3 Things 11-15
11/15/2021 Although MAS is a financial services company, not everything published herein will be about numbers or investing. But no matter the topic, we hope for three things: 1) That you find the time you spend engaged worthwhile. 2) That you’ll reach out to us for help in any of our areas of expertise if something we discuss creates an urging in you to do so. 3) That you’ll share this with somebody new each time you read it. Thing One Start A Health Savings Account Now – If You Can According to data published by Healthview Services, a healthy couple that retired in 2019 at age 65 should expect to spend (in today’s dollars) $387,000 on healthcare, not including long-term care. Those projections assume the man lives to age 87 and the woman lives to age 89. The average life expectancies for a man and woman who live to age 65 are actually 83 and 85 respectively so the actual expenditures could be less but the point is the same. Healthcare costs in retirement are significant and should be considered as early in pre-retirement as possible. In fact, because of inflation, a 50-year-old couple planning to retire at age 65 should expect to spend $405,000 while a 40-year-old couple should expect to spend $455,000. And though it’s an initially counterintuitive notion, a more healthy couple should expect to spend more over their retired years than a less healthy couple because their health care expenses, though lesser, won’t be non-existent and will go on for a longer period of time. So what’s to be done about all of this? The obvious thing is to take care of yourself and follow your doctor’s advice while you’re young so you can enter retirement as healthily as possible. But that will only save you so much in the present and will, ironically, add a significant bit to your healthcare tab in the long term since the cost of living (longer) is cumulative. Another thing you should do is start a Health Savings Account (HSA). This type of account functions like a tax-qualified investment account (think 401k or IRA) in that you can put tax-deductible money in and invest it. And, provided you use the money for qualified health expenses, you can withdraw it at any time and not pay any taxes or penalties. To qualify to open an HSA, you must have a high deductible health insurance plan (HDHP). The current deductible threshold for HDHPs is greater than or equal to $1400 for an individual plan (or $2800 for a family). The idea would be to start a plan as early in pre-retirement as possible, contribute as much as possible (up to the max of $7200 annually), invest it aggressively, and not use any of the money for health expenses until retirement. The catch is that the government has made it very difficult for a plan to qualify as HDHP – even if it has a deductible higher than the thresholds stated above. For that reason, you’ll have to shop carefully and get assurances that the insurance plan that you select is HSA qualified via the intricacies of the HDHP rules. Open enrollment is going on now, so keep this in mind. And let us know if we can help.
Thing Two Inflation Is The Real Deal “Hey man, I bought some Rivelan (spelled like he pronounced it) yesterday!”. That was the exclamation of a friend of mine who saw me the day after Rivian’s (spelled correctly) stock went public last week. I couldn’t help but flashback to that having read an article in the Wall Street Journal about the impact real yields (yield/returns net of inflation) that opened by saying: “Enthusiasm for riskier corners of the market has sent stock indexes and cryptocurrencies to record highs. A powerful driver, investors say, is surging inflation and the effect it has suppressing returns on safe government bonds, a main alternative to stocks. Last week so-called real yields, which take into account the corrosive effects of inflation, hit some of their lowest levels on record. One measure of real yields, 10-year Treasury inflation-protected securities, fell to minus 1.2%, according to Tradeweb. That is the lowest on record, according to data going back to February 2003. In essence, with real yields negative, the purchasing power of money invested will decline over the lifetime of those bonds. Real yields have fallen because of colliding factors. These include the highest inflation rate in over three decades combined with nominal bond yields that have risen only modestly as central banks hold back from raising rates. The prospect of negative returns on super-safe inflation-protected bonds has pushed investors to buy riskier assets.” My friend definitely bought a risky asset. He didn't even know how to pronounce the name, much less that Rivian, the newest publicly traded auto company, which is valued at $127 billion, has only sold 156 cars, hasn’t made a profit, and is projecting revenue for current the quarter of around $1 million. Still, while there’s no guarantee that he’ll make money on his Rivian stock investment, he might. The same can’t be said for a treasury bond which is a guaranteed losing investment given the current yields and inflation prospects. That said, we wouldn’t have suggested either of those for someone looking to invest for the long term – at least not right now. You might want to consider walking away from anybody who does.
Thing Three Just A Thought “Education is what remains after one has forgotten what one has learned in school." - Albert Einstein