Estimating health care expenses in retirement

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MoonOrb
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Estimating health care expenses in retirement

Post by MoonOrb » Sun Jan 14, 2018 2:55 pm

What rules of thumb, resources, or other tools do people use to estimate health care expenses in retirement?

I'm not so much looking for precision as I'm looking for ways to bring an increased degree of certainty to a situation that I anticipate will continue to remain somewhat uncertain.

It would be nice, for example, to be able to come up with some kind of reasonable range that I can continue to refine as retirement approaches rather than just the current guess I'm using now ($25k/year for a married couple). My expectation is that each year we get closer to retirement we will have more reliable information. That's excellent, but when retirement is 10-25 years away, it's harder to plan.

Thanks.

quantAndHold
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Re: Estimating health care expenses in retirement

Post by quantAndHold » Sun Jan 14, 2018 3:30 pm

I would argue that until you’re within a five years of retirement, it doesn’t really matter. There’s too much uncertainty in everything, not just health care, to be that specific in planning.

Personally, over the years, I just worked at saving enough to theoretically be able to retire at our current spending level, whatever our current spending level was, at age 55 (figuring that even if everything went wrong, I’d still be ahead of the game for retiring in my early 60’s). Then when I got close to actually retiring, I looked more closely at our actual spending, what we wanted to spend our money on in retirement, and external changes that might be coming, especially with healthcare. There was still so much uncertainty that I ended up just guessing that our future overall spending would continue to be roughly the same as when we were working. Which hasn’t been a terrible guess so far. We’re actually below what we planned, without trying to be particularly frugal.

jasg
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Re: Estimating health care expenses in retirement

Post by jasg » Sun Jan 14, 2018 4:59 pm

I like a degree of certainty, so I bought a MediGap plan as soon as I turned 65 (avoiding the chance of denial). Along with that, I had to buy a Medicare Part D drug policy.

Since the MediGap covers the 20% of costs Medicare does not cover, I can simply sum up the premiums for Parts B & D, MediGap and my deductible and have an annual upper limit (less drug copays). The only unknown is high drug costs so I have to keep an eye each year on what changes might be needed in my Part D policy.

Starting my 5th year on Medicare, I find that my premiums have risen about 30% since I started.

3feetpete
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Re: Estimating health care expenses in retirement

Post by 3feetpete » Sun Jan 14, 2018 9:08 pm

Right now a married couple both on medicare will spend about 10k per year on health insurance and deductibles all in. 1k to 2k less if you go with a high deductible medigap plan. For most retirees this falls within a range of 10% to 20% of their total yearly expenses. I would think that in the future that will continue to be the case. I would also think that if it became more than 20% the government would have to step in because the seniors are a very strong voting block.

3feetpete
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Re: Estimating health care expenses in retirement

Post by 3feetpete » Sun Jan 14, 2018 9:09 pm

Right now a married couple both on medicare will spend about 10k per year on health insurance and deductibles all in. 1k to 2k less if you go with a high deductible medigap plan. For most retirees this falls within a range of 10% to 20% of their total yearly expenses. I would think that in the future that will continue to be the case. I would also think that if it became more than 20% the government would have to step in because the seniors are a very strong voting block.

scifilover
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Re: Estimating health care expenses in retirement

Post by scifilover » Mon Jan 15, 2018 9:05 am

Health care expenses can include things like Memory Care for Alzheimer's, nursing home care, and assisted living expenses for those who are healthy but elderly, which are not covered by Medicare in its various forms. These things are difficult to estimate for in a retirement budget. No one knows if/when/how long they might need such care.

If you have significant assets ($2M plus) you can in effect self-insure. If you will have a thin retirement, there is Medicaid. Those who will fall between these extremes sometimes can purchase long-term care insurance, a problematic solution.

Mike Scott
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Re: Estimating health care expenses in retirement

Post by Mike Scott » Mon Jan 15, 2018 9:38 am

I think the previous posts gave a couple of good examples of what the bottom end of the range might look like right now. The upper end of the range is "more". For example, most people with heath insurance know what their policies are for the remainder of 2018 but the following year 2019 is not yet known. My personal thought is that health insurance and the industries providing health care may change so much in 10-25 years that we may not even be able to imagine how they function much less what they cost. I like certainty, but I believe that trying to get any kind of certainty on health insurance and health care that far out is simply guessing and provides very little useful predictive value. Life is uncertain and the future of health insurance / health care is very much so.

david_that_guy
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Re: Estimating health care expenses in retirement

Post by david_that_guy » Mon Jan 15, 2018 9:48 am

Even short term estimates can be way off. I retired 2 years ago at age 61 and my wife retired 3 years ago at 61. Before retiring I estimated our health care costs (pre medicare) based on ACA policy costs plus our previous 3 years out of pocket medical expenses. I added 10% per year to cover increases in ACA and some increase in out of pocket expenses. In fact, we have both subsequently had serious (fortunately not life threatening) health issues so our out of pocket expenses have been much higher than I estimated. We have both been very healthy our whole lives, eat right, exercise, keep our weight down and yet stuff happens when you get over 60.

My summary is that all you can do is make a reasonable estimate and then keep a large margin of error.

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midareff
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Re: Estimating health care expenses in retirement

Post by midareff » Mon Jan 15, 2018 9:49 am

Estimating health care is the easy part. ... for us, me on Medicare with AARP United Plan F, and her on my former employers spousal coverage our insurance cost has been (monthly) 2018 - $1062, 2017 - $962, 2016 - $ 921, 2015 - $866. roughly 23% increase over 3 years, or 7.3% annually, in a very low inflation environment. Total Medical/Dental/Drugs has gone 2013 - $16,337, 2014 - $22,832, 2015 - $29,460, 2016 - $16009, 2017 - $18565. 2014 and 2015 were his and her dental implant's years and there simply isn't a decent dental plan I can find so I self insure dental. Our medical insurance costs are about equal.

Medical and dental are the 900 pound gorilla in the room. I budget $300 a month over our monthly insurance costs for deductibles, co-pays, drugs, optical, dental cleanings and so forth. Of course if you bust a tooth you can immediately add $5K for extraction, implant and crown.

There are cheaper plans out there but since they cover less I doubt they are really cheaper. Hope it helps.

Lynette
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Re: Estimating health care expenses in retirement

Post by Lynette » Mon Jan 15, 2018 11:39 am

Also take in to account Medicare IRMAA especially if you have pension. Try to do Roth conversions before 70 when RMDs become mandatory. Also if you start to take SS at 70, this adds to your MAGI that is used to calculate Medicare premiums. I did not know about Medicare IRMAA as I assumed that Medicare cost would be about the same as my costs while employed. This was very wrong. As I have pensions, took SS at 70 and have most of my portfolio in tax deferred, I am subject to IRMAAs. As a single person, I am playing about $450 per month for medicare B and D premiums. Medigap G and Drug costs total about $200 per month. So for a single person I am paying nearly $8,000 p.a. - and I never go to a doctor! Fortunately I have two HRA's from former employers totaling about $5,000 p.a. Next year I'll pay more attention to these brackets!

This year Medicare added another IRMAA bracket. To me it seems that they are scrounging for the last dollar they can eke out of medicare-eligible retirees. Some of the threads here about people retiring in their thirties assume that Medicare will still be around in its present form in 40 years. I think that is a questionable assumption.

3feetpete
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Re: Estimating health care expenses in retirement

Post by 3feetpete » Mon Jan 15, 2018 12:48 pm

Lynette wrote:
Mon Jan 15, 2018 11:39 am
As I have pensions, took SS at 70 and have most of my portfolio in tax deferred, I am subject to IRMAAs. As a single person, I am playing about $450 per month for medicare B and D premiums. Medigap G and Drug costs total about $200 per month. So for a single person I am paying nearly $8,000 p.a. - and I never go to a doctor! Fortunately I have two HRA's from former employers totaling about $5,000 p.a. Next year I'll pay more attention to these brackets!
For someone who never goes to the doctor a Plan F high deductible would save about $1,000 per year over the Plan F. And since part B pays 80% of the cost one would have to have 5k in medicare costs before you used up the 1,000 in savings. Being subject to IRMAAs is a result of having a high income in retirement. Not the worst problem to have. And as Lynette said doing Roth conversions before 70 can minimize that.

Lynette
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Re: Estimating health care expenses in retirement

Post by Lynette » Mon Jan 15, 2018 8:31 pm

3feetpete wrote:
Mon Jan 15, 2018 12:48 pm
Lynette wrote:
Mon Jan 15, 2018 11:39 am
As I have pensions, took SS at 70 and have most of my portfolio in tax deferred, I am subject to IRMAAs. As a single person, I am playing about $450 per month for medicare B and D premiums. Medigap G and Drug costs total about $200 per month. So for a single person I am paying nearly $8,000 p.a. - and I never go to a doctor! Fortunately I have two HRA's from former employers totaling about $5,000 p.a. Next year I'll pay more attention to these brackets!
For someone who never goes to the doctor a Plan F high deductible would save about $1,000 per year over the Plan F. And since part B pays 80% of the cost one would have to have 5k in medicare costs before you used up the 1,000 in savings. Being subject to IRMAAs is a result of having a high income in retirement. Not the worst problem to have. And as Lynette said doing Roth conversions before 70 can minimize that.
I have to make my choice for Medigap and Drug D coverage from an Exchange to which both my former employers belong so I don't have much choice. My financial planning was way off. I worked till 73 so my pensions would grow. I did not know about Medicare IRMAA's or else I would have planned differently. Life's OK. My pensions and SS cover my needs and wants (travel). It's nice not to have to worry about what percentage of my portfolio I can withdraw, sequence of returns risks or other themes that dominate this board.

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Sheepdog
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Re: Estimating health care expenses in retirement

Post by Sheepdog » Mon Jan 15, 2018 9:21 pm

We are a retired couple, ages 84 and 77 at the end of 2017. I can give you our costs.

Our out of pocket medical expenses for the last 8 years are listed in each category are:
(First amount shown is for 2010, followed by 2011, 2012, 2013, 2014, 2015, 2016, 2017}

Medical insurance premiums [Medicare ('paid from SS deduction), Medigap, Part D prescription and Medicare Advantage plans (me in 2014-17 and spouse 2016-17: $6830, $7033, $8037, $8943, $6436, $6436, $4135, $4691

Dentist (uninsured): $220, $2962, $2977, $1576, $2500, $2981, $413, $2209

Physicians: $1583, $162, $66, $111, $296, $464, $725, $1048

Prescription Medicines: $685, $808, $62, $140, $279, $426, $1293, $2755

Misc (eyes, lab, hearing, chiropractor) mostly uninsured $532, $2545, $248, $2577, $0, $1107, $1276. $1947

Hospital and surgical $0, $906, $0, $0, $0, $424, $0, $214

TOTAL OUT OF POCKET MEDICAL EXPENSES FOR THIS RETIRED COUPLE: 2010 $9,850, 2011 $14,416, 2012 $11,290, 2013 $13,347, 2014 $9,511, 2015 $11,838, 2016 $7,842, 2017 $12,864


COMMENTS: I purchased a Medicare Advantage plan (Anthem BC/BS for me only in 2014.. My wife remained with Medicare and Medigap until 2016 when she also purchased a Humana Advantage plan.) You can see the resulting lower insurance costs starting in 2014, They are saving us over $4000 per year.

Uninsured dentist expenses are much higher than 10 years ago.

Hearing aids (uninsured) for me started in 2011. I have purchased two (in 2011 and 2013) at a cost of over $2000 each. Replacement aids were purchased in 2017, but all covered by my Advantage Plan.

Most of our medications had been generic until 2016 when my wife had to begin purchasing 2 VERY expensive name brand drugs.
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