Insuring Retirement Healthcare: Asset Allocation Daily

by: SA For FAs
Summary

Invesco US: The Treasury will be introducing a new 2-month T-bill.

Janus Henderson Investors shows that Turkey’s problems were long in the making.

Thought For The Day: All who are not Rockefellers should embrace the appropriate form of insurance as vital protection for themselves and their families.

New 2-Month T-Bill

“The government is considering ways to finance its growing budget deficit with increased borrowing, including potential increases in net T-bill issuance in the coming years. In its most recent borrowing announcement, the Treasury estimated it would borrow a net total of $769 billion in the second half of 2018, compared to $462 billion in the second half of 2017.” (Invesco US)

Asset Allocation

“What should you expect from a standard asset allocation strategy? The Vanguard Star Fund offers a robust, real-world benchmark by virtue of its simplicity, transparency, and low cost. Since inception in 1985, the portfolio has generated a 9.5% annualized total return. As a guide to the next 30 years that's probably high, given current valuations and other factors. An expected return in the 6%-7% range may be more reasonable.” (James Picerno)

Cause Of Turkey’s And Other EM Troubles

“A decade of loose monetary policy/quantitative easing (QE) has flooded the market with cheap foreign debt, and there are many countries and companies that simply cannot repay it when currencies are weak.” (Janus Henderson Investors)

Thought For The Day

Last week we noted the boom in senior bankruptcy, coincident with hard-to-manage healthcare expenses. Earlier this week, we discussed the possibility of reform of the healthcare system as a means to ease the weight of this problem on individuals. The former suggested that, for the non-affluent at least, maintaining good health through diet and exercise and living within one’s means are about the best we could do. The latter discussed policy ideas that may or may not ever become relevant.

My curiosity was thus aroused when I came across “Six Ways to Prepare for Medical Expenses During Retirement” posted this week on Forbes.com. The article was only marginally helpful, but the truth is this is simply a difficult problem to manage. The ideas included (1) adopting a healthy lifestyle, (2) maxing out on a Health Savings Account, (3) investing in whole life insurance, (4) pre-calculating what your retirement healthcare will realistically cost so you don’t underfund it, (5) enroll in a Medicare supplement plan, and (6) plan diligently and start early.

Some of these ideas are overlapping (each was suggested by a different expert), but as you can see, they boil down to planning, keeping healthy, saving and insuring. We had discussed the first three, but I neglected to discuss the role of insurance, and for that reason I am grateful for the article. I am not an expert in insurance and won’t comment on the relative merits of whole life versus other forms of insurance, but in an effort to maintain a big-picture view of things, this much can be said:

The role of insurance is to bear the risk of expenditures that are simply too large for you to manage based on your income and rate of savings. People can usually handle a blown auto transmission (though Bankrate.com’s annual surveys suggest all too many can’t even do that), but they can’t handle replacing their home if it were burned down or flooded to the point of ruination.

For that reason, people purchase homeowners insurance. Catastrophic healthcare problems clearly fall into the same category as property damage, or income replacement (for which we purchase disability policies), or car collisions (for which we utilize auto insurance) or death (for which we purchase life insurance).

So by all means, items number (3) and (5) from the Forbes list should be looked into. Medicare supplement policies are highly popular and not all that cheap, which makes the idea of insuring against the major threat of high retirement healthcare expenses intriguing. Whole life insurance kind of went the way of the dodo bird with the popularization of “buy term and invest the rest,” but it still has its advocates. The buy-term crowd maintain that an insurance policy is inefficient, because people could earn more through investing.

In theory, that makes sense. In reality, many people don’t do the extra saving and investing that a buy-term approach implies. Other insurance-based approaches entail the purchase of a deferred income annuity or long-term care insurance. Each approach involves trade-offs, and will be advantageous or disadvantageous for different households, depending on their circumstances. At the end of the day, all who are not Rockefellers should embrace the appropriate form of insurance as vital protection for themselves and their families.

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