Spending In Retirement

[bookman51]

I got this via a local financial planner.  Anyone familiar with Employee Benefits Research Institute and the validity of this study??

"Conventional wisdom, like everything else, is subject to change.  One retirement rule of thumb that needs to be updated is the idea that you will be able to live comfortably on 70% to 80% of your pre-retirement income after you retire.  More than one-half of retirees reported that they spent 95% to more than 105% of their pre-retirement income during 2005, according to a recent survey conducted by the Employee Benefits Research Institute (EBRI).

One reason for the increase is rapidly growing healthcare costs.  A 2006 EBRI survey found that 55-year-olds who live to age 90 will need to have about $210,000 socked away (by age 65) in order to pay for out-of-pocket medical expenses and insurance to supplement Medicare during retirement.

So, what’s the new rule of thumb?  The folks at EBRI suggest adding 20% or more to the amount of pre-retirement income that you plan to replace after retirement."

 

[Martha]

I never find these studies very helpful . If you make $18,000 you probably need to replace 100% of your income. If you make $300,000 you have choices.

It is all about expenses, and not about income. I would like to see more research on expenses in retirement.

A 2006 EBRI survey found that 55-year-olds who live to age 90 will need to have about $210,000 socked away (by age 65) in order to pay for out-of-pocket medical expenses and insurance to supplement Medicare during retirement.

I have heard similar figures for healthcare costs post medicare age. Healthcare costs for ERs cannot be generalized. It depends on whether you have benefits from your prior work, what state you live in if you are buying on the individual insurance market, and how healthy you are.

 

[LOL!]

Let's see ...

If we save and invest 50% of our income, that's a 50% expense we don't need to worry about in retirement;

If we have paid off our mortgage, that's a 10% expense we don't need to worry about in retirement;

If we are retired we don't pay FICA and Medicare taxes, that's another  7.65% expense we don't need to worry about.

With our lower income, we save on income taxes, that's another 10.35% expense we don't need to worry about.

Let's see 50% + 10% + 7.65% + 10.35% = 78%.  So we need about 22%  of our pre-retirement income.

But add in 78% for healthcare and we are right back at 100%.  The new studies must be right!

 

[cyclone6]

Here we go again...the great American health care debacle. Health care in this country is a joke - an absolute joke. If is bankrupting the country - just look at medicare/medicaid and the outstanding obligations. Not enough $$ in all the markets in the world to cover our health care?

Looking for a sector to collapse, it will eventually be health care and the insurance barons who are getting rich on it. One of these days sane coverage and pricing will return.

Until then, I am going to Thailand. The prices are about 1/10 of what we get ripped off here for, and many of the doctors are western trained. 60 minutes did a bit on healthcare in Thailand and India a year or so ago.

You can have this corrupt, stinking system...I opt out.

 

[astromeria]

Not to mention that there's income and there's income. We're currently living on 95% of my husband's semi-retirement income, but that's 25% of our peak income--and 8% of our gross income the year our stock options panned out! Most people's income these days doesn't have a smooth upward trajectory as in the past.

I like the way LOL put it.

 

[Scrooge]

Most people's income these days doesn't have a smooth upward trajectory as in the past.

Hm, a more uneven curve? That's an interesting question, I don't think I have ever thought about it quite that way. Well, aside from the well known statistics showing that HS graduates' incomes have stagnated over the last couple of decades while college graduates have done very well. I wonder if there is a bunch of graphs for every generation's income over their lifetimes somewhere?

 

[heyyou]

Scott Burns wrote about that study several month ago. I vaguely remember the $200k number. His use of the info would imply some credibility. Burn's article may have a functioning link to the original paper.
Joe

 

[Scrooge]

Scott Burns wrote about that study several month ago.  I vaguely remember the $200k number.  His use of the info would imply some credibility.

I would think that too much is unknown at this point to be able to predict what our individual costs over the next 30-40-50 years will be. To quote Congressional Research Service:

Medicare and Medicaid outlays rise from 4% today to as much as 12% of GDP in 2030 and 21% of GDP in 2050. These increases in spending are not expected to subside after the baby boomers have passed away.

Inevitably, something will have to change between now and then, be it taxes, benefits, deductibles, quality/quantity of care, reimbursement policies or something else. I can't think of any way to guesstimate how these changes may translate into out-of-pocket costs for your average Medicare recipient 

 

[SteveR]

Inevitably, something will have to change between now and then, be it taxes, benefits, deductibles, quality/quantity of care, reimbursement policies or something else. I can't think of any way to guesstimate how these changes may translate into out-of-pocket costs for your average Medicare recipient 

I know...Canada will invade the US and take over the country then we all will be on their national medical plan.

 

[ESRBob]

So, what’s the new rule of thumb? The folks at EBRI suggest adding 20% or more to the amount of pre-retirement income that you plan to replace after retirement."

This came from your financial planner -- how much interest do you think he or she has in having you stop making contributions to your funds and begin a life in early retirement? Your stress working another 10 years to make that extra 20% safety cushion isn't stressing him or her a bit!

If you are looking for sensible advice on healthcare insurance alternatives, this book, reviewed and discussed in other threads here, looks pretty good:

The New Health Insurance Solution: How to Get Cheaper, Better Coverage Without a Traditional Employer Plan" by Paul Zane Pilzer

Most states, with the exception of NY and NJ, have some pretty good low-cost options, and the number of options for self-purchased healthcare insurance is likely to grow in the future as the old employer-sponsored health insurance paradigm continues to soften around the edges.

 

[Scrooge]

Most states, with the exception of NY and NJ, have some pretty good low-cost options, and the number of options for self-purchased healthcare insurance is likely to grow in the future as the old employer-sponsored health insurance paradigm continues to soften around the edges.

Perhaps I am confused, but I thought the $200K number quoted above was for "out-of-pocket medical expenses and insurance to supplement Medicare during retirement", i.e. Medicare premiums, Medigap, etc and not for pre-Medicare insurance?

 

[ESRBob]

Scrooge,
I think you're right. I was mushing together arguments to two different issues -- those who say "you can't retire early because health insurance is impossible to afford or get independently" and this new twist, "you'd better not retire early because even Medicare won't pay for what you think it will -- you'll still need an additional 200k (I think Fidelity was the first source of this number) more than you think just to cover medical expenses in retirement that Medicare fumbles".

It is all part of the background noise for the latest 'gotcha' that is going to keep prudent people hard at the grindstone long past the point they want to be there... <end of rant>

 

[Scrooge]

It is all part of the background noise for the latest 'gotcha' that is going to keep prudent people hard at the grindstone long past the point they want to be there... <end of rant>

There may well be a couple of ulterior motives and perfidious hidden agendas here. However, the point about Medicare costs going up, up and away (to mix genres for a moment) and eventually becoming unsustainable in a decade or two is likely a valid one.

I believe the bad news for early retirees is, as I wrote above, that I am unaware of any way of predicting how Medicare will be changed to avoid looming insolvency. If the government once again raises Medicare taxes on the workforce, it won't affect retirees per se, but in order to fully fund the projected shortfall, you would need a tax increase tantamount to -- eventually -- 17% of the GDP, which is, er, unlikely.

If you raise the age of Medicare eligibility or premiums, then you will have something similar to the scenario outlined by the "you need another $200K!" crowd, although it may not be quite as drastic as they claim. Still, it would be a political hot potato and recent legislation like the prescription drug benefit suggests that the political pendulum is still moving in the direction of expanded tax-subsidized benefits in this area, not in the direction of their limitation.

On the third hand, you could continue cutting physician/hospital reimbursement, but pretty soon you will start running into quality of care issues and that's another political hot potato.

I suspect that the main source of this unpredictability is that the electorate hasn't decided yet how it wants to address the issue of ever more expensive medical treatments -- often with diminishing returns -- becoming available. Do they want the government to pay $10K to keep a bedridden and semi-conscious Medicare patient in her 90s alive? How 'bout $100K? $500K?

Granted, this is not exactly a new problem and the federal government has been able to postpone it for over 20 years by raising taxes and premiums as well as cutting reimbursement. I don't know enough about the details to be able to tell whether the problem can be postponed yet again, but most papers I have seen suggest that we should be out of relatively painless options in 7-12 years.

 

[2B]

I know...Canada will invade the US and take over the country then we all will be on their national medical plan.   

If Canada invades and offers us heath care, do we have to surrender in French or English?

Will we have to watch hockey? I need to know whether it would be better to fight to the death (preferably theirs).

 

[Gone4Good]

Will we have to watch hockey? 

Curling.

 

[spideyrdpd]

. Do they want the government to pay $10K to keep a bedridden and semi-conscious Medicare patient in her 90s alive? How 'bout $100K? $500K?

The decisions to dnr a patient is often up to grieving family. The money isnt an option, because they arent paying the bill. So yes 10's of thousands are spent on bedridden semi comatose patients every day. I cant see how to resolve the issue since you dont want an insurance company or worse the government making your decisions.

 

[Rich_by_the_Bay]

The decisions to dnr a patient is often up to grieving family. The money isnt an option, because they arent paying the bill. So yes 10's of thousands are spent on bedridden semi comatose patients every day. I cant see how to resolve the issue since you dont want an insurance company or worse the government making your decisions.

Well, a good place to start is having a frank and compassionate discussion about the decision with the family or health care POA. You'd be surprised how often this just doesn't get done. Even by cancer specialists.

 

[Scrooge]

I cant see how to resolve the issue since you dont want an insurance company or worse the government making your decisions.

I am sure the electorate will eventually resolve it in some fashion (it always does, surprisingly enough), but from the RE POV the important question is not whether it will be the "Soilent Green" option or the "Logan's Run" option  -- we just need to know what to expect and that's hard to predict at this point.

 

[AltaRed]

Curling.

Actually more like soccer over hockey or even curling.  The World Cup took center stage for sports on Canadian TV. Who woulda figured, eh?

But you really don't know what you are missing with curling 

 

[jclarksnakes]

Well, a good place to start is having a frank and compassionate discussion about the decision with the family or health care POA. You'd be surprised how often this just doesn't get done. Even by cancer specialists.

Rich,
....Amen to that. When they have codes on TV the results are always so postive. All the codes I have seen on the job are more like disrepectful treatment of the aged dead rather than the TV represented heroic efforts to save some healthy young person. We do bring a few around but I always read their obituary in the nerdspaper within the next week or so. I wish more people could see the reality in this issue and make better choices. I see codes for most of my patients as pointless exercises where the only perceived value is in training the residents. Many of the patients being maintained in intensive care have zero probablity for a positive outcome but their family members insist on keeping them alive and the medical system seems only too happy to continue this rediculous and very very expensive misuse of medical assets. My ideal retirement job may be working for Doctor Kavorkian after he gets paroled. 
....It seems to me that the real crisis in US healthcare is that we need so much of it. On any given night between 50 and 75 percent of the patients I care for in the hospital are there because of their unhealthy lifestyle choices. I work in orthopedics and the overwhelming majority of my patients who have elective joint replacements are morbidly obese. A great number of the other patients are heavy smokers, non-compliant diabetics and drug and alcohol abusers. If we want to get healthcare and insurance costs under control we need to do whatever it takes to MAKE people live healthier lifestyles. We are way beyond the point where voluntary measures will suffice. I know it would take serious changes but it could pay off big time in reduced medical costs.
jc
RN, BSN

 

[ESRBob]

JC,
Great to have perspective from the front lines. Any way we look at it, somehow healthcare is going to need to be rationed, and that day is coming soon. Every other country seems to have a way of weighing who gets treatment and who waits or goes to the bottom of the list. We may not like how the decisions get made, and those with more $ may be able to pay to get moved up the list, but at the end of the day, we do not have unlimited resources as a society to give every high tech treatment every time to everyone who needs it or wants it. Pretending otherwise is only delaying the inevitable.

Still if we have a strong healthcare industry bent on their own bottom lines, the current state of affairs is a reasonably predictable outcome. I am told that new drug development focusses on finding perennial drugs that people with a certain 'condition' will need to take for life. (e.g. Lipitor) If starting the drug shuts down the body's own ability to make the substance naturally, so much the better. (e.g. Prozac). When it comes to developing a Lyme vaccine, or something else which could actually help prevent people from getting an illness, but which does not generate annuity streams for the Pharmaco, then the business models don't work and the money doesn't get invested. Meanwhile, we all wonder how we're going to afford to RE because of our expected high medical bills in the future.

Something's gotta give... I'm going to the healthclub and eating organic in the hopes to personally dodge the worst of this. Still, it isn't a solution to the bigger issues and isn't necessarily going to work for everyone: a friend who hadn't exercised in 30 years decided recently to get serious, took an intensive swimming class, and gave herself a heart attack. $40,000 later, she now remembers hearing the second bit of advice, "if you haven't been exercising much or at all, then take it easy when you first start!"

 

[astromeria]

My father decided on hospice when he was diagnosed with lung cancer at 87 (already had a poor to mediocre quality of life due to 20 years of diabetes). His doctor convinced him to see an oncologist and get treated, and he then had to argue with both of them (with Mom's support)! It isn't only patients and their families who want to go to extreme measures--some doctors hate losing patients beyond reason.

My grandmother had DNR orders in her medical chart and my Mom had POA when Nana had a heart attack while living in a nursing home in her 90s...they resusitated anyway. Man, was she pissed--and my mother even moreso. Nana could've had an easier death than the lingering one on tubes out the ying-yang they gave her--entirely courtesy of Medicare.

 

[ESRBob]

It is an industry, and even hospitals can go bankrupt if they don't have enough expensive procedures flowing through their rooms. (Our local hospital closed last year that way -- rarre but it does happen).

Astro, sorry to hear about your Nana. I sometimes think we as a society are terriby afraid of death, so DNRs and the thought that someone might actually be comfortable dying now when heroics could keep it going another few years are not concepts that sit easily with everyone. It isn't just medical establishment either -- patients' families can have a lot of feelings of guilt and loss etc when it involves making a decision to let go. If we had more clarity about death it might be easier to let go, but that is definitely a topic for another thread! Tibetan Book of the Dead, anyone?

 

[shiny]

Tibetan Book of the Dead, anyone?

Yes, my brother and I agreed to help the other through the paths, but I guess the last one to go is out of luck.

 

[shiny]

Oh sorry, back on topic:

We are going to have a hard time parting with the health ins. dollars. We are seriously considering not buying any for a while.