is it dangerous to forecast declining expenses?

[Teacher Terry]

I have seen people's expenses go down the older they get except for medical. Even die hard travelers don't want to do as much, etc as they age. Some aren't physically able. WE plan to spend the next 10 years doing what we want because by 70 who knows what will happen.

 

[bmcgonig]

I have seen people's expenses go down the older they get except for medical. Even die hard travelers don't want to do as much, etc as they age. Some aren't physically able. WE plan to spend the next 10 years doing what we want because by 70 who knows what will happen.

Am I wrong in the assumption that a Medigap F policy would cover all medical expenses except for something like Nursing home? If so then what would all the extra expense consist of ? Leaving out Nursing home care.


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[Katsmeow]

Am I wrong in the assumption that a Medigap F policy would cover all medical expenses except for something like Nursing home? If so then what would all the extra expense consist of ? Leaving out Nursing home care.

There are things medicare doesn't cover such as eyeglasses and hearing aids. Also, Medicare has rules for certain things and may not cover the amount of care you want to have. Also, a Medigap policy doesn't cover prescription drugs. With most prescription drug plans for Medicare there are still significant amounts of money to be paid particularly for those who have a lot of medical expenses.

 

[ejman]

Am I wrong in the assumption that a Medigap F policy would cover all medical expenses except for something like Nursing home? If so then what would all the extra expense consist of ? Leaving out Nursing home care.


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Very good question. My wife has medigap F and the costs over the premiums have been basically nil. I see the reports from Fidelity et al referencing medical costs in the hundreds of thousands and I don't understand where they come from - maybe its mostly from nursing home expenses?

 

[Telly]

I had forecast a significant drop in living expenses for when our last child graduated college. I had kept a running list of college kid expense items and associated costs for years, and when the day arrived , the costs indeed went down/disappeared.

For me, the savings were college costs ($$$$$$$$$), reduction in car insurance ($$$) due to car and child now on their own, car maintenance costs that I paid/reimbursed due to distance, reduction in health insurance cost ($), a very large reduction in umbrella policy premium, and I may be forgetting some various and sundry items, but those were the $ biggies.

In my spreadsheet, I modeled it as a step-function setback in living expenses at year XXXX. Year XXXX was a great year! I felt my job was done, a big sigh of relief.
So far, I have not worked in any other future expected step-reductions in expenses, like getting on Medicare, even though everything I have been able to figure out looks like it will be a yearly reduction of a bunch of 1,000s. Maybe I'm just not digging down to that level of granularity now that I'm ~13 years in and it doesn't look at all scary anymore.
I do not have any kind of age-related roll off of expenses programmed in, just rising every year with inflation (I'm using 3% across the board).

 

[bmcgonig]

There are things medicare doesn't cover such as eyeglasses and hearing aids. Also, Medicare has rules for certain things and may not cover the amount of care you want to have. Also, a Medigap policy doesn't cover prescription drugs. With most prescription drug plans for Medicare there are still significant amounts of money to be paid particularly for those who have a lot of medical expenses.

Maybe I'm wrong but those just don't seem large enough to cause a significant increase in spending, i.e., the right side of the smile.


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[H2ODude]

I too scratch my head when hearing about escalating medical costs. I know things can change, but we've watched this first hand with MIL who lived with us (ugh) for 8 years before she went into AL (subsidized by us and BIL)...we couldn't take it any more.

I'm not fluent in Medicare, but her Medigap is pretty much gold plated from AARP. AFAIK, she NEVER paid one nickel in copay or anything else; spent probably 10-15 stints in hospital over last 7 years for which statements said insurance paid $10-20k EACH time, never anything paid by her. Yes, she paid for eyeglasses and dentures, but that was it. I think her medigap is ~$230 a month.

No, none of this pays for "room and board" per se (except when in rehab, where she has been ~10x, and is now). We have appointment this afternoon with Rehab because we suspect she's not really making enough progress (and has only ~20 days left of the 100 allowed). This is a woman who went into hospice 5 weeks ago (predicted only 2-4 days left) and got booted out because she was stable (and she insisted on getting rehab so she could get stronger). I'll add that they named her the Queen, just as the AL facility labeled her the Princess, to give you an idea of her personality, which is NOTHING like her daughter.

I'd venture a guess that since Thanksgiving she's spent maybe a 3-4 weeks in the AL facility and the rest in hospital or rehab. We've not paid attention but I'd guess the statements would total at LEAST $100k (oh, she's on medicare and here for pneumonia? let's do a CT scan, we did a MRI last visit!). And what has come from her or our pockets for this? Zip. Nada. But it sure has shown us why our system is in trouble. That old saw about pneumonia being the old man's friend? (as in does you in when you get frail). Nope. Not now. She's had it i believe 4x. And continuous C Diff.

Through all this she keeps her demanding and suspicious nature that drives us all nuts. Totally self centered.

Sorry. Got off track. But the point is, with right Medigap you can cover the actual MEDICAL costs pretty well. We assisted on the AL costs, but at this point if they point her to skilled nursing (she weighs 75#, diapers, and pretty much bedridden) we're ready to turn her over to medicaid. She's used up the good will of her family and then some.

 

[pb4uski]

I too scratch my head when hearing about escalating medical costs. I know things can change, but we've watched this first hand with MIL .....

+1 for my grandmother, great-aunt and mother.

94 yo great aunt's medical expenses (she passed in 2013) were limited to Medicare Part B $105/month, Part D $44/month, Medigap $213/month, and some Rx co-pays ~$50/month. About $5k a year. Beyond that, everything was covered for her as I recall.

My 85 yo mom's costs are Medicare Part B $105/month, Part D $53/month, Medigap $197/month. About $4-5k a year total.

I guess Rx co-pays could bite some depending on what Rx you use, and eyeglasses et al, but in any event I don't see how it could become so significant that the right side of the smile would curl up a lot.

 

[mathjak107]

medigap prices depend greatly on state structure. we are shopping now and a plan f in ny which is not an age based state but community rated is 6500 a year for the 2 of us.

about 11k with medicare and part d .

but we don't go up yearly by age like age based states . georgia i noticed is 1/2 of what ny is for the same plan but they get increased by age every year.

this year our medical insurance and long term care insurance are 17k. i will be on cobra from 63 to 65 and my wife is starting medicare in august.

we get 1600 back on the LT policy from our state as a credit .

but that is a crap load of after tax dollars. throw in the 18k for dental for the two of us for major work and yes healthcare costs are a wild card in retirement.

the last 7 years i spent 45k on dental . i needed 6 implants and rejected 3 over 7 years , likely do to being diabetic and not knowing . just dropped in 4 more and rejected 2.

if it isn't me its my wife with work. it never seems to end for us.

 

[bclover]

There are some things I did forecast a decrease in.
For example,
right now I'm paying for my kids car insurance. LOL that is a 9K bill that will most definitely be going away in a year.
Also their college tuition. My youngest will be a junior so he's got two years left on my dime.

Like LRDave mentioned there are some categories that I noticed definitely go down with my parents and with my MIL.
discretionary income (eating out, travel) have all gone down simply due to age. both are in their 80's

 

[jcretire77]

A repost from this site I saw yesterday - The Retirement Café

Interesting article - Spending Typically Declines as We Age

 

[LRDave]

A repost from this site I saw yesterday - The Retirement Café

Interesting article - Spending Typically Declines as We Age

I liked the blog post just under the one you cited even better!

The Retirement Café: Time to Retire the Probability of Ruin?

Following this line of reasoning to its logical end, I have calculated the true probability of ruin resulting from consistent overspending with sequence of returns risk for nearly all retirees under nearly all economic conditions.

Zero.

 

[haha]

It would be hard to imagine expenses going down from the frugal level frequently mentioned here, but if an older person is poor, s/he just makes do. My maternal grandmother ran out of money, and spent the rest of her life with our family. (My Mom and Dad, and 4 kids.) It was fine by me, but I not sure my Dad always loved it. Once I was about 14, I pretty much lived in the basement, or out with friends, or at school sports.

OTOH, my paternal grandmother was well to do, and as far as I could ever see her expenses were quite unlikely to go down. Travel was never an attraction for her, in fact she would have detested the cattle car style of modern travel. But older women are great fans of having lunch with their friends, at various places that are perceived as nice by older women. My grandmother never did drive, so everywhere she went she went in a cab, unless one of her younger relatives maybe were able to take her. I know lunch is cheap for many of you, but not around here, and not in many other places in this US. A modest breakfast for 2 never comes in under $40+ for me. Add in Uber or cabs for those who no longer want to mess with cars or busses (the latter characterized by many as "loser cruisers")

I once lived in a (US) Scandinavian farming community. There were plenty old men and older couples who lived quite cheaply, growing their potatoes and cabbages, doing a bit of fishing, scavenging driftwood for wood stove heat and relying on grown kids or neighbors to share catches and fetch some stuff from town. Meals on Wheels also helped. Most of these people had lived hard lives forever, and didn't expect it to be any different after they were too old to work.

Overall, I think what may have been true up to now for a group, may be very different for an individual and going forward in time.

I think that trying to cut it very close is wrongheaded. But I can certainly empathize if a job is about to drive you up a tree.

Also. I second Gauss' mention of Bud Hebeler. A guy who goes out and sees how long-surviving people, especially widows, may really live. Many of his friends and clients are Boeing widows who or whose husbands made very good money and had excellent pensions and health care.

Ha

 

[Options]

Here's Michael Kitces in 2014 on the retirement spending "smile" and its implications for retirement spending planning:

https://www.kitces.com/blog/estimat...penditures-and-the-retirement-spending-smile/

His thoughts addressing rising retirement healthcare expenditure fears:

In turn, this study suggests that even clients (or their planners) who fear that health care expenditures may rise in the later retirement years should still be assuming some decrease in retirement spending throughout much of retirement. This is especially true for the subset of retirees (including the clients of most planners) who have full Medicare Part B and Part D coverage, along with a Medigap supplemental policy; while such coverage may cost roughly $5,000/year for a retiree (or about $10,000/year for a married couple), it converts almost all uncertain future medical expenses into a steady premium that will not rise by more than the general level of inflation (and be heavily offset by other retirement spending categories that decline as retirees age). This leaves non-medical long-term care expenses as one of the few remaining wild cards - albeit one that could materially distort the retirement spending smile - but it too is an expense that can be converted from a potentially large unknown contingency into a known insurance cost at what appears to be an increasingly stable premium. While the reality is that many households cannot afford to obtain such 'comprehensive' coverage as full Medicare Parts B and D, a Medigap supplemental policy, and long-term care insurance - and thus may need to set aside some funds for contingencies - the results suggest that for households that can afford to insure, retirement spending should experience a steady real decline throughout most of the retirement years (and by insuring, retirees can better manage that spending pattern without needing a large contingency fund for the final years!).

 

[Telly]

+1 for my grandmother, great-aunt and mother.

94 yo great aunt's medical expenses (she passed in 2013) were limited to Medicare Part B $105/month, Part D $44/month, Medigap $213/month, and some Rx co-pays ~$50/month. About $5k a year. Beyond that, everything was covered for her as I recall.

My 85 yo mom's costs are Medicare Part B $105/month, Part D $53/month, Medigap $197/month. About $4-5k a year total.

I guess Rx co-pays could bite some depending on what Rx you use, and eyeglasses et al, but in any event I don't see how it could become so significant that the right side of the smile would curl up a lot.

Thanks for the real-world Medicare costs! I don't see real numbers often, and when I ask people who are on Medicare, they aren't too sure about what they are paying.

 

[mathjak107]

Am I wrong in the assumption that a Medigap F policy would cover all medical expenses except for something like Nursing home? If so then what would all the extra expense consist of ? Leaving out Nursing home care.


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it cost 11k right now for medicare, D and an f-plan in our area for the two of us.

plus dental which ran about 18k last year for both of us .

it is these medigap plans especially the f-plans that have been increasing drastically.. in most states medigap plans are age based and go up every year not only based on age but also when healthcare costs rise.

f plans contain a lot of sickly people in that group compared to other plans where coverage is not as extensive.

don't forget the healthier you are does not mean you will have less in medical costs. it means you may live longer paying more in premiums and other expenses, like hearing aids and glasses which are not covered .

 

[LRDave]

My 88 and 90 year-old parents' Part F cost is $243/month and Part D (drug/prescription) is $35/month with co-pays but no deductible.

 

[mathjak107]

it is all state related. an f plan in ny is 3200.00 a year. but ny is community rated not age based like most states.

every age is charged the same .

we are free to change plans too with no pre-existing rejections allowed.

so every plan varies wildly depending on state by as much as 2x.

we went with a high deductable f plan two nights ago. 115.86 a month with 2180.00 deductible.

 

[indiajust]

https://www.kitces.com/blog/estimat...penditures-and-the-retirement-spending-smile/

 

[PatrickA5]

As many others have said, the main wildcard in late retirement is health care - mainly assisted living and/or nursing home. My DF lived to 97. He needed neither assisted living or nursing home. His medical costs were completely paid for by Medicare and Medigap (other than dental). The last 15 or so years of his life he basically lived on his $1,200/mth SS check and even saved some of that. He only left the house to go to the store. His average grocery store run was probably less than $50. It's not that he couldn't afford to do other things - he just didn't want to do anything once he got to around 80ish (the no-go years).

I can see the same thing with my FIL (now 85). While he has a couple million in investments, his average spend rate is around $25K per year. A big night out consists of going to the catfish joint to for all you can eat for $7.

Obviously, one shouldn't plan for no big medical expenses, but I have no doubt that a lot of the discretionary expenses go away after a certain age. I'm sure there is a minority of people that are ultra healthy in their 80's and still spend big bucks, but they are probably the exception.

 

[NW-Bound]

I did not at first realize that this is a resurrected old thread, back from 2015.

I did not plan for declining expenses but have been observing it happening with myself. I am onto my 10th year of retirement.