lead to greater income-based surcharges. According to the report, in 2016, a 55-year-old retired couple can expect to spend over a lifetime up to 88% (57% for 66-year-old couple) of their pre-tax social security income benefits towards medical health care costs.
Custodial Health Care Costs in Retirement
Custodial health care costs are not covered by Medicare (except first 60 days) for services including assistance with activities of daily living (ADLs) such as, bathing, dressing, eating, getting in or out of bed or a chair and moving around, are not covered by Medicare. According to the Genworth 2015: Cost of Care Survey, “At least 70% of people over the age of 65 will require some form of long care services and support during their lives.” The Genworth survey includes data from over 15,000 surveys from nursing homes, assisted living facilities, adult day care facilities and home care providers. The current annual costs of custodial care in the State of Florida during 2016 for Home Health Aide Services is projected to be $43,472 and for Nursing Home Care (semi-private) is $87,600. For detailed cost of care expenses in your specific Florida County refer to the specific survey data.
FRS retirees who rely upon FRS Pension Plan benefits for their financial well being should consider long term care insurance strategies to protect against significant custodial health care costs which could impact the amount of retirement income available to meet living expenses. True North Financial Advisors located in Boca Raton provides retirement planning services to FRS Pension Plan participants throughout South Florida.
