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how do I model for increases in healthcare spending?
01-26-2016, 05:57 PM
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#1
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Moderator
Join Date: Sep 2006
Posts: 4,064
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how do I model for increases in healthcare spending?
Hello all,
Is there a way to run FIRECalc that would allow me to model for increases in healthcare premiums/max OOP from early retirement through age 65, then adjust the amount down from there on out for Medicare costs, which I would expect to be lower?
I looked at the "off chart" spending section, but I don't see how you can model it for anything more than inflation.
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simple girl
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(55, married; Mr. Simple Girl, 59. FIRED 12/31/19!)
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01-26-2016, 06:51 PM
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#2
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Moderator
Join Date: Apr 2012
Location: San Diego
Posts: 14,212
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You can adjust the amount downward when medicare kicks in by creating a "pension" at age 65 that mimics the spending difference between non medicare and medicare.
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Retired June 2014. No longer an enginerd - now I'm just a nerd.
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01-26-2016, 07:24 PM
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#3
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Moderator
Join Date: Sep 2006
Posts: 4,064
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Quote:
Originally Posted by rodi
You can adjust the amount downward when medicare kicks in by creating a "pension" at age 65 that mimics the spending difference between non medicare and medicare.
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That makes sense, for sure. Thanks! But any ideas on how to model the increase in healthcare costs for the years before Medicare that likely will be more than inflation?
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simple girl
less stuff, more time
(55, married; Mr. Simple Girl, 59. FIRED 12/31/19!)
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01-26-2016, 08:23 PM
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#4
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Thinks s/he gets paid by the post
Join Date: Jan 2008
Posts: 1,495
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I only have about years until Medicare and will be on COBRA/CAL-COBRA for much of it. I'm simply over budgeting a $7K cost annually (costs are only $5K annual now) until Medicare kicks in. Not very scientific, I know, others may have better suggestions, but this is how I'm dealing with it the lazy method I'm using.
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01-27-2016, 05:17 AM
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#5
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Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
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Quote:
Originally Posted by simple girl
Is there a way to run FIRECalc that would allow me to model for increases in healthcare premiums/max OOP from early retirement through age 65, then adjust the amount down from there on out for Medicare costs, which I would expect to be lower?
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That is where other planners come in. Fidelity RIP handles healthcare and medicare expenses.
Plan for more than you think.
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01-27-2016, 05:58 AM
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#6
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Moderator
Join Date: Sep 2006
Posts: 4,064
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Quote:
Originally Posted by Senator
That is where other planners come in. Fidelity RIP handles healthcare and medicare expenses.
Plan for more than you think.
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Thank you - I will check it out for sure!
__________________
simple girl
less stuff, more time
(55, married; Mr. Simple Girl, 59. FIRED 12/31/19!)
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01-27-2016, 06:21 AM
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#7
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Administrator
Join Date: Jan 2008
Location: Chicagoland
Posts: 40,708
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Quote:
Originally Posted by simple girl
That makes sense, for sure. Thanks! But any ideas on how to model the increase in healthcare costs for the years before Medicare that likely will be more than inflation?
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One way to approach that is to calculate how much "excess healthcare spending" you want to plan for from now to Medicare eligibility, then either subtract that from your current portfolio or add it into FIRECalc as lump sum spending in the "portfolio changes" tab.
For example, if you want to plan for 10 years of having to pay a yearly $5K deductible, you could either set aside now $50k and not include it as part of your portfolio, or you can enter it as some lump sum expenses over that same time period.
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01-27-2016, 07:24 AM
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#8
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Moderator
Join Date: Sep 2006
Posts: 4,064
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Quote:
Originally Posted by MichaelB
One way to approach that is to calculate how much "excess healthcare spending" you want to plan for from now to Medicare eligibility, then either subtract that from your current portfolio or add it into FIRECalc as lump sum spending in the "portfolio changes" tab.
For example, if you want to plan for 10 years of having to pay a yearly $5K deductible, you could either set aside now $50k and not include it as part of your portfolio, or you can enter it as some lump sum expenses over that same time period.
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Awesome, thank you!!!
I knew you guys would have a work-around!
I am thinking of modeling ACA premiums to increase at about 10% a year, to be safe - does that sound like a good estimate?
Any suggestions on how much to model the max OOP to go up on ACA plans each year?
__________________
simple girl
less stuff, more time
(55, married; Mr. Simple Girl, 59. FIRED 12/31/19!)
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02-11-2016, 08:13 AM
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#9
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Moderator
Join Date: Sep 2006
Posts: 4,064
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I am still working on this tedious task. What a challenge!
I am working on using Fidelity's RIP to see how my projections look with it, but I have a question about FIRE calc.
Under the spending models tab I see that the default uses CPI for inflation adjustments. Does that work out to be more than the 3% option for inflation?
In other words, what % would you estimate the CPI option equates to?
I'm asking because I am trying to figure out how much extra our total healthcare costs will be than basic Medicare inflated by the CPI over our total projected retirement years.
Hope that makes sense. Thanks!
__________________
simple girl
less stuff, more time
(55, married; Mr. Simple Girl, 59. FIRED 12/31/19!)
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02-17-2016, 02:40 PM
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#10
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gone traveling
Join Date: Feb 2016
Location: Richmond
Posts: 17
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I don't know FIREcalc very well so more experienced users might have better ideas, but sometimes the best solution to issues like this is to throw the numbers into an Excel spreadsheet and just work it out using brute force - don't know if that is appropriate here, sorry.
As for CPI, again, I don't know how FIREcalc handles it but the average inflation rate in the US over the last 100 years has been 3.2%. The last decade has obviously been a lot lower. Healthcare has been a lot higher - about 3% for the last few years, 5.4% long term. I have modelled my healthcare at 5.5% - I'm not all that concerned about long term fluctuations as I figure Medicare will pick up the slack at 65.
Hope that helps, sorry I can't help more.
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02-17-2016, 03:04 PM
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#11
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Administrator
Join Date: Jan 2008
Location: Chicagoland
Posts: 40,708
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Quote:
Originally Posted by simple girl
I am still working on this tedious task. What a challenge!
I am working on using Fidelity's RIP to see how my projections look with it, but I have a question about FIRE calc.
Under the spending models tab I see that the default uses CPI for inflation adjustments. Does that work out to be more than the 3% option for inflation?
In other words, what % would you estimate the CPI option equates to?
I'm asking because I am trying to figure out how much extra our total healthcare costs will be than basic Medicare inflated by the CPI over our total projected retirement years.
Hope that makes sense. Thanks!
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SG, I'd guess that the historic CPI in FIRECalc is 2.5%. While 7% inflation in healthcare is high, one way to model it would be to break CPI into two components - healthcare @7% and other @ 2% - 2.5%. This comes out to around 3.25% or so for average total inflation.
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