There has been a lot of talk about Fidelity’s $240,000 healthcare-expense-in-retirement estimation. I tried to examine it from an unbiased perspective and came to two distinct possibilities:
1) Fidelity has solved the healthcare crisis, or
2) We need to step back and rethink the number.
Let’s look at an example of a 30-year-old working today. Let’s call him Phil. Phil Delity.
Phil is working for a large company that has provided him with a fair benefits package. He can expect to pay roughly $215 per month for his premiums, or about 25% of the total, with the employer picking up the remaining 75%.
Projecting for the year, Phil will pay a total of $2,580, while his employer will cover the remaining $7,594, so his yearly premium will cost roughly around $10,200. This seems to be a fairly accurate assessment according to a 2011report from the Houston Business Journal, which used AON Hewitt data to peg total healthcare costs per employee at $10,770 annually, while Milliman pegs a family’s healthcare costs to exceed over $20,000 in 2012.
So if Phil stays with the company until he is 50 and incurs approximately $10,000 in healthcare cares costs per year, his total coverage costs should slightly exceed $200,000. (This does NOT take inflation into account.)
Still with me?
Now Fidelity has led the financial industry to believe that when Phil reaches 65, enrolls in Medicare with his spouse (Phil got married along the way), the two of them should only expect to pay $240,000 for their healthcare for the rest of their lives.
Now the question becomes: How does one healthy individual over a 20-year period pay roughly $200,000 for healthcare, but TWO elderly people who live to 80 —with additional variables such as increased medical testing, prescription drug dependency, and long-term care—expect to pay only $40,000 more in costs? This figure also fails to take into account that Medicare is now means tested, which translates to the “more you earn, the more you pay.”
Either Fidelity wants everyone to believe that no one will live that long (so why bother even planning anyway) or they have figured out a way to lower health costs for everyone as they age.
I hope that I am not the only one baffled by this.
Now if we turn to Healthview Services, an industry leader healthcare cost planning, we will see, by using their revolutionary RetireMark Software, that a couple who is 65 today and only plans to live until age 80 can expect to incur $274,000 in retirement. This number changes drastically if the couple’s income ever exceeds $170,000, they move to a more expensive state, or they live to their actual life expectancy. (88 years for the male and 90 for the female, which will result in approximately $620,000 for their healthcare costs.)
Something just doesn’t add up, and unfortunately this misinformation will lead to erroneous planning in which the only real losers will be the clients.