Has anyone seen this yet? “Retirees: Prepare to shell out $220K for health care”
http://www.cnbc.com/id/102480352
You’ll note that the author is an M.D. who offers “life planning” services.
Consider at least reading this book before you accept any advice from any FA at a “bank” who is selling you products.
^ That $220K number comes from an annual “study” by Fidelity of retirees’ lifetime medical costs:
https://www.fidelity.com/viewpoints/retirement/retirees-medical-expenses
This is a per-couple amount. It’s spread over 37 retirement-years, which is around $6K per year per person, which doesn’t sound nearly so dramatic.
Fidelity of course is also selling something, so they want it to appear as bad as possible.
The paper devotes about 25% of it’s content to so-called ‘side-fund’ analysis, which is about how to consider the taxes that get paid on Roth contributions and what happens if you bank it, etc.
It’s a little heavy (ideal for lawyers 
) but I found it worthwhile to slog through.
Thanks again. I definitely need to learn more about investment for retirement.
Although I believe we generally have more (slightly less riskier?) investment opportunity in this country, our family tends to be on the very conservative side in term of investment.
A friend of mine (who is 65+ yo) only invests in the bank CD/saving, maybe some federal government bonds, and real estate (own rental units and rent them out.) I think he is a bit extreme.
Many decades ago, a colleague of mine said only those who have more financial resources (stable income and sizable assets, and/or young and having many earning years) will be a better fit for investment; otherwise, they tend to be panic and sell when they should not.
@notrichenough
I just skimmed and saw that the article does indeed have the “side fund” analysis. I will keep reading it when I have nothing better to do with my day! Thanks.
Fixed link: http://www.joetaxpayer.com/images/ThinkingAboutaRoth401%28k%29.pdf
I raise you this article, which appears to discuss the McQuarrie article. I haven’t read it, just skimmed it and saw the references to McQuarrie:
I’ve bookmarked both.
@mcat2, for most of us, diversification can mean 1 to 4 funds. Unless you’re the Yale endowment, you are probably fine without timber land, precious metals, commercial properties, livestock, etc.
Personally, 50/50 Total Stock Market Fund and Total Bond Market works fine for diversification. I don’t invest much in international, REITs, etc. I buy the max in I bonds every year (essentially $10k/person, unless you have an income tax refund coming).
@mcat2
You should only ever do what you are comfortable doing. But you should also educate yourself to the fullest extent possible before listening to well-meaning friends, colleagues, relatives, advisors, etc. You are on CC after all.
There is nothing wrong with being conservative if that is what your income level, age, sophistication, risk tolerance allow. But it comes with the risk that the purchasing power of one’s retirement funds will erode with inflation over the next 30+ years and one will run out of funds when one is least able to cope with that calamity during extreme old age.
As for panicking, it is never advisable to make any decision rashly, whether in a good or bad market. That leads to buying high and selling low. Crowd mentality is hard to tune out.
Another form of diversification is tax diversification. I will have a good bit in taxable, a fair bit in tax-deferred, and some in Roth. It lets you optimize where you’re drawing from in retirement.
I thought index funds themselves are a kind of diversification. In S&P500, you own stocks from 500 different companies. You probably own all sectors in S&P, I would think.
I am conservative in our investments, based on our need, willingness, and ability to take risk. Those three words are loaded with meaning – Google Bogleheads to research.
@notrichenough
The aggregate health care costs are not alarmist especially if they account for premium costs and OOP costs. It’s a good ballpark number to lop off the top of the retirement amount that is available for other essentials. The sum also does not include LT care, as the CNBC article points out.
The way I see it, if I can safely say that I have accounted for these two expenditures, the uncertainty over which frighten most early retirees, then my confidence factor rises. LT care statistics suggest that most people do not stay longer than 24 months (IIRC, haven’t looked recently). But when my ILs were in an assisted-living facility, there were a couple of rooms that housed 5-year+ residents, though it is possible they moved there earlier than absolutely necessary and could have done with in-home care for part of that time.
@AttorneyMother
I think the way the headlines are presented are certainly alarmist. Which is more likely to get your attention:
“Retirees: Prepare to shell out $220K for health care” or “Retirees: Expect your health care to average $6K per year”
That article you linked to says
This is blatantly wrong, and probably deliberately so in my cynical opinion. That amount is for a couple. But someone reading this is now thinking “Wait, what? For two of us we need almost half a million dollars just for health care? We’re screwed.”
I can’t find details on exactly how Fidelity came up with that number, so who knows how accurate it even is. Has anyone who is not selling something tried to calculate this?
You can figure it out…
Here is medicare part b
http://www.medicare.gov/your-medicare-costs/part-b-costs/part-b-costs.html
Part d
http://www.medicare.gov/part-d/costs/premiums/drug-plan-premiums.html
Medigap…
Depends…
http://www.weissratings.com/medigap/compare-plans/compare-prices-age-gender-zip.aspx
@notrichenough
Getting attention paid to a topic is good, if it raises issues. I can’t address the style of financial reporting. People want to get clicks, I’m sure.
Anyway, here’s what the Fidelity website says about the source of the projected costs:
Maybe Fidelity is one of the “better” guys. So far as we know, it isn’t trying to “sell” anything other than investment products for HSA, retirement and investment accounts. It’s certainly a huge player in the employee-benefits industry so it sells data to mega-employers.
I have a question about the regular 401k vs. Roth 401k choice. I understand the concept of one’s tax rate now vs. during retirement, and if one can reasonably predict which will be higher, the choice is clear.
I read an article this morning (sorry, I can’t seem to find the source again - it may have been a Forbes link) that suggested everyone should have some portion of their investments in a Roth 401k even if the regular 401k makes more sense from the tax perspective mentioned above. The reasoning was that the diversification of sources provides options should the current tax laws change between now and retirement.
What say y’all? And if you agree with that argument, what portion of your annual contributions would you consider appropriate to place in a Roth 401k if you believe your tax rate is higher now than it will be in retirement? I can’t seem to get my head around guaranteeing I’ll pay more in taxes now, just in case tax law will be less favorable later.
$220,000 is in the ballpark for a couple.
The fine print on the Fidelity article says
https://www.fidelity.com/viewpoints/retirement/retirees-medical-expenses
This is somewhat open-ended… what does “certain services excluded by Medicare” mean?
Part B looks like $105/month, part D looks like around $50/month, that’s $1800/year. $1250 deductible if you are hospitalized, which won’t happen every year. $325 deductible from part D, so now we are up to $2100-2200/year. Where’s the other $4K/year going? Are there other co-pays and costs?
Is Total Stock Market Fund more diversified than S&P 500 Index Fund?
Is the fees for Total Stock Market Fund much higher than that for S&P 500 Index Fund?
What is the meaning of “Total” in Total Stock Fund? Does it mean it tries to track the performance and risk level of the whole stock market thus it is more actively managed than S&P 500 as it requires more work to track the (domestic only, or both domestic and international?) stock market as a whole?
Medigap costs money.
Costs are going to increase every year.
If I use $3,000 a year person…costs increase 4 percent a year… Returns are 3 percent after tax… And the couple dies at 90… $220,000 is close for a couple.