Worst financial fear of the rich

[Nords]

Believe it or not, healthcare.

Worst financial fear of the rich | Bankrate.com

A survey by Nationwide Financial showed that nearly half of wealthy Americans approaching retirement are "terrified" of how health care costs could decimate their retirement plans. Many don't have a grasp on health care costs and how much is covered under Medicare. The respondents, all with at least $250,000 in investable assets, estimated that 68 percent of their medical costs will be covered under Medicare, when in fact, it's about half, according to the Employee Benefits Research Institute. And obtaining private medical insurance for the years leading up to Medicare eligibility can be very costly.

Of course it's possible that Nationwide might just be trying to spread fear, uncertainty, and dismay to make their healthcare policies and "income-producing annuities" look more attractive.

Or it's possible that the rich are so good at generating assets & income that they have no freakin' idea how much healthcare costs. As Lily Tomlin used to say, "They don't care. They don't have to."

* I'll say it before TromboneAl jumps on it. Everyone should hope that healthcare expenses will "decimate" their retirement plans, because that would mean they'd still have 90% of their retirement plans left... but over the last few decades, the "decimate" definition has strayed from its Roman roots to a connotation more like "devastated" or "destroyed".

 

[Mulligan]

Believe it or not, healthcare.

Worst financial fear of the rich | Bankrate.com

Of course it's possible that Nationwide might just be trying to spread fear, uncertainty, and dismay to make their healthcare policies and "income-producing annuities" look more attractive.

Or it's possible that the rich are so good at generating assets & income that they have no freakin' idea how much healthcare costs. As Lily Tomlin used to say, "They don't care. They don't have to."

* I'll say it before TromboneAl jumps on it. Everyone should hope that healthcare expenses will "decimate" their retirement plans, because that would mean they'd still have 90% of their retirement plans left... but over the last few decades, the "decimate" definition has strayed from its Roman roots to a connotation more like "devastated" or "destroyed".

I assume the 50% cost payment is in part items such as nursing home care and dental aren't included in the medicare health plan? And maybe they live in a high cost area for insurance? A study a few years back had 5% of the population consuming almost 50% of the healthcare costs. Concerning elderly people over 65, the top 5% consumed 34% of all medical costs. So if you are fortunate to not be in those small population segments and don't get gouged in health insurance, it is quit possible that your costs are reasonable. Out of curiosity I went on ehealth to price a premium in my state for a 62 year old, and it was only $176 for a $5500 deductible. That is only a little more than double what I am paying now at 47. I am certainly not saying we have a great or cheap system. But many people I don't think will face nearly the high costs that some people unfortunately have.

 

[Meadbh]

$250,000 in investable assets does not qualify as rich IMHO.

 

[marko]

$250,000 in investable assets does not qualify as rich IMHO.

Me either, but some people in our government do. Notice how they'll never really define "the middle class".

Everytime they say "middle class" everyone thinks they are talking about them! Most often they're not.

 

[donheff]

$250,000 in investable assets does not qualify as rich IMHO.

That was my first thought. But those comparably wealthy people do have a good chance of losing it all to health care costs so the fear may be sensible.

 

[2B]

I blow away the silly $250,000 of investable assets used to define "rich" as I suspect most of the already retired and close to retired on this forum do. Health care costs are my biggest concern because I have no control over them. We've got a half complete health care reform bill that may be thrown out by the SCOTUS. We have a Congress looking for money to cut from entitlements but that doesn't include their "entitlements."

 

[H2ODude]

Help me out here. Isn't all this concern for "healthcare" really more nursing home or assisted living concern? DW and I (well, mainly DW) care for her mother here in an addition we built in 2006. Admittedly I don't get involved with her finances or even care. She's 87, gets about $1,200 monthly SS, and as far as I know only real expense is her supplemental insurance that I believe is $200-300 a month. She pays no deductibles, goes to Dr. like it's a socially necessary thing (oh, I need to see Dr. ____ because my back hurts (she does, and he has nothing to say but keep taking your pain meds)); she's had falls, MRI's, catscans, you name it. When thought her NH Lymphoma had returned from 25 years ago, they spent $12,000 figuring out, nope, no NHL here, just swollen gland.

All this, and...no bills I'm aware of. All taken care of by medicare and supplemental. Frankly, I think it's outrageous because so much of the testing is so blatantly unnecessary. So my assumption is that once we're 65, we'll be able to quit worrying about what I consider "medical" costs. Now, long term or assisted living is another thing. If I put a price on what we provide her, as in what would this kind of care cost if provided outside the family, I'd guess easily $40-60k or more a year.

 

[MichaelB]

The $250K was the survey cutoff design point, and defined as "High Net Worth". Here are some links for those interested in the survey and the sponsor.

The survey http://static.nationwide.com/pdf-retirement-plans/NFM-10454AO.pdf

The sponsor Retirees Fear Rising Health Care Costs | Nationwide.com

Of course it's possible that Nationwide might just be trying to spread fear, uncertainty, and dismay to make their healthcare policies and "income-producing annuities" look more attractive.

Or it's possible that the rich are so good at generating assets & income that they have no freakin' idea how much healthcare costs. As Lily Tomlin used to say, "They don't care. They don't have to."

My sense is the survey intended to reinforce the need for financial advisors that understand Medicare coverage and can help project health care costs in retirement. It may have been directed toward FA's.

Agree with your footnote.

 

[SJ1_]

$250,000 in investable assets does not qualify as rich IMHO.

that was my first thought

 

[LARS]

Funny I thought the worst financial fear of the wealthy was... being poor!

Put another way, in my experience it is not the thing that you worry about that gets you, it's usually something else. Hence, LBYM makes sense as all on this forum already know.

 

[Gearhead Jim]

Or to put it another way, $250k at a 4% SWR will produce a lofty annual income of $10k.

Let the good times begin!

 

[aaronc879]

Or to put it another way, $250k at a 4% SWR will produce a lofty annual income of $10k.

Let the good times begin!

Add that to social security and most people don't live on any more than that. People on this forum are much better off than the majority.

 

[Midpack]

Add that to social security and most people don't live on any more than that. People on this forum are much better off than the majority.

You might be surprised, there's a very broad range here including many who live on (surprisingly) low annual spending, though some are indeed "better off." Members here are a broad cross section of people in the middle. There are very few if any here who qualify as rich from what I've read - but eye of the beholder yada yada...

So my assumption is that once we're 65, we'll be able to quit worrying about what I consider "medical" costs.

With deficits/debts at unsustainable levels and Medicare/Medicaid already spending far more than they take in and a 40 year ± retirement ahead of me, I'm not ready to "quit worrying." Health care before and after 65 is easily my biggest concern along with future real returns. But I agree LTC is another big issue that many people don't plan for (we haven't yet frankly)...

 

[Andre1969]

I'd be curious to see what the typical net worth is for people who don't have a pension to look forward to. When people know they're going to get a pension, chances are they're going to be less likely to amass a big nest egg to live off of.

If you take all of the people who will be getting (or already are on) pensions out of the equation, I wonder if the typical net worth of the remaining bunch would go up?

 

[W2R]

I'd be curious to see what the typical net worth is for people who don't have a pension to look forward to. When people know they're going to get a pension, chances are they're going to be less likely to amass a big nest egg to live off of.

If you take all of the people who will be getting (or already are on) pensions out of the equation, I wonder if the typical net worth of the remaining bunch would go up?

The answer apparently is "no". I googled it and came up with an interesting PDF from SS. http://www.ssa.gov/policy/docs/ssb/v68n3/v68n3p45.pdf Here's a surprising quote from it:

For both cohorts of near-retirees, the evidence indicates that those without a pension have much lower levels of net total worth than those who report having a pension.

Reading further into the study, they do not include the pensions in the net worth computations. The two cohorts were those born from 1933-1939, and those born from 1943-1949, and they were studied when at the same ages.

The pattern that emerges for both cohorts is that about one-fifth of individuals aged 55–61 hold little or no wealth at all, whereas about two-fifths hold a substantial amount of wealth. In addition, housing equity, which rarely is used to finance consumption in retirement, comprises more than one-half of total nonpension net worth for about 60 percent of all households, leaving—on average less than $45,000 jointly in nonhousing wealth and IRA/Keogh assets—a much smaller amount of wealth that is readily accessible if the need arises.
The fact that many near-retirees (about 40 percent) in the lowest-two wealth quintiles have no pension to potentially draw income from, coupled with the very low level of total nonpension wealth raises concern about their income security in retirement; they may be likely to rely heavily on Social Security, rely on welfare programs, or continue work in retirement.

 

[misty57]

I'd be curious to see what the typical net worth is for people who don't have a pension to look forward to. When people know they're going to get a pension, chances are they're going to be less likely to amass a big nest egg to live off of.

If you take all of the people who will be getting (or already are on) pensions out of the equation, I wonder if the typical net worth of the remaining bunch would go up?

Interesting theory. It doesn't hold true for us, but I wonder if you're right.

 

[misty57]

Now I see W2Rs post above and there you have it.

 

[Letj]

Or to put it another way, $250k at a 4% SWR will produce a lofty annual income of $10k.

Let the good times begin!

That's a nice income if you move to Mexico or Thailand.

 

[walkinwood]

.... A study a few years back had 5% of the population consuming almost 50% of the healthcare costs. Concerning elderly people over 65, the top 5% consumed 34% of all medical costs.

As retirement planning has evolved, it has begun to consider life-expectancy as a probability function rather than just planning to live for 100 years.
I think the planning will evolve to consider the probabilities of having such large medical bills - maybe taking your current health into account.

Advanced Medical Directives will help too once people begin to really understand them.

 

[Nords]

Advanced Medical Directives will help too once people begin to really understand them.

I think most people wonder why the doctors don't follow their patient's medical directives...

 

[ocdokie]

I assume the 50% cost payment is in part items such as nursing home care and dental aren't included in the medicare health plan? And maybe they live in a high cost area for insurance? A study a few years back had 5% of the population consuming almost 50% of the healthcare costs. Concerning elderly people over 65, the top 5% consumed 34% of all medical costs. So if you are fortunate to not be in those small population segments and don't get gouged in health insurance, it is quit possible that your costs are reasonable. Out of curiosity I went on ehealth to price a premium in my state for a 62 year old, and it was only $176 for a $5500 deductible. That is only a little more than double what I am paying now at 47. I am certainly not saying we have a great or cheap system. But many people I don't think will face nearly the high costs that some people unfortunately have.

Be wary of quotes on ehealth, as the premium costs they show appear to be based on a person who has no preexisting conditions and takes no medications. The actual premium cost you will be charged may go up substantially once you complete an application detailing every doctor appointment, injury, or surgery you've had in the last 10 years, as well as every prescription medication you took during that time (and/or currently take).

Ehealth gave me a premium quote for a slightly lower rate than yours for an Aetna policy with a $5K deductible (for a 52-year-old non-smoking female). I got a nasty shock once I completed my application and it went to underwriting. The actual premium rate I ended up with was a little over $600 per month. I thought I was in fairly good health -- no high blood pressure, diabetes, or heart disease -- and I'm about 15 pounds under the "normal" weight for my height. The only prescription medication I take is an antidepressant. Yet, as the underwriter explained to me, it was very concerned about my weight, hence the higher premium. (Gee, I thought my genetic ability to eat what I want without gaining weight was a good thing, but what do I know?) Also to my surprise, the insurer considered that taking ANY prescription medication regularly means that one has a preexisting condition.

So, anyone who's shopping for medical insurance before attaining Medicare eligibility should take the quotes from ehealth as a "floor"; it's likely that once you've given the insurer your medical history, the price will be higher.

 

[sunnysideup]

$250,000 in investable assets does not qualify as rich IMHO.

I had a good chuckle over this one. Of course, it's like defining old. What's old? It depends on how old you are...

 

[dtbach]

I had a good chuckle over this one. Of course, it's like defining old. What's old? It depends on how old you are...

Congress may well consider having $250,000 investable income as "Rich" since they need to get tax $ somewhere. Most voters would go along with it since most don't have nearly that much, so obviously "those" people "must" be RICH.

I just hope that Roth IRA's will be considered "untouchable" for tax purposes for the remainder of my life, but I wouldn't count on it.

 

[rescueme]

What's old? It depends on how old you are...

Older than dirt?

 

[rodi]

Congress may well consider having $250,000 investable income as "Rich" since they need to get tax $ somewhere. Most voters would go along with it since most don't have nearly that much, so obviously "those" people "must" be RICH.

I just hope that Roth IRA's will be considered "untouchable" for tax purposes for the remainder of my life, but I wouldn't count on it.

The article talks about $250k in investable assets... not investable income.
Big difference. One is net worth, one is cash flow.

It gets so confusing figuring out if I'm supposed to be rich or not. I have more than $250k in assets - but significantly less income per year.