â€śThe 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.â€ť (Invesco US)
â€śWhat 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.â€ť (James Picerno)
â€śA 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.â€ť (Janus Henderson Investors)
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 oneâ€™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 â€śSix Ways to Prepare for Medical Expenses During Retirementâ€ť 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 donâ€™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 wonâ€™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.comâ€™s annual surveys suggest all too many canâ€™t even do that), but they canâ€™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 â€śbuy term and invest the rest,â€ť 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 donâ€™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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