Written by Stephen Ostrofsky, CFP®
During a recent client meeting with a PBSO deputy, we reviewed their employer benefits designed to subsidize health care costs during retirement. The retirement benefits provided significant sums to my client, but was it enough to offset expected health and custodial care costs? What we found many retirees face significant risks from uninsured health and custodial care costs, due their early retirement age relative to the overall workforce. Law enforcement 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, law enforcement professionals face statistically significant risks from health and custodial care costs which can outstrip your expected FRS Pension Plan and social security income. Law enforcement professionals 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 Participants 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: 2018 Retirement Health Care Costs Data Report©, which includes data from over 70 million medical health care cases, predicts “health care expenses will rise at an average annual rate of 4.22%”, down from the 2017 Report projections of 5.47%, primarily due to lower prescription drug costs. This inflation rate is the principal driver of future healthcare costs, which will continue to out-pace U.S. inflation and expected Social Security cost of living adjustments (COLAs). As this Report details, the compounding impact of health care inflation means that health care costs will be one of the most significant expenses in retirement.
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 2018 is expected to be $363,946, 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 greater total expected health care costs. Furthermore, Medicare “means-testing” thresholds may be raised that which could lead to greater income-based surcharges. According to the report, in 2018, a 55-year-old retired couple can expect to spend over a lifetime up to 57% (48% for 66-year-old couple) of their pre-tax social security income benefits towards medical health care costs. The percentage is greater the earlier you retire because social security retirement income grows at a slower rate than the rise in 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, again these essential needs are not covered by Medicare. According to the Genworth 2018: 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 2018 Genworth Survey covers 440 regions and includes data from over 15,500 surveys from nursing homes, assisted living facilities, adult day care facilities and home care providers. The current median annual costs of custodial care in the State of Florida during 2018 for Home Health Aide Services is projected to be $46,904 and for Nursing Home Care (semi-private) is $97,820. For detailed cost of care expenses in your specific Florida County refer to the specific survey data.
Law enforcement professionals who rely upon FRS Pension Plan benefits for their financial well-being should consider long term care insurance strategies to protect against significant medical and 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 law enforcement professionals throughout South Florida. References available upon request.
Stephen Ostrofsky is registered with and securities offered through Registered Representatives of Cambridge Investment Research, Inc. a broker-dealer member FINRA/SIPC. Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Cambridge and True North Financial Advisors, Inc. are not affiliated.
