I Discovered New Math for Old People

As my parents age and turn the insanity dial up to a quadrillion units of radioactivity, I am learning more about how money doesn't work in this civilization.

Both my husband and I worked at what this civilization considers a top tier employer with a highly rated retirement program and a very special unicorn known as a fully funded pension. Of course, I'm now self-employed so I'm out, but hubby is still there.

We duly attended all the presentations from the investment company several decades ago where we were told if we saved the 401k match that our money would grow by 8-10% each year, double every seven years, and we would be fine in retirement.

We were not told what the inflation rate was, how cost of living changes, inflation around medical costs, or that nursing home care costs would likely triple by the time we needed it.

We were not taught how to think. We were taught how to contribute. Key difference. And we had a big blind spot on this that took us forever to see past.

And the seven year doubling thing never really happened. 

We have good funds. Everyone thinks there must be a problem with the funds. There's not. We have top rated Vanguard funds. We have a top rated 401k plan according to independent third party experts. We even had a higher than average match for a while. Plus the unicorn pension.

And 8-10% isn't going to cut it. Especially when what you can save for retirement is capped at ~$27,000 (plus or minus) per person a year in the US.

Costs have no cap and are growing at an accelerated rate compared to investments.

If I can only save $5 a year, which is a fraction of my actual cost of living, but ALL my costs go up $5 every year, how do I not end up in the hole?

Let me say it louder...COSTS HAVE NO CAP BUT SAVINGS DO. You are starting already behind. By design.

For the record, right now inflation is at 6% and medical inflation is 2%. That's 8%. How is your 8-10% return on a fraction of what life actually costs now going to cover your golden years? It's not. And it hasn't.

However, despite my parents being endless wellsprings of fuckery, by some miracle (before the lonely heart scammer got to the one) they did have some retirement investments. They can afford their lifestyles, BUT they can't afford to get sick and die. And that's a problem. (After the lonely heart scammer...the one will be lucky to have anything at all.)

Watching them, my thesis has become: People can afford to retire, but they can't afford anything else.

My grandparents paid $3/k a month for nursing home care x 3 or 4 years. Now it's $10,000+ a year. (And costs vary by state, some states are way more expensive, some are even double or more.) I can't find any year on year stats for how much the nursing home costs go up, but let's extrapolate and say for me and my husband, it'll be $20,000 a month each which is $240,000 a year each or around $500,000 a year for us both.

Well, how long are people in nursing homes? The average is about 2 years BUT 20% of people will be in there for 5 years or more. (You would not believe the amount of digging I had to do to find that last bit...it's very well hidden to where it feels like it's on purpose.)

So an unlucky 20% will be spending more than a million dollars+ in nursing home care where costs are doubling if not tripling each decade, and on average, no one is even close to saving a million dollars for any of this. 

The system we have isn't working. Even if everyone did contribute, the math doesn't exist. The numbers are all fake. It's been marketing this whole time.

Oh sure...pay off your house etc etc etc. But yo, property taxes will easily be at least as much as the mortgage by the time we retire (if we get that far). The numbers just never work. You can't save enough for your lifestyle and healthcare costs with the existing system. You have to go beyond it to have a chance and you have to know that you need to do that at a very young age.

One thing I noticed among people my grandparents' ages is whether they saved well or not, everyone was scraping by on $1000 a month in the end. I would ask them about how much costs had gone up over time. I would ask how they saved, what they spent. And I realized inflation really does a number on you over time. You have to over save, over invest to beat it.

To get old and not be homeless, you need enough to cover day-to-day living expenses and some kind of lifestyle (doable-ish) and then huge chunks to cover medical and nursing home care (not so doable). 

I'm aware Medicaid Medicare etc... has some ability to cover some of the gaps, but I'll note that coverage is altitude sickness thin. There are nursing homes evicting patients and not taking state money because the reimbursements aren't enough. (A cursory Google search says nursing home profits are 3% or less so maybe the margins are that tight, I don't know. What I do see is they are grossly understaffed. They're not spending it on staffing.)

For the record, we didn't have today's internet to counter the magic math marketing and we had no clue what we were doing. You have to remember, there was no easy way to poke holes in stuff. You had to care enough to go to the library and get through finance books (I did try on occasion but died of boredom--the finance books that fit my brain didn't come out until this century) or look for an expert (didn't find one). You had to care enough to go above and beyond, and I'm sorry to say finance has never been a passion for us here. Which is unfortunate, but not uncommon.

Neither of us had parents capable of guiding us and we never found financial mentorship, so we flailed. We followed directions and in fact, we actually contributed the max and the result is we are outliers in that we did accrue some money BUT we can still only afford to retire with a very frugal lifestyle. We still can't afford to get sick or die. It didn't fix anything.

So the 401k thing was a bust. The marketing math was never real. 

I don't know if 2008 is to blame or some other factor, perhaps we were not just naive, but also particularly stupid somewhere, but none of the numbers ended up working the way they presented them to us.

Eventually we will go bankrupt. And so will the vast majority of everyone else. 

Now, I have always expected to go bankrupt because non retirement healthcare costs have math just as bad as retirement. We already can't afford all the medical care we need. And we're older, so the HSA and FSA stuff came in late for us similar to how people lost their pensions in the transition to 401ks. We never had a chance to build up a medical slush fund while we were young and 'healthy'. 

Also...did you know that amount you can contribute to the HSA is capped as well? You can't actually save in relation to your actual costs.  

Again, for those in the back....COSTS HAVE NO CAP BUT SAVINGS DO.

My insurance plan deductible is higher than what I'm allowed to save in the HSA. We are actually privileged enough to max out the HSA now. It's thousands and thousands of dollars. It's a mind boggling amount of money. And we still can't afford our healthcare outlay. It's not helping us. All that money and it doesn't do anything. It's criminal.

The HSA math was when I realized the game was rigged. We are given wholly inadequate tools, fed a line of bullshit about how the numbers work, and then are taught to blame ourselves when we fail.

So saving for retirement or even just healthcare isn't enough. You need to have additional assets like property or stocks, but those cost money and most people don't earn enough to do that. Most people don't earn enough to even max out their 401k contributions and still afford to live. The median wage for men in the US is $69k. For women $50k. Median household income is $67k which suggests median wages for women aren't really happening much...

Or you can leave the country, but other countries don't want sick people and healthcare is cheaper, but it still isn't cheap--monthly plan costs can still be quite high, comparable to the US even. (People always want to fight me when I say that, the myth of super cheap everything overseas is pervasive, but I assure you, I've looked at the costs. A lot. And I've been to many of the places people want to go.) 

 I see people touting things like 'my breast cancer care was only $10-20k overseas vs. $100k in the US' which isn't nothing, but it's not exactly cheap either. Especially when you see how little Americans are saving for retirement and how little we're allowed to put into our HSAs...if you have a lot of medical issues constantly draining your account, if your deductible leaves you with nothing in your HSA every year, you're never going to accrue the money for even 'cheap' medical care overseas.  (But you could charge it and then go bankrupt...)

The game is rigged. The numbers don't work. Even if you have money. We have the money to put into a 401k and an HSA and none of that will save us. It's not enough. 

All you can do is hope you're not that 20% living for years and years in a nursing home and play the odds that somehow in a sick world, you'll be healthy enough to not be expensive. 

The actual retirement plan for the vast majority of Americans isn't a 401k. It's hope and luck. Oh, and maybe Canada style assisted suicide.

Which, my pet theory on the boomers and this math is the system won't give them more money or do better by them. Boomers will be offered assisted suicide instead. It's cheaper than anything else and it's an additional profit center for the healthcare sector that also accelerates liquidation of any remaining financial assets back into the market*. 

*There's all sorts of predatory shit out there that will clean out elderly people to feed profits and leave their family nothing FYI.