How to plan for retiree health care costs: The Advisor and the Quant

In this series, our sister site ThinkAdvisor offers two distinct perspectives on the same topic — one from an academic, the other from a practicing financial advisor. (Check out the previous column here.)

QUESTION: How do you plan for health care expenses in retirement?

THE ADVISOR — JOE ELSASSER, CFP, PRESIDENT, COVISUM:

We’ve all seen the huge numbers associated with health care costs in retirement. When discussing these costs with clients, many find the numbers to be so large that they cause paralysis and create a barrier to making meaningful improvements to their financial plans. Health care costs in retirement can be discussed in terms of maintaining an appropriate balance between premium outlay and total cost exposure — not unlike the discussion in many other areas of the client’s life, like the decision to take a higher deductible on an auto or homeowners policy. For clients who are comfortable with greater uncertainty in their total expenditures, minimizing insurance costs will be the priority. For those who need a higher level of predictability, paying higher insurance premiums will make sense.

What are the costs to consider?