I recently ran across one of those articles that shouted “THIS IS WHAT YOU’LL NEED FOR HEALTHCARE IN RETIREMENT” and I just wanted to seek out the writer and confiscate their caps lock key. This sort of pronouncement is number crunching at its worst and ranks right up there with celebrities hawking reverse mortgages / Medicare Advantage plans or attorneys who advertise (seriously, if the quality of your work isn’t advertisement enough you shouldn’t be interrupting my drive time…). Let’s talk some numbers.

A recent Fidelity report estimated that someone who is 65 years old and retiring could expect to spend in excess of $157,500 in medical expenses during their retirement which I think we can all agree is a bit of a breath-taking number. It is even more shocking when the advertisements focus on a big bold $315,000 while using a much smaller font to clarify that this is for two people. Of course, being over age 65, you’ll be paying for Medicare which will be sucked out of your Social Security benefit payment before it even hits your bank account. This equates to about $55,000 of that $157k. If we take the balance and divide it up over a 20-year life expectancy, we could be spending upwards of $8,500/year in medical expenses but here again, the illusion is that you’ll spend that each and every year, which is rarely the case. The majority of us will spend the bulk of our medical dollars (estimates are up to a third) in the last few years of our lives as our medical industry continues to grapple with balancing their “Do anything to keep the patient alive” and the “Is this really the right thing to do” ethical challenge.  Fun fact – CPR when you are older will most likely break your ribs so sure, you’ll be back alive but immobile and really, really uncomfortable for quite a while…

What’s another number that is often misinterpreted? How about life insurance estimates. Pop into your local life insurance sales office and they’ll run a formula that inevitably shows you need well in excess of $1 mill (or $2 mil or $3 mil) of life insurance (having spent a number of years on the dark side I can brush off that skillset and run those estimates for you if you want…).  Stepping back and dissecting the situation can provide a more realistic insurance need. Are there toddlers in the house?  Small children are a very different insurance criteria than older children and no one should be insuring to cover the cost of higher education. The majority of widows/widowers sell the marital house so the old adage of “paying off the house” generally means buying too much insurance. Creating a cushion for the survivor to rebuild their life – absolutely.  Replacing someone’s earned income for a lifetime – probably not.

Numbers, particularly when they are expressed in currency are curious things.  For reasons known only to a handful of psychology professors, putting that “$” sign in front of number makes our brains go all wonky.  Some people literally can’t grasp a number with a “$” but are able to digest that same number without it.  For others, popping a “$” in front of a number is a quick trip to a panic attack.  Add a layer of emotional stress on top (like a divorce or widowhood) and you have the recipe for poor decision making.  Society has built an entire industry around people and their reactions to numbers – Behavioral Finance, which is the study of how psychological influences can affect investors and financial markets.

The hard-core capitalists amongst us believe in the “efficient market theory” which states that all investments are priced fairly based on all available public information.  Of course, the realists amongst us are fast to point out the ongoing issue of insider trading (although not as rampant as in years gone by it certainly isn’t a dead & buried issue) and the fact that the “efficient market theory” doesn’t take into account peoples’ irrational behavior when it comes to money and investments. Think of it this way – raise your hand if you’ve clicked that “check out my cart” button only to regret your purchase when the box arrives on your doorstep. Now imagine compounding that by selling (or purchasing) and investment that doesn’t begin to fit with your financial goal(s). People do crazy things for crazy reasons and the “efficient market theory” can’t even begin to comprehend that.

Whew, where are my fingers going with this?!?  Making financial decisions means understanding the impact on your overall financial health (think of it as a “no regrets” check out button).  Thinking of getting that new, super-duper set of hearing aids? Go right ahead as long as you’ve incorporated that expense in your annual medical spending.  Thinking of putting some life insurance in place? Stop and ask yourself – “what” am I insuring, and do I understand the insurance product I’m purchasing. Purchasing el cheapo concert tickets for your favorite musical artist at a “bucket list venue” in October?  Take a moment to calculate how much it’s going to cost to fly to Italy (a little peek into Kitty’s fall schedule….).

Numbers are scary, no doubt about it and advertisers want you to be scared.  The great thing about scary is that we can crush it with education and there’s plenty of that out there.