This week’s Barron’s featured a three article Retirement Special Report. One of the articles was on long term care insurance, one was on an idea for a new type of TIPS and the third offered ideas about where to capture yield.
Many people seem to be skeptical about all forms of insurance as am I and health care costs are extremely controversial for all sorts of reasons but these are issues that most of us do have to grapple with (if you have millions in the bank you can cope financially with a $500,000 illness).
Bruce Krasting recently noted that his insurance premium was going up 25% at an annualized rate from a little over $1600 per month which is obviously a very big dollar amount these days although some folks do have a higher premium. The Barron’s article notes the costs of long term care policies going up and also because of the dynamics of the industry that some companies are getting out of the business.
Long term care is tricky because it is a type of insurance you may never need but according to the article only 2/3 of seniors will need long term care at some point in their lives. Personally I am motivated to be one of the other third and hope a combination of lucky genetics (my parents are 84 and 79 and have not needed this) and a lot of vigorous exercise will do the trick. We have no control over our genes (yet?) but we can commit to exercising regularly and while I’m at it eliminating soda from our diets.
The article did not talk about health insurance but this also looms as problematic as evidenced by Bruce’s premium increase from what already seems like an astronomical number. One possible solution for people working on their own is to try to get into a group plan with some organization where they have an affiliation. For me, I think I could get insurance through my fraternity and I know I could get it via the fire department (more likely an association of many fire departments or firefighters). This can’t work for everyone but it can solve the problem for some folks.
The article about a new type of TIPS was an idea about what seemed to me to be reverse zero coupon bonds where the payout has an inflation component. Essentially you would by this product, the author called it an amortizing TIP, at face value, it would pay out an interest rate that adjusted for inflation and do so in a way that the principal exhausted after 30 years. The government is going to issue the debt so this would be about making the wrapper, based on the arguments in the article, a little more useful for investors (read the article for the logic).
As long as people realize there is no principal coming back at maturity it seems like a cheaper and more liquid annuity of sorts and seems potentially useful for being part of the solution as it removes some of the variables of executing a retirement plan and creates some predictability (per the author). There was no discussion as to whether the numbers involved could work from the government’s standpoint but I though the idea was interesting and is a reminder that there can and will be innovative ideas (hopefully more that are not government related) to help with some of the retirement problems that appear to be lurking just around the corner.
The third article on capturing yield certainly covered most of the bases in terms of what is available but didn’t delve enough into what can go wrong with each segment. The key takeaway should be that in a zero percent world something that yields 6% has risks. Having risks is not a bad thing per se but too many people do not understand the risks they are taking and end up with too much exposure to something that then blows up. A little exposure to something that blows up should not damage your financial plan but a lot of exposure might.
I stumbled across the pictured fire truck while doing a little work at the fire station. That is one beefy brush truck I have to say, but the open air seating (so to speak) makes it more for grass fires (our fuels are trees and brush) where you pump and roll which I have never seen in a brush truck because of how quickly they run out of water. Still pretty neat looking though.