Average vs. Median

There is an oft-cited study from Fidelity on healthcare savings needed in retirement for the average couple: $275,000 in today’s dollars. This assumes the actuarial tables grant you both around 20 years of runway, you have original Medicare, and you retiree at 65. That comes to $1,100 per month per couple (here I assume the $275,000 you have squirreled away is invested at the same rate of long-term healthcare trend; of course costs are lumpy with much of it perhaps coming in the last 5 years, and you could also keep the money in a .001% yielding savings account, but let’s keep those assumptions).

Then the skew. We can say that the average male in America is 5’9.5″ (5’11” if self-reported). The median will be close to this since the curve approximates a bell curve. However, in healthcare costs, the average user has 4-5x higher costs than the median, or $7,000 vs. $1,500. Looked at another way, the average is roughly the 80th percentile, so four of five people have costs that are lower than the average (This works for large groups. See 2018 CMS AV Calculator). Given the nature of healthcare claims, this isn’t a big surprise, but a reminder to take care of ourselves. At 65, most of us will have the bodies we deserve.

While it’s good to be prepared and at least think about a higher mark, when you play with numbers and treat yourself like your most important asset, you may end up needing closer to $60,000. My father-in-law is 85 and doesn’t take a pill. All are not like him of course, but stories looking beyond the average don’t work as well when companies are selling accounts and financial advice.


Photo by Jennifer Burk on Unsplash

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