Read time: 3-minute article

How fixed indexed annuities can help take the sting out of health care costs

This content is categorized as:

According to the Centers for Medicare & Medicaid Services, Americans' health care expenditures totaled $4.3 trillion in 2021 and are expected to rise to over $4.4 trillion in 2022. That's $13,261 per person.

With prices increasing year to year, managing health care expenses can be one of the biggest challenges to a financially secure retirement. Fixed indexed annuities can help, because they can provide a predictable source of income to pay health insurance premiums or other costs.

Any way you look at it, a person's future health is one of retirement's biggest unknowns, making it hard to estimate how much money to budget for health care expenses. Because these costs also rise at different rates, there's not a single inflation rate that applies to all of them. In addition, how much retirees pay for insurance premiums, deductibles, prescription drug coverage and nursing care is affected by other variables, including their:

  • Health coverage
  • Age
  • Gender
  • Health conditions
  • Retirement income
  • State where individual retires

However, one thing is certain. Health care will continue getting more expensive. According to HealthView Services, a maker of health care cost projection software, the cost of health care is expected to continue its historical trend, rising 2 to 2.5 times the rate of U.S. inflation. Consider these projected health care costs couples retiring in 2021 could pay out-of-pocket during their retirement years.


 

Total projected lifetime out-of-pocket health care costs

Retiring at age 65  Total Cost Future Value
65-year-old couple $662,156
55-year-old couple $1,035,980
45-year-old couple $1,718,977


Health care cost projections include Medicare Parts B and D, Medicare Supplement Insurance Premiums, Dental Premiums, out-of-pocket expenses and inflation. Calculations assume that a healthy male and female, both aged 55, will live to 87 and 89 respectively, and take into consideration a combined future modified adjusted gross income.


Fixed indexed annuities can help manage the rising cost of care

Managing health care costs without depleting assets can be a challenge for some retirees. Fixed indexed annuities can help people manage expenses they know they'll have while giving them the flexibility to meet future needs.

A "retirement paycheck" that's guaranteed for life

Lifetime withdrawals from an income or benefit rider can provide a guaranteed stream of income for predictable expenses like premiums, copays, dental and vision care. Keep in mind that rider payout factors increase with age, and the value of the benefit base used to calculate withdrawal amounts typically increases the longer the contract is held.1

Protection and growth potential

A fixed indexed annuity's indexed crediting strategies earn interest based in part on the upward movement of a stock market index.2 The annuity's Accumulated Value is protected from loss due to market downturns. This combination of protection and growth potential can be important when considering costs that are likely to increase regardless of economic conditions.

Access to money with annual free withdrawals

Most fixed indexed annuities allow a yearly free withdrawal amount.3 Required Minimum Distributions are IRS mandatory withdrawals and are generally considered part of the free withdrawal. Keep in mind that withdrawals in excess of the free amount will be subject to a Withdrawal Charge and Market Value Adjustment where applicable, and will reduce a rider's Lifetime Income Withdrawal amount. 

Confinement provisions

Most fixed indexed annuities offer confinement provisions, either as a waiver of withdrawal charges in the base contract or as a rider benefit. Rider benefits typically provide a significant increase in the Lifetime Withdrawal amount for a set period if certain conditions are met. While not the same as long-term care insurance, these provisions can help defray the cost of care in a nursing home or other Qualified Care Facility. Hybrid annuities that offer long-term care benefits are also available.

It's important to consider all expenses as well as income and retirement goals. Fixed indexed annuities can help people retire confidently to the dream they've nurtured for years.

Insights on Athene Connect. Tips, tools and resources to grow your business by helping clients retire with confidence.

Guarantees provided by annuities are subject to the financial strength of the issuing insurance company.

1 Lifetime Income Withdrawals may be reduced or may stop if you take Excess Withdrawals from your contract. If Excess Withdrawals, Withdrawal Charges or MVAs reduce the contract's Accumulated Value to zero, your Lifetime Income Withdrawal Payments will stop and the applicable rider will terminate.

2 Fixed indexed annuities are not stock market investments and do not directly participate in any stock or equity investments. An index may not include dividends paid on the underlying stocks, and therefore may not reflect the total return of the underlying stocks; neither an index nor any market-indexed annuity is comparable to a direct investment in the equity markets.

3 Withdrawals and surrender may be subject to federal and state income tax and, except under certain circumstances, will be subject to an IRS penalty if taken prior to age 59½. Withdrawals are not credited with index interest in the year they are taken. Withdrawals in excess of the free amount are subject to a Withdrawal Charge or MVA which may result in the loss of principal if taken during the first specified years of the contract. Withdrawals are based upon the Accumulated Value of the last Contract Anniversary.