Fidelity Retirement Planner Reduces Health Care Inflation?

[MercyMe]

[FONT=&quot]Fidelity's website says their planner gradually decreases inflation on health care expense over time...[/FONT]
[FONT=&quot]"Healthcare expenses have a higher inflation rate of 4.9%, which will gradually decrease to the 2.5% default rate."[/FONT]

[FONT=&quot]Why would they do that?[/FONT]

 

[G-Man]

[FONT=&quot]Fidelity's website says their planner gradually decreases inflation on health care expense over time...[/FONT]
[FONT=&quot]"Healthcare expenses have a higher inflation rate of 4.9%, which will gradually decrease to the 2.5% default rate."[/FONT]

[FONT=&quot]Why would they do that?[/FONT]

I notice the same language in the pdf documentation for the tool as well. Maybe the tool is assuming that at age 65 when Medicare kicks in, healthcare cost will keep pace with the general inflation rate used by the tool (2.5%).

****
Health Care Expense Inflation Assumption
The Tool makes the following inflation assumption and does not
allow you to change this inflation rate.
• Health Care Costs: The default inflation rate of health care costs
is a schedule of rates, which start at 4.9% for some time and
slowly decrease to general inflation, based on Fidelity research.

 

[MercyMe]

I asked Fidelity about this and they replied...

The decision to gradually reduce inflation assumptions on healthcare expenses is primarily based on trends observed over the last decade or so. As we continue to receive more data about healthcare cost we will update our assumptions in the planning tool accordingly. Also, although most expenses will show this assumption, not all healthcare expenses reflect a decrease. A good example of this is the long term care cost assumptions in the tool. It is one of the few we’ve seen increase over time and it does not follow the same reduction assumptions as the other healthcare expenses.

I still don't understand.

 

[Dtail]

I asked Fidelity about this and they replied...

The decision to gradually reduce inflation assumptions on healthcare expenses is primarily based on trends observed over the last decade or so. As we continue to receive more data about healthcare cost we will update our assumptions in the planning tool accordingly. Also, although most expenses will show this assumption, not all healthcare expenses reflect a decrease. A good example of this is the long term care cost assumptions in the tool. It is one of the few we’ve seen increase over time and it does not follow the same reduction assumptions as the other healthcare expenses.

I still don't understand.

So they still don't provide the data as to what ages the health care costs are reduced.

 

[G-Man]

So they still don't provide the data as to what ages the health care costs are reduced.

Would 65 (Medicare) be one of the ages?

 

[Dtail]

Would 65 (Medicare) be one of the ages?

Perhaps but that wouldn't really translate towards using the term "gradual".

 

[COcheesehead]

Trying to extrapolate “exactness” from an “approximation” that is trying to predict the future is a fools game. You need to have a little fudge factor with any tool.

 

[G-Man]

Trying to extrapolate “exactness” from an “approximation” that is trying to predict the future is a fools game. You need to have a little fudge factor with any tool.

Based on a lot of posts on this forum about the Fidelity Retirement tool, it looks like the tool is very conversative. If yes, I feel good about the results it is currently predicting for my retirement. I understand that the tool is only providing an estimate based on the data inputted.

 

[MercyMe]

Trying to extrapolate “exactness” from an “approximation” that is trying to predict the future is a fools game. You need to have a little fudge factor with any tool.

I agree but I’d still like to know how healthcare inflation over a 30 year time period could decrease.