Healthcare 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 healthcare 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 healthcare.
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 preventive measures 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, The Washington Post ran a story entitled, “The Other Big Drug Problem: Older People Taking Too Many Pills.”
Researchers estimate 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.
Do you know that according to American Family Physician, at least 15% of seniors seeking care have suffered an adverse drug event? About half were believed to be preventable. In some cases, “polypharmacy” has been associated with an increased mortality risk.
Let us be clear here: Make no changes before consulting with your healthcare provider. But, in addition to the cost savings, you may reap health benefits by cutting back on your pills. Again, please talk to your doctor to determine where you can cut back.
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 and 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.
This may sound complicated. You may want to consult with an expert on Medicare coverage issues.
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. Are there uneven floors, carpets that needs to be stretched or things you can trip on? 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 preventive measures will pay health and cash dividends.
5 — Smart is as smart does
Become a smart shopper. Find the cheapest place to get your prescription drugs and consider generic versions. 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.
Healthcare 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 you buy a business or franchise, the cash flow the company generates and is expected to generate will play a big role in how much you 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 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.
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.
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% to 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.
There are a couple factors in play.
First, forecasts that were issued for Q1 were quite strong. 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, so an explanation is appropriate.
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 sustainable.
It is too soon to say profit growth peaked in Q1, but it’s very 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 our 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 — what we call a Teflon market.
Last year 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 re-establish 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 – Apr. 30, 2018;YTD returns: Dec. 29, 2017 – Apr. 30, 2018
MSCI returns: through Apr. 30, 2018
*Annualized **in U.S. dollars
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