True Health Care Costs In Retirement

This is just wrong…on so many fronts.

Talked to a wonderful lady who I haven’t spoken to in years today.  She and her husband are long time friends of the family and just the best people you could possibly know.

Her mom is even better.  The sweetest lady one could possibly be. Tough as nails too. 93 years old now. And sadly can’t hardly remember her own children’s names as disease has spread through her brain.

She is in a nursing home. Was costing $10k a month until they moved her to a ‘cheaper’ one for the low, low price of $6k a month.

As you know, at least if you’ve been following me at all, Medicare does NOT cover long term care stays. Your Social Security statement could not be any clearer than on page 4 where it says this explicitly.

In this case, Mom is on the hook, for that $6k a month.  Thankfully, she has a bit of money to pay for it. Not much mind you but enough to see her through a few years.

However, in talking with my friend today, it turns out that Mom was sold an annuity 10 years or so ago when she was in her early to mid 80s.  Said annuity has a large surrender charge meaning if she were to take money out of the contract she would lose THOUSANDS of dollars!

I find this to be insane in so many ways.  What was an insurance agent doing selling an annuity, with a huge surrender charge schedule, to a widow in a remote part of the US? Why did the annuity company, or companies actually, allow this to happen?  Did the agent not think that there could be a time when Mom, again at the time of sale an 83 year old widow in a rural place, might need to move to a home to be provided for?  How would she pay that?

I can’t fathom this. I can visualize this sweet ever-so-trusting lady, sitting on her front porch in the mountains, while a nice talking insurance agent has her sign the contracts for these annuities. It disgusts me.

Now, don’t blame this episode on the “evils” of annuities.  Annuities are neither good nor evil.  They are inanimate.  They carry no morality.  Just like firearms, actually.  However, like firearms, BAD people can use them in nefarious ways.  As is the case here, in my opinion.

Try as I might, I can not see a reason whatsoever why someone would put an 80 year old lady into a product with significant surrender charges.  It’s crazy to me.

So, moral of the story, be careful out there, as they used to say on Hill Street Blues. Remember that show?
If something sounds too good to be true, it is.

Lastly, if you can’t have access to your money without waiting at least 10 years, please, for the love of all that is good, think long and hard before you sign the bottom line.

In the meantime, I’m going to look over the contract that Mom signed and see if there is an escape hatch of some sort because I just can’t believe ANY insurance company would allow this to happen.

A long time ago I came across a study in the Journal for Financial Planning which showed the VAST majority of retirees spend little money in out of pocket health care costs. In fact, something like only 5% of all people who needed assisted care spent over $100,000. I can’t remember the exact numbers but it was significantly less than anything I was expecting.

For some reason though, this article never made any headway into the retirement planning community. The silence around this study was similar to how Ty Bernicke’s work on retiree spending was neglected for a long time too. I wrote about this previously. I emailed previously on this as well which you can find here.

Fidelity Study On Health Care Costs

In fact, the noise has all been in other direction. Every year, Fidelity will publish a report on the costs a newly retired couple needs to fund health care expenses. “A Couple Retiring in 2018 Would Need an Estimated $280,000 to Cover Health Care Costs” screams the headline to the study you can find here. Oh, by the way, this does NOT include nursing home costs either.

I remember when I was a relatively new broker just starting out in 2004. I used to use this exact study in seminars to show people how they weren’t prepared. But back then the costs for a newly retired couple was only $184,000. What was the answer to folks deficiencies? Well, to work with me of course! In fact, Fidelity offers you their help as well: “Fidelity has also published an age-based set of retirement savings guidelines that include health care expenses and are designed to help individuals understand how much they should have save by specific age milestones.”


How Much Does A Retiring Couple Need For Housing?

Now, at the risk of sounding TOO cynical, why have I never seen a study that states: “A Couple Retiring in 2018 Would Need an Estimated $280,000 to Cover Food Costs” or “A Couple Retiring in 2018 Would Need an Estimated $280,000 to Cover Housing Costs”?

Yet, aren’t food and housing just as important as health care for retirees?

Weird huh?

Employee Benefits Research Institute Study

Okay, so this leads me to what I want to talk about with you today. This study from the Employee Benefits Research Institute. If there was ever a research piece you NEED to read, it’s this. I was blown away. And you will be too. Why? Because of this finding:

For the majority of surveyed people, out-of-pocket health care expenses are not as high as commonly believed. For those who die at age 95 or later, the median cumulative out-of-pocket expense after age 70 until death is slightly above $27,000.

This study was conducted using REAL PEOPLE, 8300 of them to be precise, from 1993-2014. Actual numbers that this cohort spent on out of pocket health costs were reported. Over 6000 of the participants had died by the end of the study but even then analysts were able to extract data from heirs.

My Videos And Podcasts

Now I won’t get into the data on this email. I did TWO videos on this which you can find here.
If you’re more of an audio learner you can listen to the podcasts here and here.

It’s an amazing piece of work my friends. One of those that comes along every few years to punch you in the face and force you to wonder “has everything we’ve been told been wrong???”

And here is the ultimate kicker for me. How many people have retired in fear, fear they’re going to run out of money and thus they neglect to enjoy those few years they have in good health with their loved ones? They neglect to take that tour of Europe they always wanted to do because they’re so doggone concerned they’ll run out of money.

Don’t Neglect Your Enjoyment in Retirement

They neglect to spend that vacation with their grandkids at the beach they dreamed about for fear that they might not have enough resources to pay for huge health care costs.

Then, one day, they wake up at 83 years old, hub has recently passed and they realize they have more money in their accounts then they could possibly spend. A deep feeling of remorse overcomes them because they did NOT enjoy those few years they had together for fear of being without.

How many people stay in crappy old jobs, they HATE, having been convinced they’ll never have enough money to retire and thus if they could just stay on at work for 2 more years, they’ll be okay. Yet, they are miserable and they are making their loved ones around them miserable too. Each day they go back to that hated job they lose a little bit more of joy in their lives and for many people, men in particularly, it won’t be found again.

They finally do retire but quickly find out playing golf as much as they wanted is not very fulfilling. They get bitter and even resentful. They look for happiness in other things and people. Forgetting that only YOU can make YOURSELF happy. No one else, or nothing else, can bring you happiness. It’s all on you. And when those things don’t make them happy, the resentment builds even more.


Only YOU Can Make YOU Happy

Having been a financial planner for so long now, I’ve seen these incidents over and over. It breaks my heart in so many ways.More than that, it makes me mad.

I KNOW why the industry focuses so much on health care costs. Because people have a fear of the unknown. No one knows if THEY will be that one person in hundred fifty that spends $10,000 a month at a nursing home. So the industry plays on that, “don’t you think you should stay at your crappy old job to squirrel more money away just in case? You don’t want to rely on your kids to take care of you do you??? Well, do you???? Oh, and by the way, we’re here to help you with that money you squirrel away too.”

Is the Financial Industry Playing Off Fear?

Yup, I am cynical. But it comes with experience.

Okay, so what can YOU take from this?

First and foremost, if you are a woman with longevity in your genes you do need a plan to protect yourself from potentially exorbitant out of pocket health costs. There are sooooo many ways to do this nowadays without breaking the bank. Just do SOMETHING, to plan as soon as you can, because the older you get the harder it is to make a plan work. Does this mean a Long Term Care insurance policy? Maybe. Does this mean a side account that you put $150 a month into and don’t touch for anything because it’s designated as your out of pocket health account? Maybe. Does this mean you have a plan of action to look at life care options at a local Continuing Care Retirement Community? Maybe that too.

Plan – NOW!

All options should be on the table. But YOU are the person most at risk for a high cost health event. However, even while that risk to you is higher than the general population, the risk is still quite low. So, don’t get overly cautious or worried. Just plan!!!

For everyone else, there is a simple solution to the low likelihood but high cost potential event happening to you… Are you ready for it??? You sure???


No debt = financial freedom. This is one area I agree with Dave Ramsey on. Completely. Get. Out. Of. Debt. And enjoy your life. It’s the only one you have.


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