FREE NEWSLETTER
Go to main Forum page »
Health care costs, taxes, or general inflation?
| Cookie | Duration | Description |
|---|---|---|
| cookielawinfo-checkbox-analytics | 11 months | This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics". |
| cookielawinfo-checkbox-functional | 11 months | The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional". |
| cookielawinfo-checkbox-necessary | 11 months | This cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary". |
| cookielawinfo-checkbox-others | 11 months | This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other. |
| cookielawinfo-checkbox-performance | 11 months | This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance". |
| viewed_cookie_policy | 11 months | The cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data. |
Cognitive decline is probably my biggest fear in aging. I saw up close with my mother-in-law what full-time care in a quality memory care facility cost. I also have friends whose parents spent needed many years of care for severe dementia or Alzheimers. A few had LTC insurance but only covered 3 years. Others had moved into CCRCs and the healthy spouse could visit the one that needed constant care. It’s a huge financial challenge, as well as a tremendous responsibility for family.
I’m with you Rick
it seems to me all these risks are greater the earlier a person retires and as is said longevity is the greatest retirement risk.
Don’t want to start another row, but isn’t there a direct relationship between income level and being financially scared in retirement? Doesn’t cutting it too close raise the risks?
Seems like an obvious statement, although some people are anxious about their finances no matter how much wealth they have accumulated.
“Seems like an obvious statement”
It’s like saying, “the more food you have in your refrigerator, the less likely you are to be hungry.”
Define income level very carefully if you want to start this debate again.
The short answer is that longevity risk* shouldn’t really bother those who remain significantly invested in the market (or convert to inflation protected annuities) and indeed greater longevity should mean short term volatility is less of a concern.
*I’d say senility risk is more of a concern that one starts doing irrational things and can no longer manage one’s affairs competently. In which case the quality and speed of a proxy acting is probably key.
The previous playing with “income” was silly, not going there again.
I think in order to remain intelligible to a newer generation of retirees you are going to need to start using “drawing” or ” cashflow” rather than income, because it commonly means something different to the way you use it.
Not even close for me. According to the NIH, at least 40% of US bankruptcies are directly related to medical bills. Taxes? Inflation? Pfah. Mosquitoes by comparison. Take it from a guy who ran up $2.6 million in medical bills in a little over four years. Insurance covered most of it, but still… no contest. Medical/LTC for sure.
The number one concern of mine is healthcare. Insurance and costs are increasing at 3-5% above inflation. Worst thing about being an American is this uncertainty.
I agree, Kirk. The only thing worse than our health care system is everyone else’s. It’s frustrating because I would already be retired if we had reasonably priced, market based, health care in this country.
“The only thing worse than our health care system is everyone else’s.”
I worked in a worldwide industry. This wive’s tale is minimally correct in some ways but not in others. Most first-world healthcare systems have a backstop that prevents bankruptcy, even though some of the “niceties” are sometimes, but not always, cumbersome (e.g., the old “he had to wait six months for a….”) And there are many, many systems where drug costs are a fraction of ours… an expense that is chronic rather than episodic.
I have expat colleagues from other countries who routinely travel back home for healthcare because the expense is so low compared to ours, including the cost of travel.
“reasonably priced, market based, health care “
Healthcare professionals and patients will all agree that removing the unnecessary middleman from the equation is the solution. That middleman being the insurance company.
There is a big difference in health care expense risk between age 65+ and everyone else. Frankly I don’t think that’s fair.
The Consumer Bankruptcy Project (CBP) has compiled statistics for more than a decade that show that people over 65 are making up an increasing share of bankruptcy filings, accounting for around 13% and growing. Of the filings they examined in a report on “The Graying of U.S. Bankruptcy,” the mean age of older filers was 70, and the oldest filer they encountered was 92. This group averaged over $100,000 in debt.
Medical expenses also were a catalyst for bankruptcy for more than six out of ten (62.2 percent) respondents.
Graying of U.S. Bankruptcy: Fallout from Life in a Risk Society https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3226574
R Quinn,
I think I know where you are going with your comment, but can you elaborate?
After decades managing various health benefit plans and researching coverage in other countries including interviews with scores of people on our travels, I have come to the conclusion that the only thing that will assure coverage for all and fairly distribute costs is a universal insurance program very similar to Medicare. No other viable scheme has ever been proposed, none.
Health Care.
I’ve been thinking more about this question. With all the talk about budgets, plans, adequate income, investments and withdrawal strategies, why should any of these or other financial matters scare anyone?
Because like in anything you may outperform the mean or medium. Anyone who has fully provided for 30+ years of 2 people in high dependency care is either living on a very gilded plane or is leaving plenty on the table which could go to beneficiaries, charities etc
Are you referring to 30 years of LTC? If so, seems a bit unrealistic.
I have two friends, each of which have aged parents who have needed long-term care for activities of daily living for over 15 years. This is a huge drain on finances.
No doubt that happens, but the average is closer to 2.5 years even in a nursing home.
I agree. But it’s a possibility. So what is “adequate income” to deal with it? Or should even the most robust plan be probability weighted? I’d argue it should be otherwise you spend too much of your life working for something that may never happen (and you might not have much quality of life anyway if it does).
I don’t consider taxes or inflation an expense. They are just aspects you need to have a plan for even if that plan is “I’ll just have a relatively lean year while I’m waiting for my tax allowances to refresh” or I’ll cut back on discretionary spend when inflation exceeds my RoI”.
I guess LTC is the bogeyman but I wouldn’t want to fret on spending on the things I want to do now for the prospect of a (more) gilded cage when I have dementia.
I liked your comment, but it was the second paragraph. I don’t agree with your first sentence. How can taxes and higher prices not be an expense?
Inflation isn’t itself an expense. How it manifests in the costs of what you buy is an increase in expense but it isn’t new or novel, it’s just a feature that fluctuates over time. And arguably it’s what you should have a plan for matching or beating with your resources.
Taxes I’m thinking in terms of getting my income to me so in an accounting sense they are what comes off the gross before I get my net income rather than an expense line. I guess you could argue that certain taxes like property taxes or sales taxes are expenses (in fact the latter almost certainly are – if you don’t spend you don’t incur them) but I perhaps misjudged your original premise.
I think it is certainly worthwhile thinking about both areas. If you have a plan which is entirely dependent on some withdrawal element of your portfolio being state or federal tax free and the rules change then that isn’t a very secure position. It’s why it’s worth having diversification between after-tax and pre-tax resources for instance.
Your tune might change if you had direct experience with a friend or loved one who had dementia/Alzheimers. It is a nasty, nasty way to slowly die for everyone involved that can be eased if you have the extensive funds to crash the plane in a controlled manner.
Who says I haven’t?
Doesn’t change my view of what I want for myself.
Seems like a short list of potential major concerns. They’re not really expenses as such, but I can imagine folks being as or more concerned by possible cognitive decline, massive loss in the market, massive loss due to fraud or cybersecurity issue, or just running out of money with no particular culprit.
For sure it’s LTC.
Health care because it’s the great unknown. That includes long term type care.
We have a Plan G supplemental policies. They are more expensive than the other supplemental plans but because they have no deductibles (other than the federal $270 which every more recent retirees have to pay), nor copays, it gives us cost certainty, and traditional plans allow us to go to any MD which accepts Medicare which gives us flexibility.
David,
I had not heard of “Plan G” (I’m retired relatively young). I found this chart:
https://www.medicare.gov/health-drug-plans/medigap/basics/compare-plan-benefits
Is there a place that describes all these lettered plans in a nutshell?
Kirk
Medicare.gov
I agree. Once on Medicare that is the way to go. Practically your costs are fixed to premiums which are reasonably predictable. Even Rx costs which can be a big outlier now will be capped at $2,000 OOP starting next year, again predictable.
Taxes…because it’s a certainty.
For me and my wife LTC is still the most uncertain, hence scary cost. At least until we go into a CCRC, but we like our home and don’t intend to make the move for another 10 years or so. So if something happens before we make this move, then depending on what it is and how much it costs, it could be a real problem. Hence LTC is our most uncertain, hence scary, potential expense.
I thought about making LTC a separate category, but thought it fit under Health Care. Maybe it deserves it’s own, since it’s a different kind of health care.
LTC should probably be a sub-category, but a major one. It’s the aspect that is most concerning since often it involves cognitive impairment and the solutions (LTC insurance) are mostly ineffective once you look at the details
I agree it does, as they can be paid for differently. For example Medicare doesn’t cover LTC.
For my wife and me possible unexpected inflation has topped my financial concerns for the last few years. I have begun buying TIPS and in the bond part of our investments in addition to choosing an approximate 70% equity asset allocation in the long term portion of our investments. As the national politics keep increasing the public debt in relation to the GNP I expect inflation will be an ongoing issue for all of us.
If I should die before my wife, who is four years younger than me, she would then have health care challenges and additional medical expenses due to her limited mobility. I continue
working to improve my overall fitness and health so I hope to be here for her.
If our tax plans go as we hope most of our deferred tax accounts will be converted to Roth’s by converting annually to fill up our lower tax brackets every year for the next decade or so.
We have our bond assets equally divided into short term, short term TIPS, and intermediate
Been retired 14 years. We have incurred hundreds of thousands in health care costs, but our out of pocket costs have been limited to the annual deductible and some Rx co-pays. Aggregate premiums – Parts B and D and supplemental coverage – for two of us exceed $2,000 a month but we have a fixed annual HRA from former employer to help with Medigap, but it does not keep up with rising premiums.
IRMAA really cuts into net SS though.
Taxes are taxes, they don’t change much from year to year so we simply live on the net.
So far inflation has not been a concern – I won’t risk saying why🤑 – even though pension does not have a COLA.. However, we have a backup plan to use dividends and interest if necessary.
“We have incurred hundreds of thousands in health care costs, but our out of pocket costs have been limited…”
So you haven’t actually been exposed to the health care problem that most of Americans are subject to.
However, you are still at risk of a long-term care situation. Have you considered that in your calculus?
So none of the above?
Scared? no. Perhaps before we retired, but not after experiencing retirement.