May Financial Focus-5 Steps to Reducing Health Care Csts in Retirement

I do hope that May has finally ushered in springtime here in Central Virginia (or should I say summertime?).  I have lived in many places, but I must say that living here in Central Virginia is always a weather surprise.  Less than a fortnight ago, (April 21) the low temperature was hovering at the freezing mark. Since then we have had highs hit 90 for consecutive days in a row!  Crazy weather. Even crazier is the fact that the poor trees and plants don't know whether to send out their pollen or not. So, where we should have been pretty much done with pollen season by now, it is still in full swing!  It continues to bring all the itchy eye, nose running and sneezing we had all hoped to be done with by now. 

I don't know about you, but Catherine and I have had to spend much more on allergy relief medications this year because of the prolonged pollen season.  And it seems to me that even the over the counter stuff is more expensive than in years past. 

For all of us, it is predicted that health care costs will be the biggest expense for most retirees. It’s not a pleasant prospect, but it is a reality.  A 65-year-old couple that left the workforce in 2017 will spend an average of $275,000 to cover medical expenses through retirement, according to the latest retiree health care cost estimate provided by Fidelity Benefits Consulting. That’s a 5.8% increase from the estimate of $260,000 in 2016.

We can’t just sweep this under the rug and hope it goes away. Instead, let’s take proactive steps to deal with the challenges. This list is not all-inclusive, but here are five ways to help put yourself in the driver’s seat on health care.

1. An apple a day. We all learned that adage when we were kids. Even if we don’t always express our gratitude, we are appreciative of our physician. He or she is happy to see us when we need care, but our doctor also finds joy when we own the preventative measures that are suggested.

 Stay active, remain social, exercise regularly, eat well, and do your best to stay healthy and out of the doctor’s office, save your regular preventive care. It will save you money and increase your sense of well-being.

 2. The red pill or the blue pill. Late last year, TheWashington Post ran a story entitled, “The Other Big Drug Problem: Older People Taking Too Many Pills.” Researchers estimate that 25% of people ages 65-69 take at least five prescription drugs to treat chronic conditions. It jumps to nearly 46% for those between 70 and 79.

Did you know at least 15% of seniors seeking care have suffered an adverse drug event (American Family Physician)? About half were believed to be preventable. In some cases, “polypharmacy” has been associated with an increased mortality risk.

Having a conversation with your personal physician about things that you can do to treat your illnesses that don't require yet another drug could serve dual purposes; cut down on the number of prescriptions you are using and reduce your costs at the same time!

Let me be clear here: Make no changes before consulting with your health care provider!

3.  Captain’s log supplemental. You know it and I know it–Medicare doesn’t cover all the incidentals, and it won’t cover costs while traveling abroad. While there will always be out-of-pocket expenses, consider a Medicare supplemental plan, sometimes called Medigap, which may pick up some of the costs Medicare shuns. Prices will vary depending on benefits. While there is an outlay of funds to secure the insurance, it can help prevent nasty surprises and can pick up the slack where Medicare Parts A (hospitalization) and B (outpatient and physicians services) end.

Another option is called Medicare Advantage, which allows you to purchase an all-in-one managed care plan. Medicare Advantage includes Part A and Part B, many costs not covered by Parts A and B, and it may also include Part D (prescription drug coverage). If you have enrolled in Medicare Advantage, it’s illegal for anyone to sell you a Medigap policy, according to Medicare, unless you are unenrolling and moving to traditional Medicare.

I know this may sound complicated. You may want to consult with your doctor, family, and friends. Of course, I’m available if you need direction. That’s what I’m here for. While I am licensed to sell health insurance products, I choose not to and instead have built a referral network of providers I trust to help my clients out in this area.  Please call me if you have questions, need some comparisons or just to schedule a check-up in this area.

4.  Don’t overlook the obvious. Falls are a threat to the health of older people and may reduce their ability to remain independent.  More than 95% of hip fractures are caused by falling, usually falling sideways, according to CDC data from “Important Facts about Falls.” Falls are the most common cause of traumatic brain injuries. In 2015, medical costs from falls totaled more than $50 billion, with Medicare shouldering 75% of the costs.

How to prevent falls:

• Talk to your doctor and evaluate your risk.
• Consider strength and balancing exercises per doctor’s guidance.
• Have your eyes checked.
• Make your home safer—I’ll spend a moment on this one.  Are there uneven floors, carpets that need to be stretched, or things you can trip on (like dogs or cats)? Add railings on both sides of the stairs. Add a grab bar inside and outside your tub or shower and next to the toilet. Simple preventative measures will pay health and cash dividends.

I recently had a dear friend who was merely turning around to say goodbye to family members when she slipped and broke her leg!  As SGT Phil Esterhaus (Hill Street Blues) was fond of saying: "Let's be careful out there!"

5.  Smart is as smart does. Become a smart shopper. Find the least expensive place to get your prescription drugs and consider generic versions (Again, please consult your personal physician first!). Some services are now free, including mammograms, prostate screenings, and annual physicals. Check with your insurance provider regarding various tests. Insurance companies negotiate much lower rates with facilities that specialize in specific tests. For example, hospitals and ERs can be much costlier for an MRI than an outpatient MRI center.

Catch a problem early and you can save money and heartache.  Health care costs are like taxes. You can’t avoid them. But a smart and informed shopper can reduce the financial burden. That’s money in your pocket, and it can lead to a healthier and more enjoyable retirement.

Changing gears to the markets and economy—opposing forces

Whether one buys a business or franchise, the cash flow the company generates and is expected to generate will play a big role in how much one might pay for the company. While other factors play a role, the same holds true for a stock, i.e., a publicly traded company.  Publicly traded companies report their financial results after the end of each quarter. Like with football or basketball games, companies break their year into four quarters.

The fiscal year for most firms aligns with the calendar; therefore, most firms are reporting first quarter results for the three-month period that ended in March. If the quarter ends in April, results reported in May would land in Q1.

 With that in mind, let’s touch on the numbers

 Over half of all companies that make up the broad-based S&P 500 Index, which, as the name implies, is made up of 500 companies, have reported through the end of April. So far profits are expected to rise an astounding 25% versus a year ago, according to Thomson Reuters I/B/E/S.  Just for perspective, anything above 10%, a double-digit increase, would be viewed as solid.

 Here’s another yardstick. Nearly 80% of companies that have reported are besting analyst estimates, and they are surprising to the upside by a wider-than-normal margin (Thomson Reuters). Let’s add some icing to the cake. Analysts had already been raising forecasts in response to the just-passed cut in the corporate tax rate–from 35%-21%. So, it’s not as if firms have been clearing a low hurdle. In fact, expectations were high going into the Q1 earnings season.

 Companies are performing extremely well and strong growth is expected throughout 2018. Sure, the cut in corporate taxes is adding a shine to profits, but so are the fundamentals–economic growth at home and abroad.

 But, you may ask, why aren’t shares soaring to new highs? Great question.

I think there are a couple of factors in play.  First, forecasts that were issued for Q1 were quite strong, according to FactSet. It’s a sign of confidence, but it also raises the bar. In other words, all the good news gets priced into stocks and even great news fails to move the needle.

A second factor that appears to be playing a role is the impressive surge in profits. It sounds counterintuitive but let me explain.  Investors are interested in current numbers but more importantly, they also look to the future. Profits are soaring and are expected to remain strong this year. However, today’s numbers aren’t unsustainable.

It is too soon to say profit growth peaked in Q1, but it’s likely we’ll see a slowdown to a more sustainable level next year, assuming the economy doesn’t slip into a recession.  Rising interest rates have also dulled interest in stocks. The Federal Reserve is expected to raise interest rates at least three times this year, and the yield on the 10-year Treasury bond has been ticking higher.

In my view, faster economic growth that prompts a more aggressive Fed wouldn’t be viewed as much of a headwind for stocks, which could force the Fed’s hand.  But all is not gloomy. While stocks may not be cheap, markets are no longer frothy as they were heading into 2018. Additionally, odds of a bear-market-inducing recession this year remain low.

Strong profit growth is not fueling new highs but, coupled with a growing economy, it has provided underlying support for the broader stock market. Last year, we were treated to an outsized gain. Good news fueled the advance, and any bad news didn’t stick—a Teflon market.

Last year, 2017, left some investors with a false sense of security. Throw in very low volatility and it’s easy to forget that pullbacks are the norm. Shares are now in a consolidation period. Since peaking in late January, the S&P 500 Index is down a modest 7.8% (MarketWatch data), well within normal gyrations we’d expect in a year.

In the context of a growing economy, today’s pause skims the excess euphoria away from investor psychology and can reestablish a foundation for shares. The continuation of last year’s melt up would have been fun, but extended melt ups rarely end well, and they end when you least expect it 

Table 1: Key Index Returns

Source: The Wall Street Journal, MSCI.com, MarketWatch, Morningstar

MTD returns: Mar 29, 2018—Apr 30, 2018

YTD returns: Dec 29, 2017— Apr 30, 2018

MSCI returns run through Apr 30, 2018

*Annualized

**in US dollars

I hope you’ve found this review to be educational and helpful. If you have any concerns or questions, let me say this one more time–please feel free to reach out to me. That’s what I’m here for. Give me a call to discuss what that would look like.  Kind Regards, Rudy