Fidelity is reporting that the Health Care number from EBRI has gone down from $250,000 to $230,000.
Well there we have it, nothing to worry about. Financial Planning will all be summed up very simply from this point.
If it was only so easy.
The problem with this number is the same with the EBRI number – it’s a wide brush stroke on a small canvass. See our comments on the EBRI number here
What is good for one couple is not going to be even close for another.
To show you the dangers of this announcement all you have to do is look at how Fidelity got to the number.
Using actuarial tables to determine life expectancy and assuming a 3% growth rate on investments it can be concluded that a 65 year old couple will need $230,000. Also it can be concluded that the male will live to age 86 and the female to age 89, and neither of them will have any health issues at all for the next 20+ Years. This data is provided by HealthView’s RetireMark’s Software
But what if we were to use a 5% growth rate in retirement then they would only need $180,000, and if they received a 0% growth rat,e like what most received from 2001 to 2010, they would need $357,000.
The main issue with Fidelity announcing their Health Care number is that they are an industry leader who when the average person hears something they announce they think that is all that is needed to know. But when it comes to someone’s health one size does NOT fit all.
The problem is there are so many different factors on this subject which include things like Health Conditions of the person, their age, the rate of inflation, how much they earn, where they live, Medicare changes etc… and to just say here is a number everyone will have is well WRONG.
What happens if the male has High Blood Pressure or Cholesterol? What happens if the female has Cancer or Smokes? What if they live in Florida or Vermont? What if they make over $170,000 per year?
Do you think not only their care will change but also their life expectancy and their costs?
The answer is yes it will all change and with those changes comes a different numbers.
Example a couple who both have diabetes can expect to only have a Health Care Bill of roughly $108,000. Why? Because their life expectancy has dropped 10 years.
How about a couple where only the male has High Cholesterol but that they both live 5 years longer than their life expectancy; they can expect to have over $280,000 in Health Care Costs.
Yes they can set aside assets to be earmarked for these expenses and have those assets grow at a rate like 4%, but where is someone going to get a guaranteed rate of 4% compounded annually where they will be able to withdraw as much as 7% in the waning years of their life?
Our question is why would a firm like Fidelity post a one shoe fits all answer to a problem that has so many variables it makes our Federal Government and our country go haywire?
As for the the average healthy 65 year old please realize that more than half of Americans have chronic conditions and these conditions will get very expensive as you age – see article here
Apparently Fidelity thinks that your health must improve while you age.