Poll

How much higher is your target FIRE number to accomodate healthcare costs (per person)?

$0-50k / person
16 (40%)
$50-100k / person
5 (12.5%)
$100-200k / person
14 (35%)
$200-300k / person
1 (2.5%)
$300-400k / person
2 (5%)
$400k+ / person
2 (5%)

Total Members Voted: 40

Author Topic: How much extra are you saving to cover healthcare costs in retirement?  (Read 1253 times)

RWD

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Healthcare cost estimates are very hard to pin down. Every site I check seems to have different numbers. So I'd love to hear what others here are targeting as extra stash buffer purely for future healthcare costs. I'm assuming USD currency for the poll.

Saving in Austin

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The average retiree spends $4,300 on out-of-pocket healthcare expenses each year, according to the Center for Retirement Research at Boston College.

Saving less than $50K doesn't seem like enough for a long retirement.

Greystache

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I did not think of it as a lump sum. I think of it in terms of the monthly or yearly cost of premiums and out of pocket costs and them make sure there is enough room in my budget to cover it with the income I plan to get from my investments and SS. Currently, I am on an ACA bronze plan and my monthly premium was $94 (just reduced to $2). My max out of pocket is around $7k per year but in the last 6 years, the most I have spent is under $3K.  So, I make sure my investment income (SS is still four years away) will cover my premium plus max out of pocket.  I tend to link my travel budget with my medical budget. I figure if I am sick enough to spend my max out of pocket, I will be too sick to spend a lot of time traveling.  Also, I have around $30k in my HSA to buffer any medical expense shocks.

ender

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Honestly I can see this changing quickly in the USA.

Right now, I'm not allocating anything to specifically healthcare other than I guess HSAs.

I will evaluate the closer I get to (early) retirement age.

Malcat

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It depends on what you mean by "healthcare", meaning actual medical care or late-life nursing home care?

Because later in life, you can start drawing down your principal, so the math changes on that.

RWD

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I did not think of it as a lump sum. I think of it in terms of the monthly or yearly cost of premiums and out of pocket costs and them make sure there is enough room in my budget to cover it with the income I plan to get from my investments and SS. Currently, I am on an ACA bronze plan and my monthly premium was $94 (just reduced to $2). My max out of pocket is around $7k per year but in the last 6 years, the most I have spent is under $3K.  So, I make sure my investment income (SS is still four years away) will cover my premium plus max out of pocket.  I tend to link my travel budget with my medical budget. I figure if I am sick enough to spend my max out of pocket, I will be too sick to spend a lot of time traveling.  Also, I have around $30k in my HSA to buffer any medical expense shocks.
I could have also structured the poll as per-year targets. But you can also roughly convert between the two by multiplying annual costs by 25 (the 4% rule). So if you want to be able to cover $7k annually that would mean your target FIRE number needs to be $175k higher than it would if healthcare was free.

rebel_quietude

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I kind of assumed this poll (before reading the comments) meant health care apart from insurance premiums. Specifically, I think of long term care or hospice - I want to be able to pay for that out of pocket when I'm 90.

That said, I don't really specifically parse out those expenses form the padding I plan to add to the stash - it will likely grow enough that it won't be a concern at the time.

Suffice to say, I'm operating on the assumption my quality of life in infirmity will be better if I have 200-300k (adjusted for inflation) available to shell out for services when I can't wipe my own ass. Direct result of watching the slow parting of three grandparents. My grandma used to say she would leave her home feet first. She did, at 98. Home health care and hospice care workers are amazing.

Loren Ver

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For yearly healthcare costs (premiums and out of pocket max), they are part of the budget, as per the usual expenses.  The OOPM is in an near liquid efund that gets rolled over year to year if not needed.  If spent a new one is pulled from the stash and added to the efund for the next year.

For the FUTURE! we didn't set any extra part of the overall stach aside for those medical costs.  We built our stash and plan to grow in perpetuity, so it has a few decades to grow and make that money.
And as Malcat pointed out, our principal is up for grabs for end of life stuff since it is our stash to spend :).

(So I voted for the lowest in the survey).
Loren

wenchsenior

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I kind of assumed this poll (before reading the comments) meant health care apart from insurance premiums. Specifically, I think of long term care or hospice - I want to be able to pay for that out of pocket when I'm 90.

That said, I don't really specifically parse out those expenses form the padding I plan to add to the stash - it will likely grow enough that it won't be a concern at the time.

Suffice to say, I'm operating on the assumption my quality of life in infirmity will be better if I have 200-300k (adjusted for inflation) available to shell out for services when I can't wipe my own ass. Direct result of watching the slow parting of three grandparents. My grandma used to say she would leave her home feet first. She did, at 98. Home health care and hospice care workers are amazing.
'

I assume it meant both, and so I said 100-200K/person, with one person covered by LTC insurance.  It's really more, if you include premiums, but we don't specifically 'save' for premiums...it's just built into our projected cash flow and the stashe we need to generate that.  Most of our 'health care savings' is conceptually directed to LTC needs and big out of pocket stuff like dental that won't be covered by insurance in retirement.
« Last Edit: May 08, 2021, 10:52:38 AM by wenchsenior »

Malcat

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For yearly healthcare costs (premiums and out of pocket max), they are part of the budget, as per the usual expenses.  The OOPM is in an near liquid efund that gets rolled over year to year if not needed.  If spent a new one is pulled from the stash and added to the efund for the next year.

For the FUTURE! we didn't set any extra part of the overall stach aside for those medical costs.  We built our stash and plan to grow in perpetuity, so it has a few decades to grow and make that money.
And as Malcat pointed out, our principal is up for grabs for end of life stuff since it is our stash to spend :).

(So I voted for the lowest in the survey).
Loren

Also, if you put aside a substantial chunk for healthcare costs at the beginning of retirement, you end up with an avalanche of cash if you don't end expensively sick early on.

Now, I distunguish expensively sick from seriously sick, because a lot of illness isn't overly expensive. I'm very seriously ill in my 30s, and it isn't likely to kill me, but it also isn't likely to cost very much.

However, if you are insured, it's not the healthcare that's expensive when you are sick. It's the regular life stuff that can cost more. You might need help with cooking and cleaning, you can't just walk to places, travel may become very expensive because of needed accomodations, etc, etc.

Those aren't huge expenses though, and are usually manageable with some minor budget rejigging.

The big, big baddie is something that leaves you requiring long term nursing care: paralysis, early onset dementia, etc.

Otherwise, your most financially dangerous health risk is dental care. That can be thousands and thousands of dollars out of pocket year over year for people whose teeth aren't healthy and who don't say to end up with dentures. Ultimately there's a ceiling, but 50K+ out of pocket is not at all unusual.

JLee

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Honestly I can see this changing quickly in the USA.

Right now, I'm not allocating anything to specifically healthcare other than I guess HSAs.

I will evaluate the closer I get to (early) retirement age.

Yep, same here.  I don't even know if I will still be in the USA by that point, so I'm chugging along and will figure it out when I get there.

nereo

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Once again, Michael Kitces has a very in-depth article with data and analyses on this very subject

https://www.kitces.com/blog/vanguard-mercer-study-real-annual-health-care-costs-in-retirement-projections/

Doesnt mean its 100% what Id do (and it will be somewhat different for ERs) but worth a read if you are worried about the costs of medical care and insurance in retirement in the US

RWD

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Once again, Michael Kitces has a very in-depth article with data and analyses on this very subject

https://www.kitces.com/blog/vanguard-mercer-study-real-annual-health-care-costs-in-retirement-projections/

Doesnt mean its 100% what Id do (and it will be somewhat different for ERs) but worth a read if you are worried about the costs of medical care and insurance in retirement in the US

From the article:
Quote
Nonetheless, given both the fact that these expenses are specific to the individual, may vary over time [..], and that medical expenses inflate at their own higher-than-the-general-rate-of inflation [..], arguably health care costs should really be projected separately from the remainder of retiree expenses in analyzing a retirement plan.

I guess that's what I'm trying to do here, as it's relatively easy to project basic living expenses. But with health care costs we have to take a more statistical approach. i.e. What size of standalone stash will have a 90%+ chance of covering healthcare costs. From there then I can integrate it with our overall FIRE target with assumptions about how long we'll be retired, how flexible our discretionary spending is, etc.

I've seen numbers like $250k-$350k for a 65-year old couple will cover healthcare in 90% of cases. Retiring earlier gives more time for any extra stash to grow so maybe an early retiree needs less than that? Or maybe they need more because they have decade(s) of premiums to cover when they are not employed before reaching 65? I'm not particularly stressed over this I just want to make sure I'm in the right ballpark with my estimates.

Loren Ver

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Otherwise, your most financially dangerous health risk is dental care. That can be thousands and thousands of dollars out of pocket year over year for people whose teeth aren't healthy and who don't say to end up with dentures. Ultimately there's a ceiling, but 50K+ out of pocket is not at all unusual.
I love your more reasonable and balanced thinking Malcat.  Even in the US, not everything is the worst ever.  We hear about the really expensive and crazy things in the news because they are still rare enough to be news worthy. 

Luckily for my family, even 50K we don't consider a particular egregious expense.  Not fun for sure, but something that could be rolled with pretty easily.  We have always had a bit of the attitude of 'we might need to pay for the house in cash, abandon it, and find a new place to live all in short order.'  Sure it will never happen (we have insurance after all), but knowing we could (metaphorically) burn everything down and walk away has always been a nice, uh, feature.... 

The dental part made me smile.  When my mom was in her late 20s (married, but before having me) her teeth were giving her all kinds of trouble.  She always had bad teeth, and they were just the worst at that point.  So she just went to the dentist and told them she was done and to take them all out.  So they did.  I grew up thinking adults had teeth they could take out.  I didn't know if my dad did, but my mom and grandparents did so maybe they all did.  She said it was one of her best decisions.  They didn't give her any more trouble, and they were so much easier to brush since she could take them out and see them. 


jrhampt

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I started researching costs for a cheap ACA plan in my state just this morning, actually.

Worst case scenario cheap plan with no subsidies (massive income) would be 11k for yearly premiums for the two of us, plus a 17k oop max, 12-14k deductible.  Not including some prescriptions or dental.  If we had a somewhat more modest income, which I think is more likely, the cheap plan could be anywhere between $150 a YEAR in premiums or $200/month in premiums, same oop max and deductible.  Anyway, in a bad year for medical, you could spend anywhere from around 17k to 28k with these plans, again not including some rx and dental stuff.  So I think I would budget around 20k yearly spend for medical based on just this research, which would give me a rough estimate of $500k in the stash allocated for potential medical expenses, or $250k per person. 

Note: If I were being less conservative, I could probably also justify 5k yearly spend per person as a reasonable amount - based on median annual health spend from one of the linked articles above ($5200/yr for 65 year old woman) and on the fact that not every year is going to be a worst case scenario spend year up to oop max.  That would be 250k total or 125k per person.  I don't think I'd personally be very comfortable going much lower than $250k for a couple, though, if I could avoid it. 
« Last Edit: May 10, 2021, 01:12:14 PM by jrhampt »

RWD

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I started researching costs for a cheap ACA plan in my state just this morning, actually.

Worst case scenario cheap plan with no subsidies (massive income) would be 11k for yearly premiums for the two of us, plus a 17k oop max, 12-14k deductible.  Not including some prescriptions or dental.  If we had a somewhat more modest income, which I think is more likely, the cheap plan could be anywhere between $150 a YEAR in premiums or $200/month in premiums, same oop max and deductible.  Anyway, in a bad year for medical, you could spend anywhere from around 17k to 28k with these plans, again not including some rx and dental stuff.  So I think I would budget around 20k yearly spend for medical based on just this research, which would give me a rough estimate of $500k in the stash allocated for potential medical expenses, or $250k per person. 

Note: If I were being less conservative, I could probably also justify 5k yearly spend per person as a reasonable amount - based on median annual health spend from one of the linked articles above ($5200/yr for 65 year old woman) and on the fact that not every year is going to be a worst case scenario spend year up to oop max.  That would be 250k total or 125k per person.  I don't think I'd personally be very comfortable going much lower than $250k for a couple, though, if I could avoid it.
Interesting, thanks for sharing

OzzieandHarriet

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We planned on $25,000/year for the two of us as a worst-case scenario.  We have coverage through DHs former employer, and at the moment its about $16k/year in premiums, with no deductible and small copays for doctor visits and meds, but they can change terms at any time. We dropped dental and vision plans because they were kind of worthless. A comparable ACA plan would be more.

This is our single largest expense, way more than any other.

joe189man

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A CFP friend of mine that their firm is recommending folks plan on $1,350 a month in health care spending in retirement.

RWD

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A CFP friend of mine that their firm is recommending folks plan on $1,350 a month in health care spending in retirement.
Per person or for a couple?

joe189man

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couple

bacchi

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We're not budgeting anything other than the HSA. I have $80k in mine and SO, who started later, has about $15k.

If they grow too large the money can be used for medicare premiums when we're 65.

pasadenafr

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I'm in a bit of a special case, as I'm planning on retiring in my home country, where healthcare is cheap:

- If I don't go back home right upon retirement, I'll get COBRA, which I can pay with my HSA, which is not included in my retirement calculations. So - zero :)

- Assuming no earned income between 55 and 67, I would have to pay between 75 and 150 per month in taxes for universal healthcare (depends on investment income, and will probably increase by the time I'm RE!). After age 67, that will go away when I get my French retirement pension (it's part of "payroll" taxes).

- Adding optional (private) supplementary coverage would add something around 80 to 100 per month at age 55, increasing as I age.

So basically I can cashflow that with my monthly budget. Vision and dental are a bit of a wildcard tbh.

Now, IF I stay in the US, my state's marketplace shows plans between $550 and $600 per month at age 55. The question is how much to add to that to cover deductible and OOP? Right now my spending is usually $0 beyond preventative care and vision so it's hard to estimate for when I'm older. No idea how much a vision plan would cost.


Cassie

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Once you are Medicare age costs vary greatly depends on where you live. My sister pays 600/month in a Chicago suburb for it plus supplements while in Nevada for similar plans I pay 330.

MissNancyPryor

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I voted at the $150K range, which is my pre-FIRE planned number of $6K annually x25 for the 4% rule.  I have a good sized HSA and continue to deposit the max into that annually. 

I will pay for my luxury nursing home with the proceeds from my house, which is not part of my 4% rule calculation for annual expenses and is debt free. 

By the time I am old and frail enough to need a nursing home I can stay at the Four Seasons with 3x daily room service and 24 hour private nurse.  The average nursing home stay is only a couple years, often far less, and the house value is tending to those dollars more than well enough.  My goal was always to eat my nest egg but I expect there is still going to be a lot left for my heirs as well. 

Paul der Krake

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Nothing specific. It's no different than any other type of spending.