Fidelity is still stating that average couple will need $230,000 at the point of retirement to cover their Health Costs in retirement.
Are they right or are they wrong or are they just really close?
According to HVS Financial, one of the only firms in the country that is personalizing what expected health costs will be for consumers using actuarial & claims data along with factoring in the rules & regulations set by Medicare, Fidelity is spot on sort of.
Peter Wieselquist, CTO of HVS went on further to define HVS’ reply “Yes, Fidelity nailed it, we completely agree that the number is $230,000, especially if we are using it for a couple who;
- Lives in Arkansas
- Earns less than $170,000 while on Medicare
- Each have no health conditions at all for the next 20 years
- The male lives to 82 and the female lives to 85
- The assets earmarked for this expense earn 4% each year for the next 21 years
Then Fidelity hit the nail on the head – but for anyone else that doesn’t fall into this category, well the number is off by what could be a lot”
When asked to further explain his reply Mr. Wieselquist went on to say “Advisors have to realize that someone’s health, where they live and how much they earn in retirement are all major factors in the over healthcare cost. Baby Boomers has become accustomed to having plans personalized for them, to now take on the most important factors they have and round number it for all may not be the best idea"
To give a few examples of how drastically things can change just look at the example above and change the residency to New York; the new amount will be $255,000
If that couple who happens to now live in New York but earns just $1 more in retirement than the first income bracket of $170,000; the total needed increases to $291,000.
What if the same couple moves back to Arkansas and actually lives to the average life expectancy used by most actuary firms (88 for the male, 90 for the female); the total needed is now a whopping $406,000.
What if they each have Type II Diabetes and live to age 86; the total needed $354,000
What if they earn over the maximum ($424,000) in income, live to age 90 and reside in Florida; total needed $665,000
What if we use the exact same original couple but they don’t earn 4% for 20 years they earn 0%; total needed $610,000
We could go on and give plenty of examples of why using just one number is correct for 2 or 3 people that Advisors will work with, but hopefully the point has been made that circumstances are different for all different types of people and when it comes to something as personalized as someone’s health, how can anyone justify using a one number approach?