While in the throes of saving for retirement, investors tend to focus on “the number.” No surprise, then, that an entire industry has emerged to get people to that holy grail of a portfolio large enough to sustain an enjoyable retirement. But thorough retirement planning is about much more than getting your savings to a certain number -- there are many, many other numbers to be aware of. Like $150,000, the lump-sum price of a typical long-term care policy. Or how about $5,000, the amount financial advisors expect retirees to spend annually on health care, not including long-term care. Or the deceptively simple number three, for the three very different phases of retirement spending. And that’s all before we get to four -- 4%, that is -- that elusive figure that guides us in our withdrawals.
When Barron’s gathered several experts on planning for a healthy and wealthy retirement, they delved into the myriad of numbers people need to be thinking about. And then they all went well beyond the numbers, to the emotional aspects of planning for a healthy and satisfying retirement. Their advice? First and foremost: Talk to your family. But there’s so much more to consider.

From left: Sharon Oberlander, Merrill Lynch; Kathy Weber, Morgan Stanley; Debra Brede, D.K. Brede Investment Management; Geri Eisenman Pell, Ameriprise Gary Spector for Barron's

Kathleen Weber leads the Weber Nagan Group at Morgan Stanley in Bellevue, Wash. In the 32 years she’s managed her practice, she’s found that “we tend to get involved with every aspect of someone’s financial life,” she says. “We help people make better decisions, because not making good decisions costs them a lot of money.”
Sharon Oberlander leads her wealth management practice, the Oberlander Group, with Merrill Lynch in Chicago. Her conversations with clients have changed dramatically in the 36 years she’s been advising, she says. “It’s much more personal now.”
Geri Eisenman Pell has run Pell Wealth Partners, an Ameriprise franchise in New York City, Westchester, and Orange County, N.Y., since 1986. “When done right, financial planning can be a healing modality, and not a stressor,” she says.

Debra Brede has run her firm, D.K. Brede Investment Management, in Needham, Mass., for 25 years. “I do a real broad wealth management approach,” she says. “I want to make sure my clients can sleep at night.”
Barron’s: Let’s start with what you’re hearing from clients. What are they most worried about? How has that changed over the years?
Kathleen Weber: Clients are more concerned about their adult children than they were 10 years ago. The Great Recession has really left more of our older clients’ children unemployed, or having lost their house. Parents are playing a bigger role in the lives of their adult children -- 20% of adults live in a multi-generational household today, according to a Pew study. That’s twice the amount from 30 years ago.
Debra Brede: People are also concerned about their grandkids, who have gone through college and can’t find jobs. Many are helping to support them. And everyone is worried about another market correction.
Geri Pell: I am seeing a lot of concern among older clients who are saying “now that I’m 75, I realize that I really might live to 87.” The intergenerational transfer of money is another big issue. Clients we started with when they were 30 are now 60, and they’re inheriting money they didn’t know their parents had. And because nobody talked about it, there’s no transference of values.
Let’s stick with this idea of intergenerational planning. How do you involve everyone?
Sharon Oberlander: People today tend to be older when they inherit. Many boomers are inheriting money from their parents who are in their late 80s or early 90s, and they’re in their 60s or 70s. And it’s true the proper conversations didn’t take place; they don’t know what to expect.
Boomers are more open to having those conversations with their children. The millennials feel very close to their parents, which sometimes causes problems of “what’s yours is ours.” I find that I have a lot of conversations with parents who say that they can’t subsidize their kids indefinitely while they look for the perfect job, because it’s jeopardizing their future.

Debra Brede favors a hybrid long-term care policy, which allows people to get their premium back if needed, and allows for a death benefit if the care isn’t needed Gary Spector for Barron's

Brede: I had clients come to me because their children approached them about paying for college for their four kids. My clients wanted to know how much they could afford to give. Even though they were wealthy, because they didn’t have long-term care insurance they really needed to protect their assets. The grandparents, of course, loved their grandkids, but were really stressed out. So I met with both them and their kids. When you lay out the numbers for everyone, it’s easier to understand that even though the grandparents might have several million, when you look at their cost to carry everything, it doesn’t seem as much.
Weber: People are not very clued in on what their lifestyle costs them. Even those who think they do, forget they need a huge buffer for replacing cars, unanticipated medical expenses, a new roof, the taxes they’ll owe on withdrawals from IRAs and other tax-deferred accounts -- and for the family requests that are going to come.
How do you determine how much of a buffer people need for all of this?
Weber: We ask people to track their expenses in a way that works for them; sometimes its software, or at the very least we’ll look at what’s been going into and coming out of their checking account. We’ll look at the outlier, unplanned, one-time-only expenses that occurred in the past three years. I’ve had people off by as much as 70% from what their lifestyle actually costs them.
Oberlander: “I don’t spend that much money. Are those numbers right?”
Pell: There’s also the flip side -- the millionaires next door, who came through the Depression and are now in their 80s and cannot let go of one single penny. They live on $3,000 a month; they’ve moved to Florida or some other low-cost place, and their children wish nothing more than for them to spend money on themselves. One of my clients recently passed away, and when we told her children her estate was $2 million, they all started crying, because they said, “We thought she had $60,000. We wish she had bought that medical recliner she wanted, and hired more health aides.”
Oberlander: That’s a very common story -- those aren’t the boomers, they’re the Greatest Generation.
The fear of running out of money runs through every generation of retirees, and you’ve all mentioned that the recent market volatility has caused clients to call you. How do you manage those fears?
Pell: We keep two to three years’ worth of living expenses in cash, and another stake in bonds. I don’t have any clients that would ever be taking money out of equities; that is at least eight years out. They can ride out the volatility.

Merrill Lynch’s Sharon Oberlander says that nearly everyone overestimates how good their health is, and underestimates their likely need for long-term care at some point. Gary Spector for Barron's
Oberlander: A lot of people say, “Oh, you should have hundreds of thousands of dollars available in cash to take care of unexpected expenses.” But how many people do that? Most people want their money working. I offer all my clients a securities-based loan to use as an emergency backup line of credit.
That’s similar to a home-equity line of credit, only the loan is backed by your portfolio, rather than your home.
Oberlander: Yes. One client, an 88-year-old woman who was moving into an assisted- care facility, needed to sell her place and put a down payment on her new home. She had a portfolio of very low-basis stocks she didn’t want to sell because it would be a big tax hit. So she bought the new place using this line of credit, and paid it back when she closed on the sale of her home a month later. Now her kids can inherit those stocks and get the step-up in basis. [Heirs inherit securities at their fair market value, not at the price the initial owner paid.]
Weber: We do this, too. All of our financial plans are based on our client living to age 95. Today’s 90-year-olds didn’t expect to live that long, and they didn’t plan for it. Retirement for many people now is 30 years; that’s a long, long time.
How do you plan for these extended retirements?
Weber: Expenses tend to be higher early in retirement, because there is more time and pent-up demand to do stuff that costs money. Expenses at the end of retirement are higher because of health care. But in the middle, expenses tend to drop off. People don’t travel as much, but they are still independent. You can’t plan for a straight line of expenses with inflation protection.
Oberlander: People have a very optimistic opinion of their health. We conducted a survey with Age Wave, a research firm specializing in aging demographics and policy. Of the respondents over the age of 65, 76% said their health was “good to excellent.” Yet, in reality, 86% of people that age have a chronic illness of some kind -- high blood pressure, diabetes, arthritis, heart disease, high cholesterol, etc. Even 63% of the people who are 45 to 64 have a chronic illness of some kind. People can live longer, work longer, and the medical community can treat so many things that couldn’t be treated before, but this all costs a lot of money. You can’t kid yourself about your health.
How much do you plan for people to spend on everyday health-care needs -- co-pays, treatments, advanced treatments Medicare may not cover, the cost of travel for alternative or better care…
Oberlander: It’s a function of their age and their health. For a healthy 65-year-old, we’d budget about $4,600 a year.
Brede: I use $500 a month as a baseline.
Pell: We also use more like $6,000 a year.
Weber: We plan for about $10,000 a year, per person. That’s typical; for healthy people it could be less. It’s also worth noting that many people get healthier in retirement -- they eat better, exercise more, lose weight, manage their stress, all of which can mitigate or eliminate many chronic conditions.
That’s quite a bit more than many people would expect.
Oberlander: And then there is the inflation aspect -- in the last 30 years, the cost of living doubled, but the cost of health care quadrupled. Our rule of thumb is to use a 7% inflation rate for health-care costs.

Kathy Weber of Morgan Stanley creates financial plans that assume a client will live until 95. Gary Spector for Barron's

Weber: I don’t know if health-care costs are going to rise as much anymore. We are in a new era of health insurance with the Affordable Care Act. More hospitals and doctors are publishing prices because consumers are demanding it.
Pell: High-deductible plans also encourage people to ask how much something costs for the first time in their life, whereas before, insurance always paid for it. That is going to put some pressure on health-care fees.
The high-deductible plans you’re referring to are employer-sponsored: Employees can choose a plan that requires much more out-of-pocket costs, but they’re able to save money in a tax-deferred Health Savings Account, or HSA, to cover some of those costs.
Oberlander: I love high-deductible health plans. One of the best things healthy people in their 40s and 50s can do is use one. It’s like any insurance -- homeowner’s or property casualty -- if you agree to a $5,000 deductible, then all of sudden you are paying so much less for the insurance.
Weber: And the best part is they have the ability to do an HSA.
An HSA lets you put away $3,300 a year, before taxes. That seems like a drop in the bucket, given the cost of health care.
Oberlander: It’s $3,300 a year for an individual and $6,550 for a family and, if you are 55 or over, you can save an extra $1,000. It’s the only plan that allows you to put away money triple-tax-free -- you put the money in before taxes, it grows tax-free, and if you take it out to pay qualified health-care costs, your withdrawal is still tax-free. This is one of the best ways people can accumulate money to deal with longevity.
Pell: If you put $6,500 a year away when you’re 45 and $7,500 when you’re 55, by the time you are in your 80s, you’re going to have $660,000, assuming a 4% rate of return, to spend on medical expenses, tax-free.
Weber: People who have the money cover those out-of-pocket costs from another account, so the money in the HSA grows, are in the best shape.
Oberlander: But even if you need to tap the HSA to pay for health-care expenses while working, it’s still a big savings because of the tax benefit. Even mid-level earners, if they’re maxing out their 401(k) contributions and are healthy, might be smarter not to contribute as much to the 401(k) and direct money into an HSA.
That’s great advice for people who are still working. What are the insurance needs for retirees?
Weber: Once someone turns 65, they need to register for Medicare, even if they’re still working. If they don’t, they’ll pay a penalty in the form of higher monthly premiums for the rest of their life. If they’re no longer working, they’ll also need a Medigap policy. Medicare is a federal program; it’s the same for everybody. Medigap policies [which cover some costs Medicare doesn’t, such as copayments, coinsurance, and deductibles] are regulated on a state basis; different states have different choices. In the state of Washington, we have 26 companies providing Medigap policies. Getting the right Medigap policy for the client’s lifestyle is important. For instance, do they plan to travel abroad? Are they willing to have a $1,000 per year deductible to save money?

Geri Eisenman Pell advises couples to get joint long-term care policies: “You get a big discount when you insure together, usually between 10% and 20% less than the price of two separate policies.” Gary Spector for Barron's

Pell: There’s also Part D, for prescription drug plans. People should make a list of the medications they take, talk to their doctor or pharmacist and see which plan is the most appropriate for them. The drug prices are surprisingly different on different plans.
Beyond Medicare, what health-care options do you recommend for clients?
Pell: I have a lot of clients using concierge plans. For about $1,800 a year in Florida, maybe $2,500 a year in New York, you get access to your physician 24/7/365. They gather all of your information, so they see your entire picture. Every appointment is an hour; there’s no rushing. It includes a much more thorough physical. And you can contact your doctor by e-mail or phone whenever you need. I paid for a concierge physician for my mother before she passed away, because I thought she needed that coordinated care, and I knew I could talk to her doctor at 4 o’clock on a Saturday afternoon, instead of missing her call when I was working.
Brede: Also, people don’t want to wait. A lot of doctors are just so busy, it’s six months for an appointment. And then you don’t get your doctor, you get a physician’s assistant.
Weber: They still expect you to have a health insurance policy to cover office visits and procedures. So the concierge fee is an extra cost in front of your health insurance.
Pell: It’s extra cost, but it’s extra care.
Oberlander: Baby boomers are going to drive more of this kind of innovation, because baby boomers have changed the world through every phase of their life. They are very discriminating consumers and they expect a lot of service.
Weber: The reason there is demand for concierge medicine is because, in the past, physicians were not paid for time spent e-mailing. That was not a billable transaction; an office visit is. Boomers are driving innovation in other areas as well, such as nursing homes. They don’t want to be warehoused.
Pell: I read a fascinating article about a group of friends that got together, bought some property in Colorado, built condos in a circle and had one reserved for a nurse to live in, that they all chipped in to pay for. More of that sort of innovation is going to happen with friends, extended families.
Oberlander: The study we did with Age Wave also found that people underestimate how long they are going to live, and underestimate their need for long-term care -- 37% think they’ll need it, but 70% actually do.
Weber: And only 8% have it.
That brings us to one of the most confusing aspects of health and wealth planning -- whether or not to buy long-term care insurance.
Weber: There are two kinds of long-term care. The first is a use-it-or-lose-it, where you pay an annual premium for a specific amount of care. If you never need long-term care, the money is just gone. Also, the insurer can raise the premium over the years, as long as the company raises it for everybody with that kind of policy in your state.
Brede: These policies typically cost $6,000 a year for a healthy 59-year-old, for a pool of $328,000 that can be put towards long-term care, with a maximum of $300 per day.
That sounds pretty straightforward. What’s the second kind?
Weber: The other kind is a hybrid product; you pay an initial lump sum for a certain amount of care later. There are no further annual payments. In a typical scenario, you can get your principal back after a period of time, or your heirs can get two times your principal if you die without using the insurance, or you could get five times that amount in long-term care benefits.
Can you walk us through an example of how a hybrid product works?
Brede: I use the Lincoln MoneyGuard, and ran the numbers using myself as an example. My premium would be $140,000, which I’d carve out of my portfolio, to pay the premium in one lump sum. That buys me $300 a day in coverage, from a pool of $659,000, almost five times my initial investment.
That $659,000 is the maximum benefit?
Brede: Yes. The negative part is that the $659,000 isn’t adjusted for inflation. But if I don’t need it, my family will get at least $220,000. If I die before I turn 75, they’ll get $272,000. That’s not a lot of growth on the initial $140,000 premium -- you’re giving up growth, but getting insurance. And they can’t increase the premium.
How much does long-term care cost?
Pell: It depends where you live. The median cost for a private room in New York City is $170,000 a year. In Florida, the median is $90,000.
When should people start thinking about long-term care insurance? Their 40s? 50s?
Oberlander: They don’t want to think about it in their 40s.
Brede: Their 50th birthday is when I start talking to them about it.
Oberlander: And the conversation can take years to make a decision.
Pell: When people are in their 50s and 60s, and can afford the premium and not have it change their lifestyle at all, then long-term care insurance is usually a no-brainer.
So the options are to pay an annual premium, which can be increased without notice, for decades, or to carve out a large chunk of your portfolio, with benefits that aren’t adjusted for inflation, all while people are still saving for retirement. That’s a lot to ask.
 Brede: You can also get a hybrid policy that has inflation protection. In the same example, 3% inflation protection is an option, but then you start out with only $180 a day maximum coverage, rather than $300. The first example gives me the most coverage, and is a better deal if I need it between age 59 and 82. But if I don’t need the coverage until I’m 90, the inflation protection is a better deal, because it will give me a lot more total coverage.
Should couples get a joint policy?
Pell: Yes, you get a big discount when you insure together, usually between 10% and 20% less than the price of two separate policies. And you don’t have to be married, just living together.
Brede: A joint policy could cover six years for both people, rather than two three-year policies. But if the first spouse needs five years of care, the second spouse would only have one covered. But it’s usually the first one that causes the biggest takedown in finances; the second spouse would then have more saved.
What’s the downside to long-term care insurance?
Weber: The universe of companies has changed -- 20 years ago there were all kinds of long-term care policies. Now we’re down to four companies that sell it. Insurers were surprised at the number of claims.
One of the other challenges is that sometimes by the time people actually need the coverage, they forget exactly what’s required, the hoops they have to jump through to have it pay out.
Oberlander: Like the need to be in a hospital first. Another concern is innovation and technology -- when the time comes to use the policy, what if things are really different, and new methods aren’t covered?
Weber: And by the time you need that long-term care policy, you have to have somebody near you who understands the policy as well as you did the day you bought it. I’ve seen a well-meaning relative looking over someone’s shoulder, saying, ‘”Why are you paying $5,000 a year for this?” and canceling a policy they’ve been paying for 20 years.
Do you tend to use the hybrid product or the use-it-or-lose-it version of long-term care insurance?
Oberlander: The hybrid has more appeal to people because everyone thinks they are never going to use it. People are very optimistic about their health, and they hate this idea that they are going to be paying, paying, paying a premium for maybe 30 years.
Pell: Exactly, even though we all pay homeowner’s insurance every year, and I don’t think I’m going to get robbed.
Weber: There is a lot of complexity around this, and any one policy you look at will have six decisions you have to make, all of which are very personal to you and your situation.
Pell: If you have tens or hundreds of millions of dollars, you really shouldn’t be thinking about long-term care at all. You should be thinking about what your health care might cost. For instance, 20 years in a nursing home that costs $200,000 a year, that’s $4 million. So get a $4 million life insurance policy, put it into an irrevocable life insurance trust and leave it to the family.
In other words, you’ll spend $4 million on your care, but upon your death, your heirs will receive a $4 million life insurance payout. The life insurance ensures your heirs don’t get a depleted estate.
Oberlander: That’s a good alternative approach to protecting your legacy. If you are healthy enough to be insurable and wealthy enough to buy a hybrid long-term care policy, you are also healthy enough to get life insurance. A couple could get a second-to-die policy, which pays off on the second death, leaving the legacy to the family. This allows you to stop worrying [about your heirs] and dip into your principal for health care, long-term care, etc.
Pell: Clients of mine have a $10 million portfolio. They don’t have long-term care. He got Alzheimer’s a couple of years ago. They are going to spend an enormous amount of money on care-giving for him. But they have a $3 million second-to-die policy, so no matter how much they bleed through, there will be something left for the kids.
One final question: I didn’t set out to create an all-female panel, but for the second year in a row I found that the best candidates for a Health and Wealth Roundtable were women. Any thoughts on why?
Pell: Women are a lot more comfortable talking about uncertainty, and we’re better at approaching topics in an inquisitive way. When my son had diaper rash, I’d ask four women at the playground what they used for it. My husband would never do that.
Weber: Speaking for myself, I have a very holistic approach to wealth management, and I get a lot of satisfaction from developing relationships with people over many years, and asking them about all the areas that touch on their financial future.
Oberlander: We know our clients better than their best friends, especially the men. When you know about somebody’s money they will pretty much talk to you about anything. So in the end, we are all our clients’ confidants.
Brede: And sometimes their psychiatrist.
Thank you, ladies.