SM - web1.amchouston.comweb1.amchouston.com › flexshare › 001 › CFA › Symposium › 2014...
Transcript of SM - web1.amchouston.comweb1.amchouston.com › flexshare › 001 › CFA › Symposium › 2014...
1
SM
2
Retirement reality: debunking common myths
Planning for health care costs in retirement
Spending in retirement may be different than the “default” assumption Summary
Today’s agenda
3
The retirement equation
Source: The Importance of Being Earnest, J.P. Morgan Asset Management, 2013.
A sound retirement plan: Make the most of the things that you can control but be sure to evaluate factors that are somewhat or completely out of your control.
Ret
irem
ent l
ands
cape
5
4
Life expectancy probabilities
Source: Social Security Administration and J.P. Morgan Asset Management.
Count on longevity: Life expectancy tells only half the story. Plan on the probability of living much longer, perhaps 30 plus years in retirement. ・ For example, there is a 47% chance that one spouse will live to age 90, 2% higher than last year.
Ret
irem
ent l
ands
cape
If you’re 65 today, the probability of living to a specific age
6
5
Managing expectations of ability to work
Source: Employee Benefit Research Institute and Mathew Greenwald and Associates, Inc., 2013 Retirement Confidence Survey.
Early retirement: While more Americans are working past age 65, not everyone will be able to control their retirement timing.
Current expectations of retirement vs. actual experience of retirees
Ret
irem
ent l
ands
cape
Reasons cited for retiring earlier than planned
8
6
Social Security timing tradeoffs
For illustrative purposes only. For 1955 - 1960, two months are added to the Full Retirement Age each year. Source: Social Security Administration, J.P. Morgan Asset Management.
Understand the tradeoffs: Deciding when to claim benefits will have a permanent impact on the benefit you receive. Claiming before full retirement age can significantly reduce your benefit while delaying increases it.
Born 1943 - 1954; Age 60-71
Ret
irem
ent l
ands
cape
Born 1960+; Age 54 or younger
9
7
Retirement reality: debunking common myths
Planning for health care costs in retirement
Spending in retirement may be different than the “default” assumption Summary
Today’s agenda
8
What is Medicare?
Traditional Medicare
Part A • Inpatient hospital
Fully Government provided
Part B • Doctors and tests
Government provided + premium
Part D • Prescription drugs
Sold by private companies with a government subsidy
Medicare Supplement Insurance • Co-pays & deductibles related to Parts A and B • Standardized plans
Sold by private companies
Medicare Advantage (Part C)
Alternative to Traditional Medicare
• Combines Part A and B • May provide additional benefits • Most plans cover prescription drugs
Part A
Part B
Sold by private companies with a government subsidy
9
Rising annual health care costs
Spe
ndin
g
For illustrative purposes only. Source: Employee Benefit Research Institute (EBRI), January 17, 2014. Based on national average cost estimates for Medicare Parts A, B, D and Medigap Plan F. EBRI derived inflation estimates from US CBO estimates. On average, health care costs are estimated to increase 5.0% for the 50th percentile, 4.8% for the 75th percentile and 3.5% for the 90th percentile. Vision, dental and long-term care expenses are not included. Assumes continued implementation of the Patient Protection and Affordable Care Act. The costs at 90th percentile actually dip down in 2019 due to the implementation of the Medicare prescription drug “donut hole” being filled in as applied to Medicare prescription drug costs.
A growing concern: Lifetime retirement health care cost estimates may be overwhelming, therefore annual health care costs may be easier to digest when planning for retirement expenses.
Estimated annual out-of-pocket health care costs for a 65-year-old retiring in 2014
25
10
Medicare Advantage: out of pocket spending limits
Distribution of Medicare Advantage plans’ out-of-pocket spending limits
Note: Excludes SNPs, employer-sponsored (i.e., group) plans, demonstrations, HCPPs, PACE plans, MSAs, and plans for special populations (e.g., Mennonites). Percentages are unweighted by enrollment. All Medicare Advantage plans have been required to limit out-of-pocket expenses to no more than $6,700 since 2011. PFFS plans not shown because 98% of PFFS plans were missing limits. The total includes cost plans, which are not shown separately. Data may not add to 100% due to rounding. Source: “Medicare Advantage 2014 Spotlight: Plan Availability and Premiums,” Kaiser Family Foundation, Nov 25, 2013
90%
Average out-of-pocket limit, weighted by enrollment 2014: $4,900
Does not include spending on prescription drugs
4% 3%
44% 34%
27%
23%
25% 41%
2013 2014
$2500 or less $2501 - $3400 $3401 - $5000 $5001 - $6700
11
Health care spending growth has been on a recent decline
Source: BLS
Year-over-year health care inflation change
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
5.7% Average (1960 -2013)
2.01%
12
As Boomers age, per person costs are likely to increase
Source: Meara, White and Cutler, “Trends in Health Spending by Age”. Represents combination of household surveys and total spending data to analyze trends in medical spending from 1963 – 2000.
Relative per capita health spending, by age cohort Age 35-44 = 1 (baseline)
0
1
2
3
4
5
6
0-5 6-14 15-24 25-34 35-44 45-54 55-64 65-74 75+
Spen
ding
rela
tive
to a
ge
Age cohorts of Americans
0.5x 0.5x 0.6x 1.0x 1.0x
1.4x
2.0x
3.1x
5.7x
13
Where are we headed?
Source: Containing the Growth of Spending in the U.S. Health System, Health Policy Center, Urban Institute, October 2011. Health care spending and the Medicare Program, Medicare Payment Advisory Commission, June 2013 Databook. Center for Medicare and Medicaid Services, Medicare and Medicaid Research Review, 2013, Vol 3, No 3. Kaiser Family Foundation, Medicare ‘s Role for Dual Beneficiaries, April 2012. J.P. Morgan Asset Management analysis.
New technology: innovation
Aging population Chronic disease
Dual Medicare/Medicaid eligibility Poor care coordination Poor health behaviors
Good economic conditions
Provider price increases
Good health behaviors
Drugs going off patent
Greater care efficiency & coordination
New technology: efficiencies
Lack of cost sharing
Increased cost sharing
Poor economic conditions
14
Long-term care planning
Spe
ndin
g
Source : American Association for Long-Term Care Insurance 2014 Sourcebook. www.aaltci.org. Lifetime chance of using benefits from a LTC policy purchased at age 60 with a 90-day waiting period before benefits start is 35%. There is approximately a 1 in 3 chance of filing a claim that will last less than 6 months; however, there is a 1 in 10 chance of filing a claim for 5 years or more. Annualized inflation 1994 - 2012: 3.81% nursing home care; 1.67% home health care.
Long-term vision: Many individuals will need long-term care. There may be a progression of care that starts with home care.
Likelihood of needing long-term care 2012 new LTC claims by type
All LTC claims by type
27
15
Annual cost of nursing home care (private room)
Spe
ndin
g
Source: New York Life Insurance 2014 Cost of Care Survey developed in partnership with Univita. Average daily costs annualized over 365 days and weighted by city population for each state.
The cost of care: Many people realize nursing home care is expensive, but there is significant cost variation depending on where care is utilized.
28
16
Retirement reality: debunking common myths
Planning for health care costs in retirement
Spending in retirement may be different than the “default” assumption Summary
Today’s agenda
40% 30% 20% 10%
0%
50%
60%
70%
80%
90%
65
Active Phase “Go-Go”
Passive Phase “Slow-Go”
20%-30% Reduction in Spending
Final Phase “No-Go”
?
75 85
Percent of pre-retirement spending
100%
Healthcare / LTC
Source: The Prosperous Retirement: Guide to the New Reality, Michael K. Stein, CFP, 1998. pp. 16-18
“The Prosperous Retirement” – theoretical spending profile
0514
18
Changes in spending
Spe
ndin
g
Estimates based on average consumer expenditure from the Consumer Expenditure Survey for each age group excluding pension contributions, BLS. Data as of September 2013. Average household size for age 45-54 is 2.7; age 55-64 is 2.1; age 65-74 is 1.8 and age 75+ is 1.5. Source: J.P. Morgan Asset Management.
What to expect: Household spending peaks at the age of 45, after which spending declines in all categories but health care.
Average household spending patterns by various age groups
23
The empty nest: A decline in the average household size plays a role in spending changes over time
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
45-54 55-64 65-74 75+
Age
Average spending patterns by household size
One person HH size Average HH size Two person HH size
Estimates based on average consumer expenditure from the Consumer Expenditure Survey for each age group excluding pension contributions, BLS. Data as of September 2013. Average household size for age 45-54 is 2.7; age 55-64 is 2.1; age 65-74 is 1.8 and age 75+ is 1.5. Source: J.P. Morgan Asset Management.
2.7 persons
2.1 persons
1.8 persons
1.5 persons
Changes in spending by age and household size
0514
$0
$10,000
$20,000
$30,000
$40,406 $40,000
$50,000
$60,000
45-54 55-64 65-74
Age
Average spending patterns over seven 20-year rolling cohorts (1984 - 2010) of the Silent Generation adjusted for inflation to 2012 dollars
Health care
Transportation
Housing
Other
Education
Entertainment
Food & Beverage
Apparel and services
$56,805
$45,320 20%
29%
Estimates based on average consumer expenditure from the Consumer Expenditure Survey for each age group excluding pension and cash contributions, and including mortgage principal pay down in the housing category, BLS Data as of September 2013. Source: J.P. Morgan Asset Management
$-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
45 - 49 50 - 54 55 - 59 60 - 64 65 - 69 70 - 74 75 - 79 80 - 84 85+Age
Average spending patterns of various age and asset groups - Chase data $2MM - $5MM in assets
Health care Housing Education Food & Beverage Transportation
Other Entertainment Apparel and services Travel
An affluent view: $2-5M in investable wealth
Based on Chase credit card, debit, and DDA mortgage payments from 9/2012 – 8/2013 Source: J.P. Morgan Chase
$137,047 $140,173
$128,271
$113,404
$101,592
$91,411 $86,481
$79,390 $76,063
21
Estimates based on Consumer Expenditure Survey results from 1984 – 2012. Source: J.P. Morgan Asset Management
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
65 70 75 80 85 90Age
"Traditional" spending assumption vs. historical reality
Health care Housing Education Food & Beverage Transportation Other Entertainment Apparel and services Inflate by 2.5%
$43,092
$79,891
$49,366
Traditional vs. historical spending assumptions
0514
23
Retirement reality: debunking common myths
Planning for health care costs in retirement
Spending in retirement may be different than the “default” assumption Summary
Today’s agenda
24
The retirement equation
Source: The Importance of Being Earnest, J.P. Morgan Asset Management, 2013.
A sound retirement plan: Make the most of the things that you can control but be sure to evaluate factors that are somewhat or completely out of your control.
Ret
irem
ent l
ands
cape
5
25
Appendix
26
Will the Affordable Care Act encourage early retirement?
No pre-existing conditions limitations
Insurance is available with no increased cost for those with medical conditions
Subsidies for those with lower incomes
Example: 55 year old couple with MAGI of $60,000 may receive a $5,607 subsidy1
Younger individuals subsidize older individuals
Premiums can’t be more than 3X higher for older people than for younger people
Source: Kaiser Family Foundation focus on health reform summary of the Affordable Care Act, last modified April 23, 2013. 1. MAGI = Modified Adjusted Gross Income. Kaiser Family Foundation subsidy calculator US average for non-smokers in 2014 with no employer coverage for a Silver Plan subsidies would be different for a Bronze plan (less coverage) for a Gold plan (more coverage). Subsidies start at 400% of the Federal poverty level ($62,920 for a 2 person household) in the 48 contiguous states and the District of Columbia.
64 year old non-smoker Average premium for a silver plan: $7,606 Maximum out-of-pocket costs: $6,350
Example case:
Vs. 65 year old on Medicare Average total cost: $4,002 90th percentile prescription drug cost: $7,214
27
J.P. Morgan Asset Management – index definitions
28
J.P. Morgan Asset Management – disclosures