Rising healthcare expenses are receiving increasing attention from retirees (and the media), and many financial planners are thinking about how to incorporate these expenses into a financial plan. A related concern is health shocks, or out-of-pocket medical bills that claim 10% or more of a year’s retirement budget. Because these events are—by definition—expensive and surprising, it’s reasonable to assume that they might damage a retiree’s financial position. However, these events might require less planning and saving than we might think.
In a study, we found that health shocks are rarely financially cataclysmic and that retirees tend to respond to them by reducing future spending. Whether that’s by choice or necessity, we don’t know. In any case, the result is that, on average, lower ongoing spending at least partially offsets the costs of a health shock. We’ll explore spending in retirement to help put this new research into context, then dig into some of the new findings.