What Ultra-High Net Worth Households Need to Know About Planning for Unexpected Medical Costs in Retirement
How High Net Worth Families Can Secure Their Financial Future Against Medical Unknowns
As an ultra-high net worth or high net worth family, you’re probably in a position where you feel more comfortable than most about being able to afford unexpected medical costs that might hit your family.
Though most people cannot indefinitely avoid the need for medical care, high net worth families generally can handle the financial hit from anything not covered by insurance or Medicare – at least in the short term.
Knowing this, it’s easy to take false comfort in the belief that you’re prepared for your future, even the unknown parts. The challenge arises when you face the details and try to accomplish real financial planning that incorporates future medical costs and unknowns.
In this article, you have the opportunity to explore the question of medical unknowns and future costs, and how they can affect the financial security of ultra-high net worth families.
We’ll look at this from four angles:
1) Medical unknowns – types and varieties
2) How life can amplify the impact of unplanned medical costs
3) How medical unknowns can force you to make unanticipated reductions in your lifestyle and planning
4) A financial planning approach that erases the anxiety and uncertainty of the unknown
Medical Unknowns for High Net Worth Families – What Can Go Wrong
Your potential costly medical scenarios can be sorted into three primary categories, all of which can interrupt the lives of yourself, your spouse, your children, your parents, or your extended relatives.
One-time Medical Events
This category could include conditions like a cancer diagnosis that is treatable and beatable in a short time frame, up to a few years. Also belonging here are things like injuries from a car accident, a stroke that doesn’t produce major lifelong consequences, and surgery.
Often, insurance or Medicare will cover these items, but there are exceptions and related costs that may not be. And, if the person suffering any of these medical events is outside your immediately family and not directly part of your high net worth inner circle (such as relatives or parents, perhaps), they may not have as many coverage options as you. This might motivate you to step in and help cover their costs.
Chronic Medical Events and Conditions
Here you would place ailments like Parkinson’s, Alzheimer’s, and multiple sclerosis, which tend to increase in severity over time, thus incurring greater and more frequent costs of care.
Any condition that results in the need for long term care would also go here. Unless you paid for long term care insurance (or have exhausted your coverage), those annual costs get pretty steep.
This category would also include genetic conditions, diseases such as hepatitis and diabetes, and mental health conditions that require years of ongoing treatment.
This category has more potential to cause trouble than the first one, even for high net worth families, because the costs can persist for decades. Also, medical unknowns like these can drain your time as well, forcing you to revise and restrict your schedule and adjust some of your best laid plans. Those changes can lead to reduced income and reduced quality of life.
Events that Require Full-Time Caregivers
Even when insurance or Medicare cover a particular procedure or drug treatment, many medical conditions also require ongoing full-time or part-time care.
For instance, suppose a stroke removes the ability to work for someone in your family. Not only does that person cease to make income that may have been funding your current financial status, but you’ll have to pay someone for their full-time care.
Depending on how old a person is when events like these occur, the financial toll may extend 20, 30, or even 40 years into the future.
Even for ultra-high net worth families, that can put quite a dent in your portfolio and force you to re-think your investment planning.
Perfect Storm: How Financial Costs of Medical Unknowns Get Compounded
The critical question here is – WHEN does the medical event (or events) happen in your family? This question doesn’t just refer to age. What has far more impact on your life is when it happens in conjunction with other key events and financial decisions.
For instance, what if someone in your family suffers a one-time or chronic medical event…
- During a time of prosperity vs a period of decline – for the nation or in your family
- Before or after you retire
- Around the same time someone else in your family suffers their own medical event
- After you’ve just locked up a large amount of money in a new venture, like a business or real estate investment
- Right before you planned to sell your business
- Right after you get divorced (learn how to protect your high net worth assets in a divorce)
The compounding effect on all these scenarios caused by unexpected medical costs will force you to reconsider major decisions, some of which you might have been working on for years, such as the sale of your business. Or, if the medical event happens after you’ve already made a major decision about something else, it might greatly increase your stress and anxiety because you no longer have the same financial cushion you had previously.
Think about the impact of finding out one of your parents will require indefinite, full-time, in-home long term care right before you retire. Should you keep working? What if this happens right after you retire? How will this affect your portfolio in the next ten years? Can you still pursue the retirement lifestyle you’d been planning on for years, or will you have to downsize?
In other words, this is the ‘perfect storm’ effect.
In the perfect storm, everything that could go wrong happens at the worst possible time. Tough decisions that are hard to make even in blissful 70-degree weather become nearly impossible to navigate when a medical crisis hits your family. It upends everything.
How can you plan for situations like this? Is it even possible?
As you’ll see in a bit, the answer is yes. But it can’t be done using conventional investment planning approaches, the kind you’ll find at over 90% of financial advisory and wealth planning firms.
Again, for ultra-high net worth households, the question isn’t usually if you can ‘afford’ to pay for unexpected medical costs. In the short term, of course you can.
The worry and uncertainty arise when you start investigating how these costs will affect your long term financial planning.
Here are some questions you may find yourself grappling with in the aftermath of an unexpected medical event:
Should I Buy a New Business? Should I Sell My Current Business?
Suppose you find out you’re going to have to spend over $100k per year on drug treatment and in-home care for a member of your family, and that this could go on for decades.
Whereas before, selling your business may have been a no-brainer, you may now be wondering if you should hold on to it a bit longer so you can keep earning the income. Or, does that increase the risk that you might be missing out on the optimal time to sell for a higher price?
Should I Buy New Real Estate? Sell Some of My Existing Properties?
What if you’re just a couple months away from finalizing a major purchase when someone in your family suffers a major medical event? Will you still go through with it?
You may decide that selling some properties early makes more sense now, because you can use the profits to fund the first few years of medical costs and thus preserve the rest of your lifestyle as is.
But how do you really know which choice is best for your long term financial security?
Should I Give Less to Charity? Reduce My Estate Plan Amounts?
Reducing future giving, whether to charity or to your heirs, is an easy way to preserve your current lifestyle in the face of unexpected medical costs.
But if you like this option, how much should you reduce it by?
Do I Need to Downsize or Limit My Lifestyle?
This is the hardest question to face, but sometimes it seems like the only viable option. You’ve worked hard to achieve the high net worth financial status you’re now enjoying, and it brings great pain when someone in your position comes face to face with the possibility of having to return to how life used to be.
This is why you need someone to talk to who knows how to sort through all these conflicting priorities and questions. And the best time to have that conversation is before your family gets blindsided by unexpected medical costs.
Staunching the Anxiety Caused by Unexpected Medical Costs
Swirling around in all this uncertainty, it is still possible to maintain the same level of long term financial security you’re enjoying now.
Unexpected medical costs fall into what Pillar calls a ‘What If’ scenario.
What if this happens? How will it affect my portfolio and long term planning?
Our entire investment planning process is built around being able to definitively and confidently answer questions such as these.
Without getting into the details yet, just ask yourself this question:
What if I could remain financially secure no matter what medical events might impact my family?
How valuable would that peace of mind be for you?
Our financial planning process goes far deeper than just allocating money into various investment buckets and tracking the returns, hoping it’s enough for when you need it.
Our system goes much, much further than that. It allows you to:
- Project your long term financial health based on hard historical data
- Rate the ‘comfort’ level of your portfolio, even 30 or 40 years out
- Make immediate adjustments to your plan when life changes unexpectedly
- Modify your goals in response to new information
- Preserve long term success and financial security at all times
- Eliminate anxiety and financial uncertainty – even against unexpected medical costs
Our system is customized to your exact financial and life situation.
What does ‘customized’ mean?
It means everything about you factors into your plan. Including your health. So if someone in your family experiences an unexpected change for the worse in their health status, you can contact us, tell us what happened, and immediately find out how this affects your portfolio, even 30 or 40 years out.
You will see numbers. You will see data.
Most importantly, you will be able to see if your plan remains secure, or if you need to make any adjustments to restore it to healthy status. If you do need to make adjustments, you’ll be able to do so in five areas:
- How much you spend
- How much you save
- How much you leave to your heirs
- The timing of planned major expenses
- Risk tolerance
These are like five levers.
You pull one; your long term projections get re-calculated. Pull another one, they re-calculate again. If unexpected medical costs impact your family, we would begin by plugging those costs into your plan. If your plan remains secure, you may not need to make any changes at all. If your plan falls out of your calculated boundaries of long term security, we would work with you to make adjustments in some combination of those five areas.
Once the plan has been adjusted and your security restored, you can relax! You can go focus on caring for whoever in your family is suffering from a medical event, and not worry about your money.
That’s what our investment planning approach delivers for all our clients.
Want to know more?
Find out if your portfolio is secure for the rest of your life.