Brave new world of health care requires fresh look at financial health as well
One indelible lesson of the pandemic has been how closely physical, emotional and financial health are related.
One indelible lesson of the pandemic has been how closely physical, emotional and financial health are related.
“If there is a silver lining in something as horrific as a pandemic, it’s that crisis can remove us from the routines we have been living in our lives that are so familiar and let us take a look from a different perspective,” said Laura Carstensen, Ph.D., founding director of the Stanford Center on Longevity. “There were multiple disruptions, and we are going to see if that makes it a perfect time to rewrite the script.”
Carstensen shared her insights during “Big Changes in Health Care – Will They Change Your Financial Life?” a webinar sponsored by Bank of America. She discussed the changing health care landscape, and financial experts followed with a look at the financial implications. Financial well-being directly affects the ability to access high-quality health care. At the same time, physical health also affects the ability to earn and save.
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“Good health and financial wellness are intricately linked,” Carstensen said. “If you are healthy, you can work more, you can work longer and you can engage more. People who are healthy are going to be more financially secure. Emotional well-being, physical fitness and financial security are three legs of a stool. If any one is missing, we are in trouble. If we can shore up those domains of life — and we can — then we should be able to create a world where the majority of people thrive in old age — mentally sharp, physically fit and financially secure.”
Americans long have tended to put off planning.
“Of course, the health you suffer from or enjoy in later years for most of us has its roots much earlier in life,” she said. “Chronic diseases, nutrition, obesity, arthritis, heart disease – these are the conditions that threaten life in old age, and they start much earlier. It’s finally beginning to dawn on us that treating diseases only after they happen is not the best way to deliver good health to a population.”
An early start provides a solid foundation for both physical and financial well-being.
“The United States, compared to other developed nations, spends more on health care than basically any other country,” Carstensen said. “The care we get is absolutely high quality in the United States, but the cost is not so good. The other issue we are just beginning to understand is that we will do a lot better if we invest in maintaining our health rather than treating each disease as it occurs. We really need to flip those around.”
She distinguishes lifespan from health span, which she defines as the number of years that people can remain healthy and free from disease.
“One of the most exciting areas is geroscience, which is the science of aging itself,” Carstensen said. “Scientists are making real progress in finding ways to slow the biological changes that occur as we age that put us at risk for all diseases. To the extent we can achieve that, we can remain healthier, stronger and fitter for many more years of our lives.”
Living longer, healthier lives, of course, will require greater financial resources in retirement, said Amanda Lasher-Ross, managing director, retirement and personal wealth solutions, for Bank of America.
“One of the big questions we ask clients to think about as they approach retirement is, `How am I going to generate income?’” she said. “The sooner you can start thinking about generating an income plan, it really does create a strong foundation for retirement.”
She encourages clients to consider three buckets of expenses:
- Essential expenses
- Important expenses
- Aspirational expenses
“There often is a gap between what I have and what I need,” Lasher-Ross said. “An annuity, for example, is a great way of bridging that gap to make sure the essential expense bucket is filled. We need to revisit that conversation regularly, but starting with the income plan is really the first step in building a retirement plan. “
This can be a challenge at a time when inflation, taxes and expenses can lead to negative real returns for bonds and other fixed-income investments.
“We tell clients to take a step back and first make sure they have the right asset allocation,” said Joe Curtin, head of CIO portfolio management for Merrill and Bank of America Private Bank. “In the near term, it may mean taking on a little more risk in asset allocation and then being greater in equities. That should be supplemented with ensuring that the savings plan and investment strategy are revisited annually.”
Like Lasher-Ross, he encourages starting early, developing a plan and sticking with it.
“Starting early on a savings and investment strategy is really important,” he said. “Estimate what the impact of health care costs will be in addition to what the retirement income need is and perform that analysis. When you have that long of a time horizon, the biggest risk you have is abandoning your strategy in the moment out of fear and not participating in the rapid recoveries.“
It is also important to expect the unexpected when it comes to health care.
“Health care expenses are volatile,” Lasher-Ross said. “It makes it all that much more important to think about income, to assess expenses and to get your savings happening in the right place so you can accumulate as much as you can over time. An unforeseen health event can derail the best-laid financial plan. We have seen this all too often. Keep your contingency plan in mind.”
Advances in health span combined with the economic fallout from the pandemic have created a great deal of uncertainty. Carstensen encourages people to take advantage of this time to recalibrate and embrace the future.
“The emotion I have felt during the pandemic more than any other emotion has been gratitude,” she said. “You realize in a crisis time what matters most. A lot of us have come to appreciate more the people, the places, the resources we have in our lives.”
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