Health care costs are
a huge part of retirees’ financial picture, and they keep jumping at a rate
faster than other prices overall. Here are some strategies to cope.
by: Oliver Pursche,
Investment Adviser Representative August 8, 2017
While
overall inflation may remain subdued for years, health care costs and other
related items that affect retirees the most continue to rise at a sharp pace.
According to the Bureau of Labor Statistics — the government agency that
provides Congress the data that they use to determine increases in Social
Security, Medicaid and Medicare — health care related costs have risen by
nearly 4% annually over the past decade, a pace nearly double that of overall
inflation.
Moreover,
the BLS also publishes a Consumer Price Index for the Elderly. While this
doesn’t break out health care specifically, it reinforces the fact that life’s
necessities get progressively more expensive as you age. By some estimates,
including a 2014 study by Boston College, health care costs for retirees may
represent over 10% of their annual expenditures and may rise by as much as 8%
annually over the next 25 years.
From
an investment perspective, this means that you need to account for greater
annual distributions (cash-flow) from your investments to keep up with these
costs over time.
One
simple, popular strategy to help with this is investing in high-quality
dividend-paying stocks. The key here is “high-quality.” Investors should focus
on strong balance sheets and companies that have a consistent track record of
raising their dividends – the so called “Dividend Aristocrats.” Investors are
wise not to simply look for the highest yielding stocks, as these could be
troubled companies whose stock may fall sharply.
I
do not recommend inflation-adjusted bonds, as these tend to be pegged to
overall inflation, which is likely to remain muted. However, allocating a
portion of your portfolio to floating rate bonds, in particular higher-quality
ones, may have some long-term benefits. These types of bonds generally adjust
their interest rates up or down at a fixed schedule based on overall interest
rates. Given that rates are likely to rise over the next few years, this
represents a decent alternative to fixed-rate bonds that yield very little
right now.
There
are also annuities available that have medical riders, which do not require any
medical exam (although there is a waiting period before this benefit can be
triggered). While I’m generally not a fan of annuities as I find them too
expensive in relation to the benefits they provide, this is an example where
the products’ cost and benefits match up. Before considering such an
investment, make sure to fully understand all of the costs and restrictions
associated, and shop around — more and more insurance companies are offering
low-cost and no-load annuities with increasing benefits.
Finally,
as with any investment or financial plan, try to anticipate the unexpected. How
would you handle a sudden $30,000 medical bill due to a longer hospital stay?
What about in-home care expenses? Discuss these with your family and your
financial adviser now, and plan on those costs rising at a faster pace than any
other expense.
This
column is the last in a six-part series on investor education.
·
Column 1 –
Understanding your goals
·
Column 2 –
Why benchmarking to the S&P 500 is not a good strategy
·
Column 3 –
It’s about cash-flow, not returns
·
Column 4 –
How much are you paying for your portfolio?
·
Column 5 –
5 critical questions to ask your financial advisor
·
Column
6 – ‘Senior Inflation’ the not so silent retirement killer
This
article was written by and presents the views of our contributing adviser, not
the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
About The Author Oliver Pursche,
Investment Adviser Representative CEO, Bruderman Asset Management
Oliver Pursche is
the Chief Market Strategist for Bruderman Asset Management, an SEC-registered investment
advisory firm with over $1 billion in assets under management and an additional
$400 million under advisement through its affiliated broker dealer, Bruderman
Brothers, LLC. Pursche is a recognized authority on global affairs and
investment policy, as well as a regular contributor on CNBC, Bloomberg and Fox
Business. Additionally, he is a monthly contributing columnist for Forbes and
Kiplinger.com, a member of the Harvard Business Review Advisory Council and a
monthly participant of the NY Federal Reserve Bank Business Leaders Survey, and
the author of "Immigrants: The Economic Force at our Door."
No comments:
Post a Comment