Planning for Health Care in Retirement Health care is consistently among the primary concerns of retirees and pre-retirees as they consider their post-employment finances. This concern is due, in part, to the historical growth in health care expenses relative to overall inflation, the on-going debate among our political leaders is how to best fund, manage and deliver health care to retirees, and the shift in retirement income and retiree health care responsibilities from employer-sponsored defined benefit plans and retiree medical insurance plans to the individual’s personal savings and private insurance. There is also a growing awareness of the effects of increased longevity and better medical care on an individual’s potential need for non-medical long-term living assistance. Today, we’ll examine how you can place the health care expense question in your overall retirement income plan, understand the importance of planning for health care related expenses in retirement, and the options available to address and manage your health care expense risk

Important things to keep in mind • Not a deposit • Not FDIC or NCUSIF insured • Not guaranteed by the institution • Not insured by any federal government agency • May lose value The data presented in this presentation are hypothetical and may not be used to project or predict actual performance. This material should be regarded as educational information on health care only and is not intended to provide specific health care advice. If you have questions regarding your particular situation, you should contact your health care, legal or tax advisor. While Financial Advisors may discuss health care costs as part of a client's retirement plan, Financial Advisors may not provide specific advice on health care coverage options. The general distributor is Nationwide Investment Services Corporation (NISC), member FINRA. Nationwide Retirement Institute is a division of NISC. Nationwide, the Nationwide N and Eagle, Nationwide is on your side and Nationwide Retirement Institute are service marks of Nationwide Mutual Insurance Company. © 2015 Nationwide. NFM-10373AO.12 (1/15) Read Slide

Agenda The Retirement Income Challenge Understanding Health Care Creating a Plan to Address Health Care Costs So today, specifically, we’ll cover: the retirement income challenge and the health care dilemma. We’ll also discuss how you can work with your financial advisor to create a plan to address your health care costs.

The Retirement Income Challenge [READ SLIDE]

The Retirement Income Challenge Retirees need to make a series of important decisions between ages 55 and 70½1 Retirement Decision Points Retirees must plan for many decisions, most of them guided by law, between the ages of 55 and 70½. These decisions may largely influence retirement success as well as long-term financial adequacy – how and when you withdraw, and how to get the most from retirement benefits like Social Security and Medicare. This means that everyone needs to be educated before and after retirement to make decisions at these key ages. 1 The Retirement Income Reference Book, 2012, LIMRA.

The Retirement Income Challenge1 How do I invest for GROWTH? Asset & Product Allocation How do I PROTECT my assets? Risk Management How much INCOME can I take and when? Income Creating secure and sustainable retirement income poses significant challenges. The biggest of which is balancing the simultaneous needs of growing and protecting your assets, while also taking income from them. 1 The Retirement Income Reference Book, 2012, LIMRA.

The Retirement Income Challenge1 Risks differ for pre-retirees and retirees. For example, retirees face additional risks that pre-retirees may not: Market loss and inflation risks continue but they are amplified Potential for of outliving assets, incurring larger-than-expected health care costs and losing a spouse on whom they rely for income 1 The Retirement Income Reference Book, 2012, LIMRA.

The Health Care Dilemma [READ SLIDE]

The Health Care Dilemma Managing the cost of health care is one of the most complex issues facing society2 Likely among your greatest expenses in retirement Ranks as a top concern of retirees and pre-retirees3 As I mentioned at the beginning of the presentation, the rising cost of health care has become one of the biggest and most complex issues facing our country—in fact, it’s likely to be one of your greatest expenses in retirement. And while it ranks as a top concern, most Americans aren’t thinking about—much less planning for—their health care costs in retirement. When you think about future health care costs, it is important to consider inflation. Health care spending continues to rise at the fastest rate in our history. In fact, US health care spending is expected to reach $4 TRILLION in 2015. Experts agree that our health care system is riddled with inefficiencies, excessive administrative expenses, inflated prices, poor management, inappropriate care, waste and fraud. These problems significantly increase the cost of medical care and health insurance for employers and workers and affect the security of families. 2 “Fidelity Investments Estimates Couples Retiring in 2013 Will Need $220,000 to Pay Medical Expenses In Retirement.” Fidelity Annual Survey of Retiree Health Care Costs. 2013. 3 Nationwide Health Care and Long Term Care Study. November 2014. U.S. Adults age 50 and older.

The Health Care Dilemma Health care spending has far outpaced inflation over last decade 5.8% − Health care4 2.5% − Inflation5 ...and it can have a significant impact on your finances6 38% Have difficulty paying bills 27% Use up savings 16% Borrow money Health care spending is expected to experience inflation rates of 5.8% on average. Compared to overall inflation in the past 10 years, this is more than double the rate of inflation we’ve been experiencing. The cost of health care has had a serious impact on American’s household finances. The 2013 Health and Voluntary Workplace Benefits Survey, sponsored by the nonpartisan Employee Benefit Research Institute (EBRI) and Matthew Greenwald & Associates, a market research firm, found that increased health care costs affected household finances. The increased health care costs are forcing people to shift resources: 38% have difficulty paying for other bills - 27% have used up all or most of their savings - 16% of people need to borrow money due to the rising health care costs 4 “National Health Expenditure Projections, 2012–22: Slow Growth Until Coverage Expands And Economy Improves.” Health Affairs, September 2013. 5 US Bureau of Labor Statistics. Consumer Price Index (CPI-U) average inflation rate from 2003-2012. 6 2013 Health and Voluntary Workplace Benefits Survey: Nearly 90% of Workers Satisfied With Their Own Health Plan, but 55% Give Low Ratings to Health Care System, by Paul Fronstin, Ph.D., EBRI, and Ruth Helman, Greenwald & Associates. EBRI Notes, Vol. 34, No. 9, September 2013.

The Retirement Income Challenge Percentage of Private-Sector Workers Employed By Establishments Offering Health Insurance to Retirees, 1997–20117 Fewer employers offer retiree health insurance and benefits. According to EBRI: Fewer employers are covering retiree health insurance; in addition, the retirees covered in employer plans face rising premiums, higher out-of-pocket expenses and strict eligibility requirements. Many employers are not obligated to continue retiree health coverage, and retirees presently enjoying the benefit may face cancellation. This means: The uncertainty of company-provided retiree health insurance adds another level of complexity, particularly for retirees not yet eligible for Medicare; therefore, increased health insurance premiums and care costs may negatively impact their ability to pay for other basic needs. This, together with the spiraling cost of Medicare to the government (and taxpayers), may well explain why retirees and pre-retirees are so concerned about health care costs; if their programs are eliminated, what will they do and will they be able to shoulder the cost? 7 Employment-Based Retiree Health Benefits: Trends in Access and Coverage, 1997‒2011. EBRI. October 2012. No. 377.

The Health Care Dilemma Consumer Estimate of Annual Health Care Costs in Retirement8 $10,000: $6,000 to $9,999: $3,000 to $5,999: $1,500 to $2,999: $0 to $1,499: Don’t Know: 8% 13% 25% 12% 16% 26% 79% have underestimated, or don’t know their medical costs According to a new study by Nationwide titled “Health care costs in Retirement”, over three-quarters of consumers underestimate, or have no idea about health care costs. Retirees’ access to employer-sponsored health insurance continues to decline, and there are potential changes in Medicare benefits due to the program’s projected funding shortfall. Citizens need to realistically plan to be responsible for their own health care in retirement. Considering that the average 65-year-old couple retiring today living for 20 years needs more than $280,000 to cover their medical costs during retirement (in other words, one person needs an average of $7,000 per year), the following data from a recent consumer study from Nationwide on healthcare costs in retirement suggests that the majority of workers are not adequately factoring health care costs into their retirement planning. The data outlined in green represents the people who have underestimated their medical costs or simply do not know their medical costs in retirement: 16% of people think they will need less than $1,500 a year to cover their healthcare costs in retirement 12% think they will need between $1,500-$3,000 to cover their annual healthcare costs in retirement. 25% think they will need $3,000-$6,000 to cover the annual healthcare costs 26% of workers have no idea how much they will need. One reason people may underestimate the amount of money needed to cover their health care costs in retirement is that many workers do not think they will ever need long-term care. Only 1 in 10 (or 10%) think it is very likely they will need long term care, but studies have found that 70% of those reaching age 65 will need some form of long-term care According to the Centers for Medicare and Medicaid at Medicare.gov) 8 Nationwide Survey “Health Care Costs in Retirement.” Consumer study of 625 respondents, January 2012.

But what about Medicare? Myth Fact Medicare will cover most/all of my expenses It covers only about 62% 9 Medicare will cover my long-term care if I need it It does not cover long-term care 10 So, the health care picture can seem a little scary and daunting. And this is typically the time in the presentation that someone asks “but what about Medicare?” Well, there are a few myths we should address up front. [Read slide] 9 "How Much Does Medicare Cover?" EBRI Fast Facts. #251. Oct. 17, 2013. 10 Medicare and You 2014. Medicare.gov.

Understanding Health Care Health care expenses Premiums for Medicare, Part B & D Medicare cost-sharing provisions $255,000 – $360,000: Out-of-pocket health care expense estimate for a 65-year-old couple11 To do this, let’s break down health care expenses for the average retired couple. Nearly half of their expenses are Medicare cost-sharing provisions such as co-pays and deductibles. It’s important to note that Premiums for Medicare Parts B and D as well as out-of-pocket expenses make up over half their expenses. It’s been estimated that a couple retiring now will need between $255,000 and $360,000 to cover their out-of-pocket health care expenses. It’s important to note that the figures in the pie chart do not include other health-related expenses, such as over-the-counter medications, most dental services and long-term care. Out-of-pocket prescription drug expenses 11 Savings Needed for Medigap Premiums, Medicare Part B Premiums, Medicare Part D Premiums and Out-of-Pocket Drug Expenses for Retirement at Age 65 in 2013. Assuming a 90% chance of having enough savings. Source: Amount of Savings Needed for Health Expenses for People Eligible for Medicare: More Rare Good News, by Paul Fronstin, Ph.D., Dallas Salisbury, and Jack VanDerhei, Ph.D., EBRI. October 2013.

Understanding Medicare Option 1 Rx Coverage Part D or GHI Original Medicare Part A and Part B Secondary Insurance GHI, MedSup + Option 2 Medicare Advantage (Part C) 1. Hospitalization, 2. Medical 3. Rx (MA-PD) OR Let’s talk more about Medicare to get a better understanding of what we’re dealing with. [OPTIONAL] Medicare is a federal health insurance program administered by the Centers for Medicare and Medicaid Services (CMS) for people 65 and older, Disabled under 65, and at any age for those diagnosed with End Stage Renal Disease (ESRD). You’ve probably heard about the Medicare alphabet (Parts A, B, C, D, etc.) and terms like Advantage or Medigap. Let’s see if we can take away some of the mystery. First, you should know there are two options. Option 1 centers around what’s called “Original Medicare” and provides the opportunity to add additional pieces, like supplemental and prescription coverages. Option 2, or Medicare Advantage packages are offered by private companies approved by Medicare. They offer almost all of Parts A and B from Original Medicare but also generally include prescription drugs, and many plans offer extra coverage, such as vision, hearing, dental, and/or health and wellness programs. Ok, let’s take a look under the hood now.

Understanding Health Care Option 1 – Medicare Part A: Hospital Insurance12 Inpatient Hospitalization Skilled Nursing Facilities Home Health Care Hospice Patient costs for an in-hospital stay 2015 Days 1 - 60 $1,260 deductible Days 61 - 90 $315 per day copay Days 91 - 150 $630 per day copay Days 150+ All costs Let’s look at an overview of what Medicare Part A doesn’t cover. Notice the high out-of-pocket cost for an extended hospital stay. 12 Medicare.gov. Medicare 2013 & 2014 costs at a glance. http://1.usa.gov/190ejwx.

Understanding Health Care Option 1 – Medicare Part B: Medical Insurance13 Doctors/Providers Preventive Benefits Durable Medical Equipment Outpatient Services Individual Pays 2015 Monthly premium (based on MAGI) $147 deductible 20% coinsurance on doctors’ services and outpatient care Let’s look at an overview of what Medicare Part B doesn’t cover. Please also note that your income in retirement determines the monthly premium for Medicare Part B — the higher the adjusted gross income, the higher the premium. Changes to original Medicare, under the Affordable Care Act.: No out-of-pocket costs for most preventive services Part B Deductible and Coinsurance will be waived Annual Wellness Visit Comprehensive health risk assessment Personalized Prevention Plan Health advice and referral to education and preventive counseling Part B income thresholds are frozen at 2010 levels through 2019 13 Medicare.gov. Medicare 2014 & 2015 costs at a glance..

Understanding Health Care Option 1 – Medicare Part B: Monthly Premiums14 If Your Yearly Income in 2013 was: You Pay (2015) Filed Individual Tax Return Filed Joint Tax Return $85,000 or less $170,000 or less $104.90 $85,000 - $107,000 $170,000 - $214,000 $146.90 $107,000 - $160,000 $214,000 - $320,000 $209.80 $160,000 - $214,000 $320,000 - $428,000 $272.70 above $214,000 above $428,000 $335.70 Premiums are paid monthly, starting at just over $100, and scale up based on your modified adjusted gross income (your adjusted gross income plus your tax exempt interest income). Note that your income in retirement determines the monthly premium for Medicare Part B — the higher the adjusted gross income, the higher the premium. 14 Medicare.gov. Medicare 2014 & 2015 costs at a glance.

Understanding Health Care Option 1 – Medicare Part D: Prescription Drug Coverage Available two ways: Stand-alone Prescription Drug Plans (PDPs) Through Medicare Advantage Plans (MAPDs) ALL people with Medicare can get Part D Open Enrollment Oct 15th to Dec 7th 2015: Other enrollment times based on circumstance Coverage begins Jan 1, 2016 All people with Medicare have the option to join a plan that covers prescription drugs. Anyone who has Medicare Part A (Hospital Insurance), or Medicare Part B (Medical Insurance), or both Part A and Part B is eligible to join a Medicare prescription drug plan and must enroll in a plan to get Medicare prescription drug coverage. However, those who live outside the US or who are incarcerated may not enroll and are not eligible for coverage. Costs will vary depending on the plan; at a minimum, plans must provide a standard level of coverage as shown here. Plans may offer more coverage and additional drugs for a higher monthly premium.

Understanding Health Care Option 1 – Medicare Part D: Prescription Drug Coverage (2015)15 ** Premiums vary by insurer You pay 95% Medicare benefit (catastrophic coverage) Beneficiary pays 5% (min. co–pay) $2.65 generic or $6.60 brand Medicare pays $4,700 out-of-pocket reached $7,062 in total drug costs 100% No Medicare coverage in doughnut hole Beneficiary pays 100% or $3,720 45% of the cost for brand name medications 65% of the cost of generic medications The doughnut hole is large and expensive This slide provides an overview of what Medicare Part D covers and what it doesn’t. Some recent changes to Medicare Part D include: • Monthly Premiums: $16 – $100 (2011) •  Annual Deductible: $0 – $320 •  Co-pays: 25% or flat co-pay amounts based on formulary •  Coverage Gap (doughnut hole): $2,960 to $7,062 in total drug costs •  Coverage Gap the insured pays: 45% of the cost on brand name medications and 65% of the cost on generic medications during coverage gap •  Catastrophic Coverage is reached after $4,700 is spent out of pocket: approximately 5% co-pay after coverage gap The “doughnut hole” discounts will increase each year until the gap is closed in 2020. After that, retirees will be responsible for 25% of all prescription drug costs after the deductible until they reach the level of catastrophic coverage. $2,960 in total drug costs 75% Medicare benefit (initial coverage) Beneficiary pays $660 (25% or flat co-pay amounts based on formulary) $320 Deductible Beneficiary pays 100% or $320 15 Medicare and You, 2015. Medicare.gov

Understanding Medicare Option 1 — Medigap: Medicare supplemental insurance Pay only after Original Medicare (Parts A & B) Flexibility to see any doctor who accepts Medicare Open Enrollment – Six months beginning with Part B effective date at age 65 or older Does not cover prescriptions This slide provides an overview of Medigap coverage, which is designed to cover some of the expenses Parts A and B don’t cover. Read bullets. Additional talking points: 10 standard plans offering different levels of coverage (A – L). The number of standard plans was reduced from 12 standard plans to 10 standard plans in 2010. Different premiums for same coverage, depending upon insurance company No coverage for prescription drugs, dental, hearing or vision Guaranteed Issue

Understanding Health Care Cost of Medicare Premiums: Monthly Annual Medicare Part A $0 Medicare Part B $104.90 $1,258.8016 Medicare Part D $37.20 $446.4017 Medigap Plan C $ 186.00 $ 2,232.0018 Total Per Person $3,937.20 $7,874.40 $328.10 $656.20 Before we look at Option 2, let’s see just how the premiums for Medicare coverage can impact expenses during retirement. For this discussion let’s look at a couple who is married, filing jointly with an MAGI below $170,000. Both husband and wife are healthy and will not have any additional health care expenses besides required premiums. Medicare Part B premiums are based on your MAGI. This grid shows you the actual cost of premiums based on investor’s annual income below $170,000 married filed jointly is $104.90 per month.   Medicare Part D premiums are on average about $446 per year (varies by state) and are subject to the plan a person selects. The plan would be selected based on the prescription drugs being taken. Medigap insurance can vary by carrier. The median premium in Ohio for 2015 is $186 per person per month for an annual cost of about $2,232. This would cover plan C, which is considered to be a benchmark plan. Medigap plan F is the most popular and covers all the same categories as C, with the additional coverage for Medicare Part B excess charges Medigap policies range between $116 and $215 in the state of Ohio, as an example. . Per Couple 16 Medicare.gov. Medicare 2014 & 2015 costs at a glance. 17 Kaiser Family Foundation. "Medicare Part D: A First Look at Plan Offerings in 2015. Weighted average premium for Medicare Part D Stand-Alone Prescription Drug Plans". 18 Medicare.gov. Median cost for Medigap Policy C in Columbus, Ohio. Ranges from $119 to $253.

Understanding Medicare Now, let’s go over Part C and what is included (and not included) in Medicare Advantage.

Understanding Medicare Applying for Medicare: Enrollment automatic if you get Social Security or Railroad Retirement benefits prior to Medicare eligibility All others must apply with Social Security (or Railroad Retirement) during their seven-month Initial Enrollment Period (IEP) Three months before 65th birthday Month of 65th birthday Three months after 65th birthday The sooner the better! Social Security tells people it is best to apply for Medicare three months before age 65. But you don’t have to be retired to get Medicare. The retirement age for full Social Security benefits is slowly going up to age 67, but you can still get full Medicare benefits at age 65. You can’t get Medicare benefits before age 65 unless you have a disability or End-Stage Renal Disease. If you’re already receiving Social Security benefits (for example, getting early retirement), you will be automatically enrolled in Medicare without having to apply again. You will get a Medicare card and other information about three months before age 65 or before your 25th month of disability benefits.

Understanding Medicare Leverage these health care planning resources Medicare www.Medicare.gov 1-800-MEDICARE www.MyMedicare.gov Eldercare.org State Health Insurance Programs (SHIP) Benefitscheckup.org Social Security Administration − www.SocialSecurity.gov − 1-800-772-1213 Here are a few resources for furthering your health care planning knowledge. Please note that SHIP programs and contact information vary by state.

Creating a plan to address Health Care costs [READ SLIDE]

Create a plan to cover health care costs Americans underestimate retirement health care costs The majority of pre-retirees have underestimated the cost of health care in retirement Help eliminate the guesswork with a personalized health care cost assessment from Nationwide®

Start with a Health Care Cost Assessment Determine individual health care costs The Nationwide Health Care Cost Assessment Powered by calculations from one of the world’s leading actuarial firms Provides a personalized estimate of possible annual health care expenses Includes estimates for Medicare, out-of-pocket and long-term care expenses We know that a couple both age 65 today living to average life expectancy of 85 could need as much as $280,000 to cover premiums for health insurance coverage and out-of-pocket expenses during retirement. A couple who lives to age 95 could need as a much as $550,000. This example is for an average couple. This is an important number, but a realistic number for you, based on your personal health history, will be much more valuable. Fortunately, we can help with a tool called the Nationwide Personalized Health Care Cost Assessment. This tool was developed by a team of professionals including leading physicians and experienced actuaries using proprietary health risk analysis and up-to-date actuarial cost data. These experts analyze personal health and lifestyle information, healthcare costs, actuarial data and medical coverage. The result is a meaningful, personalized cost estimate that can help you plan for future health care expense, including Medicare, out-of-pocket and long-term care costs. With the Nationwide Personalized Health Care Cost Assessment, we can assess your health status and how it may affect your future medical costs. Then we can estimate years in retirement and health care costs during those years. We can also assess alternative scenarios. For example, what is the financial impact if you retire one year earlier or one year later than you currently plan.

Creating a plan to address health care costs Personalized health care cost assessment Health profile Longevity Total investment needed at retirement Impact of not taking action Allows you to easily and quickly receive a possible annual health care cost estimate based on your individual profile. The Nationwide Personalized Health Care Cost Assessment starts with a 3-part questionnaire on your health history, lifestyle and history of medical conditions. It also allows you to choose a metro region for retirement, which will more accurately calculate the cost of long-term care in that area. Completing this assessment is a critical first step for planning. The report will tell you about your health profile, health risks, estimated life expectancy based on those risks and hypothetical estimates for health care costs in retirement. Costs are broken out into Medicare, out-of-pocket and long-term care expense categories so you can take an even more detailed look into what your costs will be.

Health Care and LTC Cost Assessment

Health Care and LTC Cost Assessment

Health Care and LTC Cost Assessment

Health Care and LTC Cost Assessment

Health Care and LTC Cost Assessment

Health Care and LTC Cost Assessment [TALK ABOUT Fact finder] The information collected on the Health Care Cost Assessment will be kept confidential and used to provide an estimate of your potential health care costs in retirement. The estimate is based on your specific financial situation and goals, plus their current overall health condition. As your financial situation and health conditions may change over time, these changes may affect future costs. Please keep in mind that the estimates resulting from this fact finder are for hypothetical purposes only and are not guaranteed.

Summary The Retirement Income Challenge Understanding Health Care Creating a plan to address health care costs Now that we have covered these topics in detail, let’s summarize our discussion: Retirees face a challenge in creating and managing secure and sustainable income to last throughout retirement The increasing cost of health care in retirement compounds the retirement income challenge for retirees To start planning adequately for these likely expenses, it’s important to understand first what Medicare covers and what costs you’re likely to pay in the form of premiums, deductibles and copays To help you and your advisor plan for retirement health care costs, the Nationwide Personalized Health Care Cost Assessment offers a picture of the costs you’re likely to pay based on your individual health profile and medical history.