Is there some rule of thumb for gauging additional spending in old age

[Demosthenes]

I was speaking to my friend who recently started selling mutual funds about my retirement goals. I told her I was going to retire at 41 and expected my yearly expenses to go up no more than 25% of my current spending. She probably wouldn't have blinked an eye if I were spending >60k a year, but she was extremely concerned at our 3 person (will be 4 in the future) current household spending of 24k.

She started spouting off several expenses that the average person encounters when they get older, listing house renovations, paying for kids education and weddings etc, summer camps, and most importantly health problems in old age. The problem is that spending on health problems in old age is nearly limitless. You could contract some rare disease in which treatment costs 1 mil a month. It's hard to argue against that without having a chart of all possible illnesses, their percentages of likelyhood, and how you're actively living a life to prevent them.

Is there some known "best guess" for how much extra you are likely to spend in old age?

[slowtraveler]

I thought spending went down in old age most of the time except during those caretaker years. It's a hell of a lot cheaper for good health care in Mexico or Thailand.

[Demosthenes]

> I thought spending went down in old age most of the time except during those caretaker years.

This was my assumption as well. The caretaker years in theory shouldn't last long so it's okay to draw down your portfolio (You won't need it when you're dead).

I live in Canada too so medical expenses aren't as much of a problem. We still have to pay for prescriptions though.

[Sclass]

I’m dealing with something like this right now.

My mother has late stage dementia. She’s 80. We are spending a lot to provide 24/7 in home care for Mom.

What I can tell you from my experience is it can get crazy expensive if you want it to be. 24/7 custodial care and enhanced medical measures to prolong my mom’s life cost a lot. We burn a lot. Mom and dad were extreme savers and investors and have resources. Now they are both discovering that not only do they have more money than they could previously spend, they currently have nothing else they want to spend it on besides extreme medical care and 24/7 nursing. New bodies aren’t forsale. Their homes look like hospitals. They’re worried the family is ripping them off and use the most arcane methods to control money and people to ensure things are done their way. Mostly dads way because Mom is in a wheelchair staring into space all day.

Or you can find yourself in a Medicaid convalescent home in a bed, broke, being cared for by one person responsible for,about six people just like you rotating through. Those seem to be the bounds in Los Angeles, CA. It isn’t the worst thing and it’s free from what I gathered from our team members who moonlight at the Medicaid places. It may not be the worst place to go when you are helpless, confused and oblivious.

My folks are going through this self discovery period where they are realizing all the wealth they accumulated is good for us buying caregivers, Ensure and Depends. It is coming as a shock to my dad that he is mortal and cannot stem the tide. I know, it looks pathetic as somebody trying to help him purchase what he wants at the price he demands but people are people. Remember, dad and Mom are still frugal people so they want a good deal even if I have to exchange my time for money to get it for them.

Sadly old habits don’t die. They still don’t want to spend their money.

It’s been an eye opener to me. So running out of money when your so messed up you cannot cut a check or having tons of money when you’re so messed up you need your kids to cut checks for things you never thought you’d desire - Invacare electric beds, Hoyer cranes,
Drive transport wheel chairs - may not be all that different because at the end of the day you’re old, helpless, in pain, oblivious and confused.

I’m a guest in this world standing by my ridiculous parents. I’m just saying money may not necessarily be the biggest problem at their stage. If it weren’t there we’d just find another way for them to slowly (or quickly) die.

[slsdly]

I think the prevailing winds in Canada will get us pharmacare. I'm hoping not to need it. There isn't much family history for needing them. Avoiding lifestyle diseases is key here.

That said, the Ontario Drug Program is not bad if you require one of the ~4400 drugs they cover. At 65+, you pay the first $100, and ~$6 for each refill after that. Ages 25-65 have access to the Trillium Drug Program which is the same, but only kicks in once you spend 3-4% of your income on drugs. That's not a bad deductible really!

We also get a medical tax credit once you spend the lesser of 3% of your net income, or $2300, so that would soften the blow a little -- even if you already pay no taxes, it should allow you to realize some capital gains, or turn on the RRSP tap a little more to reduce your future liability.

Watching my grandmother living her last years out in a hospital and long term care facility didn't give me much confidence in my own will to live, if that was my life. Fingers crossed on a far away, but swift demise.

[Sclass]

An interesting factoid I got from our caregivers that moonlight at the Medicaid places is that private payer patients are in the room with free (govt paid) people.

That’s cool and sick and the same time. We got somebody paying $5k a month for the same treatment and room as a guy next to them who pays zero. Not that is wrong, but I cannot help feeling bad for the saver putting away money so he could spend $5k a month unlike the free rider. The caregirls are really into deciphering who is private pay and who is Medicaid. Weird that they care but it is like a puzzle for them and they talk to me about it.

It made me think a lot about the endgame. Do I want to just blast out all my money while I can still enjoy it and then end up in free care a long with the others doing private pay? Or do I want to sandbag and prepare for a situation where the govt will be overwhelmed and unable to provide me a free bed? I dunno.

Either way seems to suck, just in different ways.

I’ve been sacrificing for the future since I was ohhhh, ten years old or so. Maybe there’s a point where I just give up and it won’t matter?

Back to the OP, I don’t think the burn rate will be linear. I’ve known a lot of old people (not sick) who spent very little up to a point. Whether it was by choice or by circumstance I dunno. But the burn rate went down for a number of years after their house was paid for and their kids were independent.

[C40]

Serious question: why isn't self euthanasia more common?

From what I can tell with a quick internet search, the official elderly suicide rate is like 50 per 100,000. (The total average suicide rate is 12 per 100,000). So it's higher, but still quite low. But... I did read that "coroners go to great lengths to call it anything but suicide". So... I wonder what the real rate is.

It seems obvious to me that if/when I'm old and deteriorating fairly slowly, I'll evaluate my life as a whole and likely decide it's time to end it. I believe a lot of young people think this. But then.. it seems most people don't do it. Why? Do they change their mind? Do they become cowards? Do they end up not even thinking about it?

[Sclass]

Serious question: why isn't self euthanasia more common?
. Why? Do they change their mind? Do they become cowards? Do they end up not even thinking about it?

Hi,

Good ? My understanding is dementia patients have a narrow window where they need to make a decision. Wait any longer and you are happy the way things are.

My mom was actually suicidal at multiple points in her life. She actually attempted at around 45. Probably to get attention but it was very real after she ate a handful of meds during a domestic dispute. As the years went on I recall her pointing out people with Alzheimer’s saying it was awful how they burdened their kid with their care. But when my mom started having memory slips everyone reassured her that it was ok and normal. By the time she was in crisis, she was okay and happy while things were spinning out.

And now we are here. Ten years in.

I had one friend who killed himself with the toe through the shotgun trick after a stroke. I had another do it with pills and a note while his wife went grocery shopping. He conned her into going out because we all suspected his plan. He had terminal cancer and was in intense pain. A real great DIY type all the way to his self euthanasia.

@ffj

thanks for the reality check. My judgement is colored by my current struggle. My mom has money and I’m blasting it away to let her stay in her home with top drawer care. It is freaking everyone in the family out because of inheritance issues. My plan is to have her die with zero. Unfortunately I don’t really know when that’ll come so it is difficult to plan. It’s my moms money at the end of the day so I think she should go out this way. My relatives don’t deserve a penny either.

If I put in more of my time than her money, or get her cheaper care, my family will just crawl out of the cracks they’ve been hiding in to get their cut. So I’m burning her cash like there is no tomorrow. And I’m also burning my dads business assets because I now control them. I’m literally destroying the extended familys’ ability to generate income off his business beyond his death...and oddly dad is letting me do it. My goal is to leave my stepmother and her kids penniless too when it is over. I was confronted a few months ago about my new course but I guess everyone is too chicken to step in and do it differently.

Oddly my stingy dad is begrudgingly going a long with it. I think he realizes the money is worth nothing to him when he’s gone. And he really doesn’t care about leaving a fortune to his entourage.

[Demosthenes]

Wow thank you for all of your posts. Your stories are very helpful. I will have to ponder how to convert this into quantitative values.

[Jason]

I believe that Fidelity Investments is if not single handily, primarily responsible for the "unlimited health costs associated with old age" that your mutual fund friend is speaking of. I have accounts with them and they have made it their mantra for retirement planning. I believe they are taking a legitimate concern and using it to exploit people's fear and I believe it has been picked up by the rest of the retail investing world.

Watching my parents in retirement (now just one) I realized how much costs go down. One car, less food, less wardrobe, less I give a shit. I need entertainment? I'll go play bridge, swim, play puzzle books, join a book club. It's also the easiest period in one's life to get laid although that's the equivalent of finding some light reading in the rare book collection.

About that rare disease that costs a million dollars a month in treatment? Ask them exactly what that disease is and then figure out what are your chances of getting it. My guess is its less than Serena Williams ringing my bell in the next five minutes asking me if I want to go underwear shopping with her.

[J_]

Good question. Very interesting answers. Thanks.
I learn from it that it is not wise to stay frugal as principle.
So do I.
Everything in life constantly change.

I allow myself (and my DW): a motorboat on which I/we can live for long periods for travels/stay in the Netherlands, Belgium and Germany which I do for 2 or 3 months a year. 3 months a year I/we do intensive winter-sport. I play tennis for pleasure for the second year, I play piano for pleasure, I bicycle a lot, I have just started to learn sport-rowing with a rowing-club in open water, I kayak, I swim and I walk. And just for fun/visiting relatives and friends do I drive a little sports-car sporadic. My fixed yearly expenses which cover all things mentioned inclusive living in two countries and inclusive of health insurance are about half a Jacob per year per person. That is the result of practicing ere, maintenance skills, and living in a "social" geared countries).

I expect that my energy will diminish this decade in which I possibly reach 80. But all these activities can also be done with less effort, they are "scalable at will". I expect that some of them will become less attractive to me, then I will give away the equipment or sell it.

So If you want a rule of thumb from me: as long you have insured health costs, living in (a) house(s) which you own, no debts, stay inventive to learn new skills and have internalized ere principles: there are no additional spending costs in old age. Perhaps the contrary but for finding out: give me another decade!

[jacob]

https://www.theguardian.com/lifeandstyl ... ugh-to-die

[Gilberto de Piento]

Being Mortal is a good book about end of life issues.

[TheFIminator]

The expenses you have described are more middle age expenses. House maintenance hits any home owner at any age.
In old age, health is the big one and perhaps travel (if you are healthy). Once you get really old, aged care living becomes the largest cost, something that would eventually have to eat into your capital.

[suomalainen]

My dad was blase about death in his 40s: "when I die, just put me in a pine box - no need for a fancy coffin or even a funeral". Not so much after his heart attack at 71. If he'd delayed getting to the hospital by 20 minutes, he'd be dead. And now he won't travel unless there's a good hospital within an hour of lodging at the destination. My mom also had heart surgery when she was 71. In each case, although I specifically totally understand the desire to live and am personally glad that they are still alive (and still have a good quality of life), it did make me think systemically if we as a society are approaching healthcare in the right way. Healthcare is focused entirely on extending life, not at all on quality of life, and often it turns into "we'll extend your life...at the cost of everything you have." Although not politically viable and probably not personally viable, one can always opt out. Death is always an option and is in fact the final act for everyone, so what exactly is the point of mindlessly pushing it back in every circumstance? I read an article by an author in his 70s who has determined that he'd lived a good life and he will not accept any future medical care; he'll just let nature take its course. If he dies from sepsis from a knife cut that could have been easily treated with neosporin, so be it. Blase in writing, but curious if he actually implemented it. Anyway, long way of saying that I try to keep the perspective that one needn't stress too much about health care. One can always just embrace nature's course.

As to the OP's question, I wouldn't rely on a saleswoman's perspective - she's taught to create demand for her products, and in my experience they actually have a very tenuous or overly simplistic understanding of budgeting and projecting ("you need 80% of your final year's working income in retirement" is the line I've been fed numerous times. WTF?!). I believe studies actually show that spending decreases as you get older as @jason pointed out above (other than health care). I don't remember the averages, but you could model current expenses, adjust for inflation and reduce for increased "homebody-ness". As to extraordinary expenses, I agree with @Augustus, you can probably model the infrequent big purchases and adjust for inflation. The final thing you can do is just oversave to a ridiculous cushion.

What I am doing, as a father of 3, is loosely planning to work until the youngest is launched (10 more years or until I'm 50) so that the number of variables are reduced (and also for the health insurance - I'm in the US employer-based system). Those with more courage (or money, as MMM recently put it) can stomach the risk of an earlier exit.

[suomalainen]

Speak of the devil: an article in my morning industry newsletter with links to the two reports referred to:

https://www.ebri.org/pdf/briefspdf/EBRI ... 3Apr18.pdf

https://www.ebri.org/publications/ib/in ... nt_id=3604

Industry Overestimates Many Retirees' Medical Costs

The retirement services industry might be encouraging people to save much more than most will ever need to pay for health care, according to a recent report by the Employee Benefit Research Institute.

But for those who would otherwise save too little, the impact of large medical bills would be catastrophic.

“For a majority of retirees, these expenses are moderate and not as high as many perceive them to be,” wrote Sudipto Banerjee, author of the EBRI paper. “Because it is not easy to predict in advance who will actually have high medical expenses, the risk remains a significant one.”

That uncertainty appears to be affecting retirement spending — a separate report issued this week also by EBRI found that many people, especially those who have saved handsomely for retirement, barely touch their savings, even 20 years into retirement.

Medical expenses will cost an average total of about $127,000 for a 65-year-old woman — or $143,000 for a man — who retired in 2017, EBRI stated. Having savings at those figures would give retirees a 90% chance of meeting their health care expenses, the report noted.

Similarly, a report issued last year by Fidelity Benefits Consulting found that the average cost of health care in retirement is an estimated $275,000 per couple — $15,000 higher than the prior year’s estimate. Those estimates were for a 65-year-old couple retiring in 2017. Like EBRI’s calculations, the estimates did not include long-term care expenses, such as nursing home costs, which can be substantial.

As of 2017, the national median annual cost of long-term care ranged from about $18,000 for adult day care programs to more than $97,000 for a private room in a nursing home, according to data from Genworth.

“Although the majority of retirees didn’t have any out-of-pocket nursing home expenses, for those who do, the expenses can be very high,” the EBRI report stated.

But averages can be misleading, and there is a massive difference between the mean and median health care expenses people face in retirement. That is because costs vary widely, depending on the kinds of care people require.

The median health care cost for people who retire at 70 and live to at least 95 is less than $27,400, according to the recent report, which is based on data from the Health and Retirement Study. While that seems low, people in the 95th percentile by expenses face more than $269,000 in medical bills if they live to age 95.

Fidelity encourages plan participants to save with the $275,000 average per couple figure in mind, says Jeanne Thompson, the firm’s head of workplace solutions thought leadership.

What most employees don’t know is that assets in HSAs can be used to cover general living expenses after age 65, though such assets are taxed as income, like withdrawals from a 401(k) or other defined contribution account, Thompson notes.

Last year, the firm reported HSA assets of more than $2 billion among its 657,000 clients with account balances.

The percentage of Fidelity plans that include HSAs increased by 25% over the past year, and about 23% of eligible employees opt to participate in such accounts, Thompson says.

“One of the biggest challenges is that people don’t understand how they work,” she says.

A 2016 survey of 5,000 retirement plan participants commissioned by Fidelity found that 1,300 people participated in HSAs. Of those account holders, 46% said they were unaware that they could invest their HSAs assets, 33% said they didn’t know about the full extent of the tax savings the accounts offer and 51% were unaware that HSA assets can be used for general expenses after age 65.

“Many people don’t realize that it’s triple tax savings,” Thompson says, meaning that the assets are not taxed at the time they go into accounts, nor as the investments grow or when they are withdrawn to pay for eligible medical expenses.

Yet only 8% of Fidelity’s HSA accounts have assets invested; 92% hold only cash, she says. That is up from 6.5% of accounts that were invested last year, however.

By assets, about 25% of HSA money in Fidelity’s book of business is invested.

“It is hard to tell if there is a change in the investable assets at this time, but the light bulb is going off that an HSA is a more cost effective way to save (and invest) for long-term healthcare costs,” says retirement plan advisor Jamie Greenleaf, principal of Cafaro Greenleaf, in an e-mail. “We explain to employers and employees investable HSAs are not appropriate for everybody, but for those that it is they need to be educated.”

Often, account holders put all of their HSA money into cash during the first year they participate, and many opt to invest the assets they haven’t used by the end of that year, Fidelity's Thompson says.

Increasingly, people are heading into retirement without health care coverage, and many are using personal assets to pay for bills, she says.

“We haven’t come across too many people who have saved too much.”

But even among people with large amounts of savings or those who own a guaranteed-income product, spending patterns in retirement indicate that they fear large, unexpected costs, the EBRI report on spending stated.

That report found that one third of retirees actually increased their levels of saving during their first 18 years in retirement.

“Depending on the amount of non-housing assets immediately before retirement, the median retiree had spent down between 11.8% and 27.2% of their assets during the first two decades of retirement, with the lowest percentage of spending belonging to those with the highest level of pre-retirement assets,” the report noted.

“This creates important implications — ranging from the type of retirement products offered to how retirement preparedness is assessed,” EBRI CEO Lori Lucas said in a statement. “However, if such drawdown patterns are the consequence of behavioral biases or lack of education on how to safely spend down retirement savings, this has quite different implications when it comes to necessary tools and support for retirees as they seek to manage their assets in retirement.”