Americans Underestimate Health Costs in Retirement

[SumDay]

http://www.plansponsor.com/Americans_Underestimate_Health_Costs_in_Retirement.aspx

Aviva USA noted that data from The Urban Institute indicates people should be prepared to spend approximately 30% of their income on health care expenses in retirement.

This survey revealed most Americans are unrealistic about some of the repercussions of lifestyle choices and aging – specifically, that as you get older, your health is apt to decline and your need for health care increases.

 

[REWahoo]

Many of us - those of us who paid attention to what was happening to our parents - realize this is the case. About 25% of our spending during our first 8 years of retirement has been entertainment/travel/toy related. As (if) we continue to age and our health care needs ramp up we will be using these funds for medical expenses instead.

 

[steelyman]

Over the past several years, I was the person "in charge" of making sure parents' financial/health/living things were in order. I was shocked when I saw the bills covered by Medicare and supplemental.

 

[daylatedollarshort]

Increasing health care costs and long term care as people get older are a couple of the main reasons the numbers in most of the the super early retirement blogs don't really add up long term. Unless they plan on living outside the U.S. eventually or have citizenship somewhere else as a fallback option, their health care costs aren't going to stay the same as they are in their 30s. And staying alive longer means more higher health care years to fund.

 

[Meadbh]

Here are some Canadian numbers for comparison. Annual costs of over $20K for octogenarians, eh? Gotta figure that into the SWR.....oh wait, it's already covered by taxes.

Canadians use average of $220,000 in public health care over lifetime - The Globe and Mail

 

[urn2bfree]

30%? What a useless scare figure! 30% of income could be $15000 for some and $50,000 for another. I would bet the health care costs for the wealthier are actually lower both by percentage and actual raw numbers. Percentage estimates like this remind me of the useless propaganda I used to worry about having to replace 70% of my income in retirement. Horse manure! And all designed to frighten people into continuing to slave away for the man...

 

[nun]

The health care industry is completely out of touch. It might expect people to pay 30% of their income in healthcare costs, but that level isn't affordable and people simply won't pay.

 

[Katsmeow]

I just don't really buy this for most people over Medicare age anyway. My mother is 89. She pays for Medicare and her supplemental plan. Beyond that she has to pay her part B deductible and her prescription co-pays. She has occasional dental costs and a pair of reading glasses every once in awhile but not much else.

 

[Mulligan]

I just don't really buy this for most people over Medicare age anyway. My mother is 89. She pays for Medicare and her supplemental plan. Beyond that she has to pay her part B deductible and her prescription co-pays. She has occasional dental costs and a pair of reading glasses every once in awhile but not much else.

My father also has little costs. I do not know how the Medicare payment structure works, but in conjunction with his health insurance from company he retired from, they pay $150 a month for the company insurance and that is about it for him cost wise. He has had so many surgeries and replacement parts inserted, I have told him he has to be the sole reason Medicare is in the financial shape it currently is in.

 

[ER Eddie]

I'd assume most Americans are unrealistic and/or overly optimistic about their own future health and health care costs. That's how most people (not just Americans) are in general. Optimism bias. There's something adaptive about that, as long as you don't keep yourself too much in the dark.

I think the people on this forum are pretty realistic about future health care coverage/costs.

 

[kmt1972]

See

Retired couples may need $220K for health care - Business - Boston.com

A 65-year-old couple retiring this year would need $220,000 on average to cover medical expenses, an 8 percent decrease from last year’s estimate of $240,000. The study assumes a life expectancy of 85 for women and 82 for men.

In its most recent estimate, EBRI projected that a couple with typical drug expenses would need $163,000 for a 50 percent chance of covering all medical expenses in retirement. They'd need $283,000 to have a 90 percent chance.

I think these numbers are too low as it does not take into account LTC.

 

[W2R]

Aviva USA noted that data from The Urban Institute indicates people should be prepared to spend approximately 30% of their income on health care expenses in retirement.

I wonder. Somehow I doubt that there is a nice, even mean for health care costs. Some seniors have terribly expensive health issues that sap their savings to the bone. Other seniors don't have nearly as many health expenses (but still end up just keeling over dead one day when their time is up).

I wish it was a little easier to predict. That would sure make planning easier.

 

[gauss]

Some seniors have terribly expensive health issues that sap their savings to the bone. Other seniors don't have nearly as many health expenses (but still end up just keeling over dead one day when their time is up).

I wish it was a little easier to predict. That would sure make planning easier.

If only there was a financial product that you could purchase to spread the risk over many individuals....

 

[W2R]

If only there was a financial product that you could purchase to spread the risk over many individuals....

Like the ones that Aviva USA sells? Good one!

No wonder they are so interested in that study!

 

[ziggy29]

I think a lot of people think Medicare pays for a LOT more of their routine expenses than it really does.

 

[SumDay]

And then there's this in today's news:

Expected retiree medical expenses fall in 2013, but still outpace many Americans' estimates

For the second time in the last three years, estimated medical expenses for new retirees have fallen, according to a study released Wednesday by Fidelity Investments. A 65-year-old couple retiring this year would need $220,000 on average to cover medical expenses, an 8 percent decrease from last year's estimate of $240,000. The study assumes a life expectancy of 85 for women and 82 for men.

 

[ER Eddie]

And then there's this, with the big, bold headline, "Retiring at 55? You'll need $372,000 just for medical expenses."

Someone who retires today at age 55 will spend an average of $119,600 over the next 10 years on insurance premiums and out-of-pocket expenses, said Dale Yamamoto, who authored a report on medical spending on behalf of the Society of Actuaries and the Health Care Costs Institute.

Retiring at 55? You'll need $372,000 just for medical expenses - Economy


The $119,600 figure seems high to me. That's $12K/yr. Maybe they're assuming that he/she is also providing family or spousal coverage. For a single guy like me, I'm looking at about half that, I think.

I hate articles like this. They make me think about delaying retirement, just to save on health care costs ... which will probably rise because I'm staying in a stressful job. Sigh.

The $372,000 figure is based on someone who lives to 85. Hopefully I'll be lucky enough to die early. Boy, that's frugality, eh? Hoping to die early to save on medical bills.

 

[Mulligan]

And then there's this, with the big, bold headline, "Retiring at 55? You'll need $372,000 just for medical expenses."

Retiring at 55? You'll need $372,000 just for medical expenses - Economy

The $119,600 figure seems high to me. That's $12K/yr. Maybe they're assuming that he/she is also providing family or spousal coverage. For a single guy like me, I'm looking at about half that, I think.

I hate articles like this. They make me think about delaying retirement, just to save on health care costs ... which will probably rise because I'm staying in a stressful job. Sigh.

The $372,000 figure is based on someone who lives to 85. Hopefully I'll be lucky enough to die early. Boy, that's frugality, eh? Hoping to die early to save on medical bills.

I certainly didnt budget that much, nor will I. I am looking at it like you, about half that. The only way I could come near that total out of pocket anyways, is if I get creamed on future health insurance premiums rate shocks.

 

[MichaelB]

Does anyone have a link to an actual study? Fidelity publishes this yearly, their current estimate is "only" $220k for a couple. They have plenty of footnotes but no actual study I can find. They consider Medicare A,B and D but make no reference to supplemental policies. They also talk "average costs" and I would like to see the median estimate.

 

[Mulligan]

Does anyone have a link to an actual study? Fidelity publishes this yearly, their current estimate is "only" $220k for a couple. They have plenty of footnotes but no actual study I can find. They consider Medicare A,B and D but make no reference to supplemental policies. They also talk "average costs" and I would like to see the median estimate.

That would be tremendously more meaningful to me. We know that about 20% of the population as a whole consumes about 80% of the total cost, so an average cost is not going to be a real meaningful number even just in the 55 and up category, I would assume.

 

[ER Eddie]

Does anyone have a link to an actual study? Fidelity publishes this yearly, their current estimate is "only" $220k for a couple. They have plenty of footnotes but no actual study I can find. They consider Medicare A,B and D but make no reference to supplemental policies. They also talk "average costs" and I would like to see the median estimate.

Good point on medians vs. means.

Here's one study, although it just gives averages:

http://www.healthcostinstitute.org/files/HCCI_HCCUR2010.pdf

It lists estimated average per capita expenditure in 2010 as $8300 (for ages 55 to 64), which is closer to my expectations but still high. It's from the same institute that is quoted in the article I referenced, which is weird, since the amount quoted there is 50% higher (12K, roughly).

 

[Sittingduck]

"Here's one study, although it just gives averages:"

The problem is no one is really an average when it comes to health care. You are one heartbeat away from your doc telling you that you will have just become a major consumer of health care services. In my case $250k worth.

If you want to protect your FI the only thing you can plan on is how to maintain your health insurance. The problem now is that with the ACA, it is very complicated to plan during this transition period.

 

[ER Eddie]

Well, you're right of course; averages are just averages; they don't tell you what will happen in any particular case. I'm sorry to hear about your medical issues and high expenditures. I'm assuming you didn't have health insurance, or your condition wasn't covered somehow?

The best I can do, in my own situation, is add the costs of health insurance + out of pocket expenses and go from there. No one can really plan for a catastrophic event. As you say, you just have to have good health insurance in place.

It looks as if ACA will reduce the costs of health insurance for people over 40, although we'll have to wait and see how things really turn out.

http://money.cnn.com/2013/05/14/news/economy/obamacare-premiums/index.html?iid=HP_Highlight

 

[Richard8655]

Here are some Canadian numbers for comparison. Annual costs of over $20K for octogenarians, eh? Gotta figure that into the SWR.....oh wait, it's already covered by taxes.

Canadians use average of $220,000 in public health care over lifetime - The Globe and Mail

This is why we have plans to move to Canada, even with higher taxes (which pays for universal health care). Now if only the cost of everyday living wasn't so high, which makes it harder to save for retirement there. These 2 things, in a sense, are tradeoffs.

 

[MooreBonds]

With a "30%" figure, remember that many retirees live on not too much more than their Social Security check. It wouldn't take much to consume 30% of that SS check plus a little meager interest from some CDs to go to healthcare.

Also, remember that just like the masses being oblivious to the fees of "financial planners" sucking 1%, 2% (or more) from their investments with high ER mutual funds, for many Americans its the same when it comes to healthcare: they simply blindly follow WHATEVER their doctor proscribes for drugs to treat their condition(s). Already taking 5 pills for 3 conditions, and have an undesirable side effect? Here's another script for a 6th pill to treat that side effect.

Many on this forum are self-sufficient and (to a great deal) fairly analytical when evaluating things. However, most in America are simple sheep that follow whatever someone in 'authority' (doctor, investment manager) tells them to do, and they assume they should do it. Add in the fact that you have an army of drug reps encouraging doctors to proscribe pills to treat everything as a first course of action, and many doctors would rather give you a pill because they have a drug rep at their office, AND it's easier to say "well, Mrs. Jane Doe died from heart failure because I gave her this FDA-approved pill", rather than say "Mrs. Jane Doe died from heart failure because I had her try this natural regime that I thought might work first, rather than immediately rush to give her a pill."

Many people simply have no desire to research for themselves, nor think that they might be better off slightly suffering from one condition without as many pills, rather than popping a handful of pills every morning to treat a myriad of other conditions and side effects. After all, just look at all of the sales of Big Pharma - all of those pills are being consumed by someone.