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how do I model for increases in healthcare spending?
Old 01-26-2016, 06:57 PM   #1
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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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Old 01-26-2016, 07:51 PM   #2
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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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Old 01-26-2016, 08:24 PM   #3
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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.
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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Old 01-26-2016, 09:23 PM   #4
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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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Old 01-27-2016, 06:17 AM   #5
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Originally Posted by simple girl View Post
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?
That is where other planners come in. Fidelity RIP handles healthcare and medicare expenses.

Plan for more than you think.
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Old 01-27-2016, 06:58 AM   #6
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That is where other planners come in. Fidelity RIP handles healthcare and medicare expenses.

Plan for more than you think.
Thank you - I will check it out for sure!
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Old 01-27-2016, 07:21 AM   #7
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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?
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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Old 01-27-2016, 08:24 AM   #8
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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.
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?
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Old 02-11-2016, 09:13 AM   #9
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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!
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(49, married; DH 53. I am fully retired as of 2015 (well ok, I still work part-time but only because I love the job and have complete freedom to call off if I want to travel with hubby for work), DH hopes to fully retire 2018 when he turns 55 to access 401K penalty-free...although he may decide to do part-time consulting)
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Old 02-17-2016, 03:40 PM   #10
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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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Old 02-17-2016, 04:04 PM   #11
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Originally Posted by simple girl View Post
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!
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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