[US] Vanguard study on healthcare costs in retirement

[Lucky Recardito]

(If this has already been posted, please delete!)

https://personal.vanguard.com/pdf/ISGPLHC.pdf

Vanguard has a report out about healthcare costs in retirement. It includes some useful stats on median and mean spending (including a bit with numbers from those retiring before 65, without Medicare), as well as some info on long-term care costs... all of which are common topics of discussion around here!

[BikeFanatic]

That is a great report, Thanks.

[Schaefer Light]

"Long-term care costs may actually be the biggest
concern for most retirement planning scenarios, because
the consumption of long-term care varies significantly.
Half of individuals will incur no costs, and a quarter will
consume less than $100,000. However, 15% will
consume more than $250,000."

Well, that sucks.  I may not need any money for long term care, but if I do need long term care there's a decent chance I'll need a quarter of a million dollars for it.

[EnjoyIt]

"Long-term care costs may actually be the biggest
concern for most retirement planning scenarios, because
the consumption of long-term care varies significantly.
Half of individuals will incur no costs, and a quarter will
consume less than $100,000. However, 15% will
consume more than $250,000."

Well, that sucks.  I may not need any money for long term care, but if I do need long term care there's a decent chance I'll need a quarter of a million dollars for it.

Actually you will need a quarter of a million dollars or more.  Don't forget you should have some protections:
1) By then, you will have social security defraying some of that cost every year.
2) You will be old and eventually die which means you don't really need money left over so it is okay to spend down your stache.
3) Many will own a house and won't need it anymore since they are going into one term care.  Selling the home or even taking a reverse mortgage may be enough to cover those costs.
4) You will not be traveling or buying stuff when in one term care so many of your other expenses will go down.

[FIRE@50]

"Long-term care costs may actually be the biggest
concern for most retirement planning scenarios, because
the consumption of long-term care varies significantly.
Half of individuals will incur no costs, and a quarter will
consume less than $100,000. However, 15% will
consume more than $250,000."

Well, that sucks.  I may not need any money for long term care, but if I do need long term care there's a decent chance I'll need a quarter of a million dollars for it.

Is that really a big concern in the Mustachian community though? Let's just say you have a stache of $1MM and following the 4% rule you are living on $40k per year. Your stache is expected to hover somewhere around that same level for the rest of your life, right? Then, OH NO, I need long term care at the end of my life! You die with a stache of $750k.

[Lan Mandragoran]

"Long-term care costs may actually be the biggest
concern for most retirement planning scenarios, because
the consumption of long-term care varies significantly.
Half of individuals will incur no costs, and a quarter will
consume less than $100,000. However, 15% will
consume more than $250,000."

Well, that sucks.  I may not need any money for long term care, but if I do need long term care there's a decent chance I'll need a quarter of a million dollars for it.

Is that really a big concern in the Mustachian community though? Let's just say you have a stache of $1MM and following the 4% rule you are living on $40k per year. Your stache is expected to hover somewhere around that same level for the rest of your life, right? Then, OH NO, I need long term care at the end of my life! You die with a stache of $750k.

Agreed. The last thing im concerned about is me when i'm 75+.  So many little advantages and protections built up over a life time makes it quite unlikely most of us will have any real issues.

[dcheesi]

The problem, of course, is that some illnesses or medical events are so costly as to potentially wipe out any stash, regardless of how your investments have done in retirement. That's why you get people saying you need $10M to safely retire (of course that guy is an idiot, but still).

In the absence of truly comprehensive long-term-care insurance (which by all accounts doesn't seem to exist), there's simply no reasonable way to ensure you won't end up in a low-rent Medicaid funded hellhole in your final days. And that's without even bringing up things like this...

[Glenstache]

PTF

[Slow&Steady]

"Long-term care costs may actually be the biggest
concern for most retirement planning scenarios, because
the consumption of long-term care varies significantly.
Half of individuals will incur no costs, and a quarter will
consume less than $100,000. However, 15% will
consume more than $250,000."

Well, that sucks.  I may not need any money for long term care, but if I do need long term care there's a decent chance I'll need a quarter of a million dollars for it.

Actually you will need a quarter of a million dollars or more.  Don't forget you should have some protections:
1) By then, you will have social security defraying some of that cost every year.
2) You will be old and eventually die which means you don't really need money left over so it is okay to spend down your stache.
3) Many will own a house and won't need it anymore since they are going into one term care.  Selling the home or even taking a reverse mortgage may be enough to cover those costs.
4) You will not be traveling or buying stuff when in one term care so many of your other expenses will go down.

I disagree with almost all of your points. In my case my DH was dx'd with MS at the ripe old age of 30, long before we thought we would even need to discuss LTC insurance and is now not able to obtain LTC insurance.  MS does not directly shorten your life but it can cause a whole mess of reasons you might need LTC.

1) Ok, yes SS with defray some of the cost but I doubt it will be a very big %
2) You may not be old, my DH could be 20 years into an MS diagnosis and still only be 50 years old.  He might be severely disabled due to MS but still have the same lifespan (his grandpa just passed at 80+ years old).
3) Just because he will not need a place to live anymore does not mean that I will not need a place to live.  Most retirement plans for married couples include them sharing expenses.
4) Again just because he might be in LTC doesn't mean that I should have to no longer fulfill my retirement dreams of traveling or whatever else I might need/want to spend money on.

[profnot]

Thanks, OP, for the link.  Terrific, comprehensive article.

I've been passing along the link to friends.

Re purchase of Long Term Care insurance -
This is a tip from Clark Howard's website, fwiw.
You should not buy LTC insurance if you are very wealthy or very poor. ‘Very wealthy’ would be having investable assets of $3 million to $4 million. And ‘very poor’ would mean qualifying for Medicaid.

[DreamFIRE]

"Long-term care costs may actually be the biggest
concern for most retirement planning scenarios, because
the consumption of long-term care varies significantly.
Half of individuals will incur no costs, and a quarter will
consume less than $100,000. However, 15% will
consume more than $250,000."

Well, that sucks.  I may not need any money for long term care, but if I do need long term care there's a decent chance I'll need a quarter of a million dollars for it.

Actually you will need a quarter of a million dollars or more.  Don't forget you should have some protections:
1) By then, you will have social security defraying some of that cost every year.

Social security benefits won't defray any of the cost if you're actually calculating in all your retirement income sources to provide a steady income through retirement.  SS is already factored into my SWR with a steady inflation adjusted spending rate through retirement both before and after I receive SS benefits.  It's not extra bonus money.

2) You will be old and eventually die which means you don't really need money left over so it is okay to spend down your stache.

The worst case of the 4% rule already assumes that you might spend it down with your budgeted expenses.  Hopefully, you won't experience a worst case scenario, but you should be prepared for it, and not expect you'll have a huge stache lever over that could be used for nursing home care.

3) Many will own a house and won't need it anymore since they are going into one term care.  Selling the home or even taking a reverse mortgage may be enough to cover those costs.

I've done some calculations before on this for my LCOL area, and it's not much compared to what is needed for long term care.  Maybe many homes in a HCOL area would be a different story.

4) You will not be traveling or buying stuff when in one term care so many of your other expenses will go down.

My total bare bones is about $1600 month, maybe another $1000 or so on discretionary.  All that combined and eliminated wouldn't offset the cost for long term care.

[DreamFIRE]

Thanks, OP, for the link.  Terrific, comprehensive article.

I've been passing along the link to friends.

Re purchase of Long Term Care insurance -
This is a tip from Clark Howard's website, fwiw.
You should not buy LTC insurance if you are very wealthy or very poor. ‘Very wealthy’ would be having investable assets of $3 million to $4 million. And ‘very poor’ would mean qualifying for Medicaid.

An important piece info is missing from that.  Is that per person, or for a couple?  If I divide that wealthy range in half as a single person, I'm in the very wealthy category.  I would never call myself that, and I'm in a LCOL area.

Edit:  Being Clark Howard's show, they are probably basing those millions as being invested dollars after having already reached full retirement age (~ age 67) and having  full pension or SS benefits as well rather than those of us who FIRE who will be living off our stashes long before full retirement age.

[Laura Ingalls]

My take away is that somebody needs to market (if legal) a cheap, high deductible  Medigap policy.  Self pay to the 90th percentile(it doesn’t look that bad.)  The tail risk is basically infinite :(

[Acastus]

I don't like these articles that calculate the total expense of some item as a single number. If you live 25 years past retirement, you will need $100k for food alone. How does that help anyone plan?

I agree with the poor and the rich don't need long term care insurance. The rich can self insure. The poor will quickly fall back on Medicaid. Here are some real world numbers from my personal experience to help folks out on end of life decisions:

Independent living - $35-45k. basically a full service hotel you live in. You are free to come and go as you like. There will be a handful of modestly skilled medical staff. They can add some medical services for a fee.

Assisted living - $40-60k per year, depending on how much medical care you need. Includes most costs, though you will pay some medical cost on top of this. They will have a few RNs on staff, plus other medical staff.

Nursing home - around $100k per year. More like a hospital, because residents need either a lot of care or a lot of supervision.

Medicaid - only pays for a nursing home, not simpler settings. You need to spend your own money down to about $15k before Medicaid picks up the tab. Once they do, all bills stop, except clothing, entertainment, and other personal items.

[EnjoyIt]

"Long-term care costs may actually be the biggest
concern for most retirement planning scenarios, because
the consumption of long-term care varies significantly.
Half of individuals will incur no costs, and a quarter will
consume less than $100,000. However, 15% will
consume more than $250,000."

Well, that sucks.  I may not need any money for long term care, but if I do need long term care there's a decent chance I'll need a quarter of a million dollars for it.

Actually you will need a quarter of a million dollars or more.  Don't forget you should have some protections:
1) By then, you will have social security defraying some of that cost every year.
2) You will be old and eventually die which means you don't really need money left over so it is okay to spend down your stache.
3) Many will own a house and won't need it anymore since they are going into one term care.  Selling the home or even taking a reverse mortgage may be enough to cover those costs.
4) You will not be traveling or buying stuff when in one term care so many of your other expenses will go down.

I disagree with almost all of your points. In my case my DH was dx'd with MS at the ripe old age of 30, long before we thought we would even need to discuss LTC insurance and is now not able to obtain LTC insurance.  MS does not directly shorten your life but it can cause a whole mess of reasons you might need LTC.

1) Ok, yes SS with defray some of the cost but I doubt it will be a very big %
2) You may not be old, my DH could be 20 years into an MS diagnosis and still only be 50 years old.  He might be severely disabled due to MS but still have the same lifespan (his grandpa just passed at 80+ years old).
3) Just because he will not need a place to live anymore does not mean that I will not need a place to live.  Most retirement plans for married couples include them sharing expenses.
4) Again just because he might be in LTC doesn't mean that I should have to no longer fulfill my retirement dreams of traveling or whatever else I might need/want to spend money on.

You are right, this answer isn't for everyone.  There will always be real life scenarios that are rare but when it happens to you are very real.  Also, I never said those costs are covered by my above list.  I said they "add some protection."  Healthcare costs a real uncertainty which can range from very little to millions.  Unfortunately we can not insure ourselves against all calamities.  Personally we have chosen to work part time for a few years to allow our stash to grow and allow for a slightly fatter FIRE as well as build some extra health care cost protection.

[EnjoyIt]

"Long-term care costs may actually be the biggest
concern for most retirement planning scenarios, because
the consumption of long-term care varies significantly.
Half of individuals will incur no costs, and a quarter will
consume less than $100,000. However, 15% will
consume more than $250,000."

Well, that sucks.  I may not need any money for long term care, but if I do need long term care there's a decent chance I'll need a quarter of a million dollars for it.

Actually you will need a quarter of a million dollars or more.  Don't forget you should have some protections:
1) By then, you will have social security defraying some of that cost every year.

Social security benefits won't defray any of the cost if you're actually calculating in all your retirement income sources to provide a steady income through retirement.  SS is already factored into my SWR with a steady inflation adjusted spending rate through retirement both before and after I receive SS benefits.  It's not extra bonus money.

2) You will be old and eventually die which means you don't really need money left over so it is okay to spend down your stache.

The worst case of the 4% rule already assumes that you might spend it down with your budgeted expenses.  Hopefully, you won't experience a worst case scenario, but you should be prepared for it, and not expect you'll have a huge stache lever over that could be used for nursing home care.

3) Many will own a house and won't need it anymore since they are going into one term care.  Selling the home or even taking a reverse mortgage may be enough to cover those costs.

I've done some calculations before on this for my LCOL area, and it's not much compared to what is needed for long term care.  Maybe many homes in a HCOL area would be a different story.

4) You will not be traveling or buying stuff when in one term care so many of your other expenses will go down.

My total bare bones is about $1600 month, maybe another $1000 or so on discretionary.  All that combined and eliminated wouldn't offset the cost for long term care.

1) We are here to retire early and therefor SS is hopefully many may years in the future which means many of us are not calculating it in our yearly income.  If you are then clearly it will not help you.  For us SS will be decades away and likely provide a very significant bump.  Even 20% is a big deal.

2) We can not be prepared for all scenarios. it is impossible. Personally I agree that healthcare costs are a huge uncertainty and we are planning accordingly.

3) Sure a reverse mortgage won't cover everything, but it will help.

4) again not traveling will likely also not be enough to cover all the costs but it will help.

Remember this is a statistics problem.  The odds of 4% running out of money while also requiring long term care that lasts more than 2 years is relatively low.  Personally I think working an extra year or two and allow the stash to grow just a little more may be a prudent decision to help cover future healthcare costs.  Lets say you have $1 million at 45 years old and live on $40k/yr.  Working 2 more years will not only add a little extra through contributions, but the $1 million will also grow hopefully to $1.1 million or more.  If one continues to spend $40k/yr for the next 30-45 years, that extra $100k saved will grow to cover almost all long term care needs.  Again this is not 100% as nothing we do will be 100%. 

[RetiredAt63]

OP - For issues like health care you might want to put [US] in the title - these issues are much less important for those of us outside the US. 

[Lucky Recardito]

(OP here) Title edited to include [US] -- thanks for the tip.

[SugarMountain]

The # concern I have with ER is healthcare from 51-65 (and probably more like 66 or 67, don't be shocked if Medicare age moves out a year or two to cover the deficits incurred by the tax cuts).  $20k in 2018 for a high risk woman at 64.  Yikes. So $40k for my wife and I.  And that's assuming that healthcare costs don't continue to increase faster than inflation.  I am not counting on ACA subsidies, particularly in 14 years from now.