Friday, April 19, 2019

A Not-so-Intimidating Giant Expense

Fidelity recently came out with a new estimate of what a couple retiring this year may expect to pay for healthcare expenses over the remainder of their lives: $285,000 ($135,000 for the husband and $150,000 for the wife—the larger figure mostly due to her longer life expectancy).  Predictably, there followed an outbreak of fear-mongering articles in newspapers, AARP publications,  and over the internet, with dire warnings that we all need to start saving more to cover our healthcare expenses, which were alternately described as “staggering” or “whopping”.
Left unreported and largely ignored: over that same time period, that couple can expect to spend $120,000 for groceries.  Have they started saving for THAT?  Well, no, you say; that’s a part of daily living.  It’s built into their monthly budget.  So broken down into a category in their budget, $120,000 is not such an intimidating figure. 
So why can’t we approach healthcare expenses the same way?  Another investment firm, T. Rowe Price, on its website posted an article that advises that very approach.  They acknowledge healthcare is not cheap.  But broken down into bite-sized chunks of money in a weekly or monthly budget, healthcare expenses can be manageable.
Truthfully, I’ve been skeptical of these huge dollar amounts that studies like Fidelity’s throw out there as “average”.  We all know how averages can skew a picture.  A few very expensive examples (let’s say a couple of people with a liver transplant or a coronary bypass surgery or years spent in a nursing home) can dramatically increase a group’s average number.  Finding the mean—the number at which half of the study group paid more and half paid less—is a much better way to predict true costs.  Interestingly, I could not find a mean for retirees’ healthcare costs.  Every source I found only referred to an “average”.
But put aside the “average vs. mean” argument.  Is the quoted figure realistic?  It reportedly includes “Medicare’s premiums, deductibles, and co-pays” but not “things that Medicare doesn’t cover, like dental work, long-term care, and vision coverage.”  It leaves me wondering if they are accounting for retirees’ various insurance options.  Consider the following:
  • The premium for Medicare Part B (physician and other services) paid by most people this year is $135.50 per month, and it is usually deducted right from the retiree’s Social Security check, so it is essentially already in their budget.  (Hospital services, the Part A of Medicare, was paid for during the retiree’s working years through payroll taxes, and he will pay nothing additional for that coverage in retirement.)
  • But for a national average of about $143 per month, a retiree can purchase a Medigap policy that covers all those Medicare co-pays and deductibles, plus offers some additional benefits.
  • For a national average of about $34 per month, a retiree can purchase a Part D Medicare plan to cover the cost of prescription drugs.
So for about $312.50 per month, a retiree can insure against his medical and drug costs and generally pay $0 out-of-pocket for doctor visits, hospital stays, labs, etc.  Today’s 65-year-old can expect to live about 19.4 more years.  So let’s call it twenty and multiply that monthly figure by 12 months per year and then 20 years.  The total only comes to $75,000.  I can’t picture many retirees incurring an additional $60,000 to $75,000 in dental and vision expenses to reach that $285,000/couple.  So the total figure seems exaggerated, to me.
Of course, I’m dealing with “averages”, too.  Some people will live well past their 80’s and end up paying more for healthcare.  I have not accounted for inflation.  And some states have higher Medigap policy costs than others.  But I also know that those states tend to be more densely populated ones, which also means they are more likely to have good Medicare Advantage plans available.  A Medicare Advantage plan—also called a Medicare Part C plan—can replace the regular Medicare Parts A, B, and D and the Medigap policy for potentially no additional cost above what is already deducted from the Social Security check, $135.50.  Plus, they usually offer additional benefits like vision and dental coverage at no extra premium.
So $312.50 per month, though not a small amount for most retirees, is more easily digested than $285,000, and over the course of the years adds up to less anyway.  It can be worked into a budget, and you certainly don’t need a separate pot of money in the six-figure range to cover your healthcare costs.  Don’t believe all the scare stories.

Until next time,


“The Philistine army had a hero named Goliath who…was over nine feet tall….And his spear was so big that the iron spearhead alone weighed more than fifteen pounds….David defeated Goliath with a sling and a rock.  He killed him without even using a sword.”  I Samuel 17:4,7,50 CEV

Friday, April 5, 2019

Varsity Blues

“Operation Varsity Blues”, the investigation that snared a number of the rich and famous who were involved in bribery and fraud schemes to get their children enrolled in Ivy League universities or other big-name colleges, has rightfully got the less privileged classes up in arms over the inequality of a system that would allow this to go on.  If the system is stacked against him, what chance does the average kid—even a very smart one—have to get into the college of his choice?  Aren’t spots in the freshman class of these elite schools supposed to be granted to the best and smartest, not the richest and most devious?
As much as it might say about inequality of opportunity in college admissions, I think Varsity Blues has even broader lessons to teach us.
Consider the price some of the parents were willing to pay to get their kid in “the side door” of the elite colleges.  It was sometimes more than the price of four years of tuition at the school.  Were they paying for a good education or just bragging rights?  They were playing the part of “snowplow parents”, clearing all obstacles for their little darlings so they could get into a famous school.  This is a destructive form of parenting and makes the children incapable of navigating life on their own.  (This is not a phenomenon, however, unique to the wealthy nowadays.)  How will the offspring ever learn to handle the difficulties of life if the parents continually pave the way for them?  And even if the children themselves were not involved in the dishonesty, what lesson did they take from their parents’ willingness to lie, cheat, and crawl over the backs of other hardworking kids to get what they wanted?  Already some of the kids are berating their indicted parents for “ruining my life”.  Well, yeah, no one is going to think you deserve anything now, always suspicious that you got where you are only by cheating.  Your achievements will always be tainted by that suspicion.
But look beyond the lessons about opportunity and parenting.  If you are considering college for yourself or your children or even for another family member, what instruction can you take from this scandal?
Obviously, don’t cheat.  You ultimately cheat yourself and the one you are supposedly trying to help.  Ask Lori Loughlin’s daughter.
I think Varsity Blues also says something about the integrity of the higher education system.  The alleged cheating involved lower-level college officials—like coaches—and proctors for college entrance exams.  But it’s enough to cause one to wonder about how much of this cheating is going on, and at what levels.  The Feds concentrated on the most egregious cases and biggest names.  How many others are flying under the radar and improperly getting an advantage over a more deserving student?
I think it also devalues the education received at the big-name colleges.  Even if an Ivy League school does provide a top-notch education (and reading about what goes on at these schools, I have my doubts), they are apparently a magnet for the wealthy—and for cheaters who want the university’s name on their resume.  An employer would be justified now in giving less weight to the sheepskin from one of those schools.
So that said, would you still want to apply to such a college?  What if the price tag is several times what your cheaper but lesser known options are?  Is the extra cost—and the ensuing debt load for years to come—worth it?  While an Ivy League diploma seems almost a requirement for, say, being a Supreme Court justice, a choice of major actually serves as a better predictor of lifetime earnings.  Moreover, NPR reports that only 14 of the CEO’s of the largest 100 companies in the U.S. are Ivy League graduates.
There are good and effective and hardworking teachers to be found at all levels and in all schools, just as there are bad and ineffective and lazy ones.  The student should take some responsibility for his own education and seek the best teachers, the hardest courses, and not settle for an easy “A”.  And finding those quality professors at whatever college you attend will itself be a learning experience, an opportunity to hone your skills to investigate and find the best.  Add to that the fact that one is more likely to interact with a variety of people from many walks of life in a less elite college and the cheaper option might more closely resemble real life and bestow the real advantage in post-graduate life. 
State schools, even community colleges, can be excellent centers of learning for those willing to study.  The economic advantage they grant by being less expensive and potentially lowering or eliminating the student debt at graduation can give the graduate a head start in life.  And this blog has addressed before the many pitfalls of carrying too much debt.
Until next time,
“For the Lord gives wisdom; from His mouth come knowledge and understanding.  He holds success in store for the upright, He is a shield to those whose walk is blameless, for He guards the course of the just and protects the way of His faithful ones.  Then you will understand what is right and just and fair—every good path.” Proverbs 2:6-9 NIV®*

*Scripture quotations taken from the Holy Bible, New International Version® NIV®
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