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November 2018

Client Conversations: Doctors and Prescriptions and—Uber? Oh My!

When it comes to retirement, prepare for both the expected and the unexpected.

Client Conversations gives financial advisors an easy way to communicate with clients on topics influencing financial markets; it highlights common investor behaviors and offers ways to address the challenges investors face. Share this article with your clients, and remember to follow your firm's policies that govern sharing content with clients and prospects.

Client Conversations gives financial advisors an easy way to communicate with clients on topics influencing financial markets; it highlights common investor behaviors and offers ways to address the challenges investors face. Share this article with your clients, and remember to follow your firm's policies that govern sharing content with clients and prospects.



What comes to mind when you think of retirement? World travel? The list of books you never got around to reading? Grandparents’ day at school? No matter what you think of when you hear the word, one thing is for sure: retirement isn’t cheap.

Unfortunately, but unsurprisingly, healthcare is a more pressing expense than exotic vacations.

What you may not realize is that transportation is also a large retirement expense. After all, you have to get to the library to check out those books somehow. The costs of getting from point A to point B can add up.

Have you set aside enough? Let’s examine why healthcare and transportation are two of the greatest spending categories in retirement, and how you can best manage these expenses.

 

The Expected: Healthcare

While you may not know exactly what lies ahead in terms of your physical well-being, it is best to be over-prepared. Who knows how many visits with primary care doctors, specialists, or physical therapists you might need over the course of a 20-year (or longer) retirement?

According to the Employee Benefit Research Institute, a retired 65-year-old couple with median prescription drug expenses would need about $265,000 in order to have a 90% chance to be able to pay for all of their healthcare expenses, including medications.1

The price of prescriptions can be a particular point of pain for older Americans. In recent years, the cost of prescription medication has risen at a significantly higher rate than food or apparel, for example (FIGURE 1).

 

Figure 1

Prescription drug prices soar above the rest

Source: Consumer Price Index (CPI), US Department of Labor, Bureau of Labor Statistics, 2018. The CPI in the United States is defined by the Bureau of Labor Statistics as “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.”

 

In fact, prices for the 20 most commonly prescribed brand-name drugs for seniors have increased almost ten times more than the rate of inflation over the past five years.2 Even though in the same time period, doctors wrote 48 million fewer prescriptions for these 20 top-sellers, sales revenues have continued to increase, to the tune of nearly $8.5 billion.2

One of the best ways to take control of even your most expensive healthcare expenses in retirement? Create a financial plan. Recognize the inevitability of healthcare spending, and discuss what steps you can take to be prepared with your financial advisor.

 

The Unexpected: Transportation

Transportation is more than just a way to get from here to there. It’s a critical component of your independence, connecting you to all the people, places, and things you care about. There are a greater number of senior citizens living in the suburbs and rural areas than more walkable cities.3 So most retirees rely on public transportation or, more likely, their own personal cars, to accomplish their daily tasks.

Retired Americans mostly rely on driving as the primary means of mobility, but owning and maintaining a car can be expensive. Gas prices rise and fall, oil must be changed, and eventually the tires need to be replaced. According to AAA, owning a car can range from an annual average of about $6,800 to about $9,800, depending on the type of car (FIGURE 2).

Figure 2

Average annual vehicle ownership costs

Type of Vehicle Average Annual Ownership Costs
Small sedan $6,777
Small SUV $7,869
Medium-sized sedan $8,866
Minivan $9,677
Large sedan $9,804

Source: AAA, “Your Driving Costs,” September 2018

 

Even the best-maintained car won’t last forever. Older retirees may find themselves unable to drive, in need of alternative methods of transport.

Luckily, there are public transportation options, community van programs, and ridesharing apps to help you stay mobile if driving is no longer physically comfortable for you. If you can’t catch a ride with a friend or family member, seniors can receive discounts on public transportation in many major cities or call upon van services, such as MetroAccess in DC or THE RIDE in Boston, which are inexpensive or free.

Ridesharing apps offer convenient, on-demand service, albeit at a possibly higher rate. Cost will vary depending on demand and location, but in many areas there are different options available at different price points. For example, Uber offers two private-ride options for one to four passengers. Uber Black is the more expensive option because it uses luxury cars, but the app’s UberX service, which does not, is often significantly less expensive.

If you’re open to a sharing a ride with other users heading in a similar direction, Uber and Lyft also offer even less expensive, non-private options, called UberPool and Lyft Line, respectively.

As you live, relocate, or travel during this time, consider your transportation budget. Your financial advisor can help you create a plan to cover this probably unexpected cost so that you can stay connected to friends, family, and places that you love.

 

Planning is Power

Healthcare and transportation are two of the greatest expenses in retirement, but they are just two of many. Retirement costs, big and small, can be anticipated, like healthcare, or surprising, like transportation, but you must be ready either way. Talk to your financial advisor to discover how you can best prepare financially so you can take control of your retirement and focus on the things that really matter—like that grandparents’ day at school.





1Employee Benefit Research Institute, “Savings Medicare Beneficiaries Need for Health Expenses: Some Couples Could Need as Much as $350,000,” January 31, 2017

2CNN, “Medicare drug prices soar at 10 times rate of inflation, report says,” 2018

3Pew Research Center, “What United and Divides Urban, Suburban, and Rural Communities,” May 22, 2018.

 

Important Risks: Investing involves risk, including the possible loss of principal. • Diversification does not ensure a profit or protect against a loss in declining market.

This material is provided for educational purposes only.

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