I have a confession that probably will make CFPs go “tsk-tsk” — my wife and I never have had a formal, written budget.
In our defense, let me say that we always paid our credit card bills in full, only went into our checking account credit lines once or twice by accident, saved steadily and heftily, and paid our kids’ tuition at two top-tier colleges and a good chunk of their expenses for two graduate degrees. (A home equity line helped with schooling, but we paid that off many years before we sold our house). While we never created overt spending guardrails, we each had a good sense of how much we could safely spend, and I think we did OK.
Our mental budgeting has continued in retirement. Recently, though, since we are now “decumulating,” I thought it would be interesting to pop open a spreadsheet, review our bank statements for last year, and see how much we are actually spending. There was one big surprise: what we spend on insurance.
When I added up what we pay in premiums for Medicare Part B, supplemental Medicare coverage, long-term care insurance, and auto, homeowner and umbrella coverage, I was stunned. I won’t give you the total breakout or total since some may say we’re overinsured and overpaying and others will figure out our income from the Medicare Part B premiums. But let me assure you that our annual insurance costs are more than our monthly expenses for apartment maintenance (the equivalent in a co-op building of a condo’s HOA fees), electricity, cable (TV, internet, landline), cell phone service and gasoline bills combined. In fact, the total is so much higher that it would also probably cover a nice vacation.
Let’s start with Medicare. In one sense, since the costs of Part B premiums are deducted from Social Security benefit payments, most recipients may not realize how much they’re paying each month. But for the typically affluent customers of financial advisors those monthly sums can be hefty—rising from the base Medicare Part B premium of $185 per month per person for a married couple ($370 in total) who earned under $212,000 a year in 2023, all the way up to $628.90 per month per person for a couple who earned $750,000 or more. Combine that with a supplemental Medicare plan, and a couple’s total Medicare-related costs can easily top $1,000 a month.
Medicare expert Dr. Katy Votava says 90% or more of Medicare recipients overspend on health insurance, due to a mix of the complexity of choices they face, fear of being underinsured or needless duplication. Still, even if core health insurance costs are cut, they are still expensive, especially when you add co-pays. Advisors who take time to learn more about Medicare and health insurance, or refer clients to reliable sources of unbiased information such as the non-profit Medicare Rights Center do their clients a world of good.
Another of our somewhat health-related insurance costs is the $855-a-month premiums we pay for the long-term care policy my wife and I bought when we were in our late 50s. It’s expensive, but I’m glad we have it. As we learned through experience with our mothers, paying for “the care bomb” that can hit any retiree at any time can quickly drain retirement savings.
Finally, there are the premiums for our auto, home and umbrella liability coverage.
The cost of auto insurance, already high in many markets, is bound to continue rising as the cost of repairing today’s vehicles—which in many ways have become computers on wheels—keeps increasing. Property and casualty insurance premiums for all types of housing are also bound to rise as insurers continue to deal with huge losses from increasingly severe weather events, including wildfires, floods and wind damage from tornadoes and hurricanes. Our friends with homes in Florida keep complaining about the soaring cost of homeowner’s insurance, which is becoming increasingly difficult to obtain even at the new, higher prices. Locations not prone to the effects of weather extremes are also feeling the pinch. Our co-op building of 40 apartments, situated a mile away from Long Island Sound and 80 feet above sea level, was recently hit with a hefty increase in its insurance premiums, attributable not so much to the possibility of flooding or weather damage, but because replacement costs for any sort of damage have risen substantially.
While the rising costs of healthcare-related expenses, as noted in Fidelity’s annual studies, are getting more attention and probably leading advisors and clients alike to plan accordingly, I think it’s important that we don’t forget about all the other rising insurance expenses that often go unmentioned.
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