Leapfrog Growth Opportunities in Banking / Wealth Management – A Series
Alok Gupta, Principal, Capgemini Consulting
Health Care and Retirement Planning
Everyone knows that “Health is wealth”… but not “how much”. There are 2 items of significant value in anyone’s life – one’s health and one’s wealth. The industry sectors that cater to these items – for example health care and wealth management rarely come together. This article describes a specific use case where new business models combining Health and Wealth can create a solution of tremendous value to consumers. Innovative business models that combine health-wealth data and embed that data into new business processes across sectors can help create new categories – and provide leap growth opportunities (Figure 1).
Figure 1: Intersection of Health-Wealth-Technology
Quantifying the link between health and wealth can significantly improve retirement planning – exhibiting the value of health to consumers and also creating AUM growth opportunities for wealth managers.
10,000 Retirees Everyday
Retirement Planning Today does not Incorporate HealthCare
- Today, most retirement planning solutions do not provide any transparency about out-of-pocket healthcare costs, which is a significant expense after retirement
- The Baby Boomer segment is one of the largest in the country today and also the wealthiest
- Over the next 20 years, 10,000 boomers will retire daily1 — most without any idea what their own healthcare will cost (Figure 2)
Figure 2: Baby Boomer Demographic Trends
Retirees are Unprepared for Health care Costs Post-Retirement
Out-of-Pocket Costs Can be a Significant Burden
Most retirees are not prepared for health care costs during retirement because there are no practical solutions to incorporate health care costs in retirement planning solutions today:
- The EBRI (Employee Benefits Research Institute) estimates that a married couple with drug expenses at the 90th percentile throughout retirement would require to save upwards of $350,000 to have enough money for out-of-pocket health care expenses2
- This does not include Long Term Care – average costs can range in thousands of dollars per month – significantly increasing the amount of savings required. These costs also do not take into account the fact that many individuals retire prior to becoming eligible for Medicare
- The financial shortfall in the Medicare program could potentially shift more responsibility for health care costs to Medicare beneficiaries
- Changes in the health care could potentially change the nature of coverage e.g., coverage of prescription drug
A Significant Unmet (and Latent) Need
Consumers are “Extremely Worried” and “Completely Unprepared” to manage health care costs in retirement.
- Less than 1 in 6 pre-retirees has ever attempted to estimate the money they will need for health care and long-term care in retirement3
- “I’ve seen the numbers about what health care can cost and it’s hard to wrap your head around. I haven’t even started thinking about that when saving for retirement”
- Retirees say health is the #1 ingredient for a happy retirement
- Health care expenses are people’s top financial concern in retirement – 63% mention that their biggest retirement worry is “Not being able to afford health care and long-term care expenses”
FAs lack the “Incentives/Tools/Training” to help customers plan for healthcare costs post-retirement
A quick and unscientific survey of FAs reveals that they are not at all prepared to answer consumer questions about health care costs post-retirement. A small example of what they said is below:
- “You are the first person in 23 years who’s asked me about health care costs4”
- “I am more concerned about what the stock market is doing and what impact that has on my clients today – not their health in several years from now”;
- “I do your financial plan – not your annual physical”
This is the classic disconnect – consumers badly need some help, but FAs do not have the training, the incentives or the tools to help their clients.
This is an opportunity to create a new category – that can generate multiple revenue streams
This new “category” of Health-Wealth solutions can create significant value for wealth management firms. But there are some important considerations to keep in mind in order to monetize this opportunity:
- It will be necessary to identify and target specific segments as early adopters – for example segments of consumers who like to take extra precautions and proactively protect against any risks post-retirement, or segments of consumers who want to have a “worry-free” retired life
- Messaging and communication will be key – Behavioral Economics principles have shown significant impact in the wealth management/retirement savings sector e.g., Save More Tomorrow (SMarT) Program; The Save, Earn, Enjoy Deposits (SEED) program
- Digital business models and value propositions that provide greater transparency, control, personalization, real-time information, social connectedness have shown high levels of consumer adoption and satisfaction
- End-to-End seamless business process creation. Wealth managers will need to create a business process that links health care data with wealth management retirement planning outputs that help consumers understand the level of savings required for their specific health status and retirement needs.
The Potential and Growth of the Health-Wealth “Platform”
Developing a Health-Wealth platform that links health care and wealth management has immense possibilities –not only for Wealth managers and Banks, but also other sectors, creating the possibility of an eco-system supported by companies in FS, health care and also technology:
- Retirement planning that precisely accounts for healthcare costs during retirement – resulting in higher Assets Under Management – a direct source if incremental revenues. Additionally – greater engagement and loyalty among clients – due to a new stream of interactions that the FA will have with clients around fulfilling a “new need”
- Managing a healthy and balanced lifestyle by “linking” health and wealth. Direct linkage between health and wealth will lead to new business models that link fitness tracking with wealth management and financial planning
- Improved planning (pre-retirement) driven by greater transparency into healthcare costs will enable consumers to buy health insurance (including Gap insurance).
The benefits of Health-Wealth solutions are immense, but so are the executional challenges. Domain expertise in the two sectors, combined by deep insights into consumer needs, and technological / process capabilities will be critical to gain success in this new category.
1 – Pew Research Center “Baby Boomers Retire” By Russell Heimlich (http://www.pewresearch.org/fact-tank/2010/12/29/baby-boomers-retire/)
2 – Employee Benefit Research Institute ebri.org Jan. 31, 2017 • Vol. 38, No. 1
3 – “Health and Retirement: Planning for the Great Unknown” Merrill Lynch Retirement Study 2014
4 – FA Interviews