Health care costs are some of the biggest expenses clients encounter in retirement, and costs are increasing faster than the rate of inflation. Vanguard offers the Health Care Cost Estimator Tool as an exclusive benefit to clients enrolled in Personal Advisor Services. This tool enables Vanguard advisors to forecast a client’s estimated annual health care expenses and lifetime long term care costs.

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Talli Sperry:  And this is from Robin from Honey Brook, Pennsylvania, who asks, “How can a Vanguard advisor help out?” So Kevin, what do you do for our clients?

Kevin Miller: Everything that we’re talking about tonight, it’s something that’s specific to clients that are in Personal Advisor Services exclusively. And the tool that Vanguard has developed is really designed for people that are fairly close to retirement or in retirement. Through the modeling that we utilize, what we can do is account for these costs, whether they’re part of their basic living expenses where they’re lumped in with everything else, but we know that they’re in there. Or sometimes we’ll specifically break them out so the client can see that over and above your basic expenses, we’ve accounted for health care costs. And then just like every other expense that they have, we can look at them and run different scenarios. We run 10,000 scenarios that will look at the likelihood of running out of money typically before age 100. And if we add in these expenses, how are they doing versus the goal?

That’s really the essence of what we do from a planning standpoint. So we can really take a look at these annual expenses, whether it’s for someone that’s in the preretiree phase and maybe pre-Medicare, then figuring one expense for a number of years until they get the Medicare, and then it switches, and now it’s a different cost from 65 and beyond. And we can model that pretty easily and see how this changes your financial situation.

In a lot of cases, the clients that I deal with, they’re in pretty good shape. But other times, you know, they have to make some decisions—and tradeoffs if they have limited resources—about where to spend their assets. So we can really help look at, given the expenses that they have, what type of financial shape they are in.

Talli Sperry: So Kevin, I want to go a little bit deeper and ask you a question from Peter who’s from Collierville, Tennessee. And he’s asking, “What are the best estimation tools that Vanguard has to determine future health care expenses?”

Kevin Miller: Absolutely. So Vanguard has created a health care cost estimator tool. It actually is really neat the way it works in that we try to classify a client based on their anticipated health care costs—if they’re in sort of a low, a medium, or a high-risk health situation. And you can either tell us where you think you fall in one of those categories or it’ll walk you through based on your health history and some broad categories that you may fall into, as well as your family’s history. And then we’ll say, “Okay, you probably fall into this category.” We can even look at the part of the country that you live in because not all expenses are equal, depending on where you live. And it’ll give some ranges for someone that lives where you live. If you’re in a low-risk category, here’s a range and here’s a median number.

Talli Sperry: It sounds like an incredibly personalized tool. I’m amazed at the layers you can go to to make sure it fits each of us. That’s really great to hear. 

Important information

For more information on the topic of health care costs in retirement, reference Planning for Health Care Costs in Retirement, a research paper authored by Vanguard and Mercer Health and Benefits.

All investing is subject to risk, including the possible loss of the money you invest. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

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