One of the interesting (but less than encouraging) data points in the inflation data is that medical care service costs increased 3.0 percent in the 12 months ending in October while core inflation was 1.9 percent (core inflation excludes volatile food and energy costs).
Everyone at Acropolis knows that retirees and pre-retirees worry a lot about healthcare costs. A recent UBS study of 1,849 high net worth individuals with an investible net worth of at least $1 million shed some light on some of these concerns.
When asked what their greatest fear was with respect to old age, 42 percent of respondents worried that they would be a burden to their family. That matches neatly with the fact that 47 percent of those questioned said that taking care of their own parents was a heavy burden (only 12 percent said it was a minimal burden).
Only 27 percent of those asked wanted their children to take care of them – 80 percent wanted their spouse to take care of them, but two-thirds knew that a home health aide would be satisfactory.
Similarly, people don’t want to move in with their children (15 percent) – 89 percent wanted to stay in their current home, 71 percent wanted to live independently in a smaller home and 54 percent think that assisted living is a good choice. Only moving to a nursing home fared worse than living with a child (12 percent).
Respondents said that take care of relatives is more complicated today than in the past because people are living longer (88 percent), because costs are higher (76 percent), families are more spread out (67 percent) and that health related issues are more complicated (65 percent).
Interestingly, only 50 percent of those surveyed have factored healthcare costs into their financial plans. Up until a few years ago, we didn’t specifically factor healthcare costs into our retirement planning, but thanks to new software, we now broach the subject explicitly.
When we model healthcare costs, we assume that inflation for medical costs will run several percentage points high than overall inflation, which can really significant over time.
For example, if healthcare costs are 10 percent of a budget today and inflation grows at three percent and healthcare costs grow at five percent, healthcare costs will grow to 15 percent of costs.
People are right to be concerned about healthcare costs, but with proper planning, these issues can be dealt with to reduce the chance that people will become a burden to their children.