And while this wasn’t a concern of mine at the time, my parents were quite insistent that either I start taking vitamins or improve my eating habits. Figuring that it was the lesser of two “evils,” I went for the pill.
Well, until I saw THE PILL.
Mind you, this was no kid-friendly Flintstones chewable – no, it was some big, ugly black monstrosity – a real “horse pill.” And just looking at it I was sure that there was no way it could possibly make it down my poor 5-year old throat (I wasn’t altogether sure it would even fit in my mouth).
However, and despite my vehement protestations, my parents were determined that I would ingest it. And, for the next 15 minutes or so (it felt like forever) I was as close to being waterboarded as I will ever want to be – as my parents proceeded to hold me down, tilt my head, and attempt to flush the pill down my throat with copious amounts of water. But sure enough – and as I had tried to tell them, that darned pill just wouldn’t go down.
I wonder sometimes if that isn’t how workers view the admonitions about how much they are supposed to be saving, and/or how much they are supposed to have accumulated in order to retire. And, as if that weren’t overwhelming enough, there are a handful of ginormous projections about how much more you’ll need to take care of health care expenses.
How much? Well, Milliman projects that a healthy 65-year-old couple[i]retiring in 2019 is projected to spend $369,000 in today’s dollars ($551,000 in future dollars) on health care over their lifetime. Fidelity puts the number for a 65-year-old couple at $285,000 in health care and medical expenses throughout retirement, up from $280,000 in 2018. The Employee Benefit Research Institute (EBRI) says that some couples could need as much as $400,000. You get the picture.
That’s no small thing – particularly when survey after survey suggests that it’s health care costs that loom largest as a concern – not just for those for whom retirement awaits, but for those already in retirement (who, most surveys still find to be pretty comfortable with their other retirement expenses).
Several weeks back I stumbled across an interesting report aptly titled “A New Way to Calculate Retirement Health Care Costs.” The report, authored by T. Rowe Price’s Sudipto Banerjee, acknowledges that while health care costs are a significant retirement expense, it may be more practical to look at health care as an annual expense incurred over the 20-30 years you’ll actually incur those expenses, rather than as a lump sum.
The paper offers an eye-opener that says that if you were to view that $150/month cable bill as a retirement lump sum, you’d want to have $86,000 set aside.
Closer to the subject of retirement, the paper takes the example of a 65-year-old couple – a couple that has saved $400,000, and now has a combined monthly Social Security benefit of $2,000. How are they going to afford that $300,000 for health care costs? Well, as Banerjee points out, that $2,000/month Social Security benefit actually (with a 2% annual cost-of-living adjustment), that adds up to approximately $583,000 in Social Security benefits in the next 20 years.[ii]
Let’s face it, the costs of health care in retirement – or retirement overall – can look like a big pill to swallow as a lump sum – but it can go down a lot easier when you can take it in smaller pieces.[iii]
- Nevin E. Adams, JD
[i]Of course, those are averages – and for some context, you might check out “Why an Average 401(k) Balance Doesn’t ‘Mean’ Much.”
[ii]It’s not just that that approach puts things in an apples-to-apples light – the paper explains that since fixed monthly premiums make up the bulk of annual costs, most of those costs are predictable – and can be budgeted, and paid for, from monthly income. It’s the out-of-pocket expenses that can vary widely, from month to month and from individual to individual.
[iii]Oddly, my parents never thought to cut that pill into smaller pieces. And I certainly wasn’t going to suggest it…