Health Insurance Costs Far Outpace Inflation: How to Protect Your Retirement Savings

Health Insurance Costs Far Outpace Inflation: How to Protect Your Retirement Savings

In this issue:

• Medicare Cost Increases for 2025 & Ever Rising Health Insurance Cost
• How to Safeguard Your Retirement Savings from Increasing Health Care Costs
• Investment Return Calculators for Funds, Portfolios or Stocks
• Most Popular Stock Funds in 401(k) Plans
• Market Overview

Medicare Cost Increases for 2025 & Ever Rising Health Insurance Cost

First, here is the latest news on Medicare Premium Increases for 2025:

Medicare Part B and Part A cost increases for 2025, including percentage rises for standard and higher-income categories:

Preview (opens in a new tab)

Higher-Income Premiums for Medicare Part B (IRMAA)

The Part B premiums for higher-income earners also vary, with more substantial dollar increases as income rises:

Observations:

1. Standard Premiums: A modest 5.89% increase that still outpaces the current inflation at 2% to 3%. 
2. Higher Income Impact: For those in the highest income brackets, premiums increased by a larger percentage due to income-related adjustments.
   1. Rises of 6-20% far outpace inflation, which has already driven prices to higher levels.
   2. This is especially costly for the middle class living in HCOL (High Cost of Living) areas. In places like California, New York, and other metropolitan regions, individuals with annual incomes between $133K and $200K are feeling the pressure, despite already experiencing the pinch of inflation in recent years.
3. Part A Increases: Deductibles and coinsurance for hospital and skilled nursing facility stays increased modestly (around 2.7%), in line with the inflation rate.

Historical ever rising health care out-of-pocket payments

From 1970 to 2022, the per capita out-of-pocket health care payments and inflation rates show significant differences:

1. Per capita out-of-pocket health care payments:
   • 1970: $65
   • 2022: $1,424.6
   • Annualized growth rate: 6.33%
2. Inflation:
   • Average annual inflation rate from 1970 to 2022: 4.0%

The annualized growth rate of per capita out-of-pocket health care payments (6.33%) outpaced the average annual inflation rate (4.0%) by 2.33 percentage points over this 52-year period. Out-of-pocket health care costs has grown significantly faster than general inflation. This certainly has materially affected Americans’ health and financial burden. 

How to Safeguard Your Retirement Savings from Increasing Health Care Costs

How can we address the relentless rise in healthcare costs? A straightforward approach is to maintain a portion of your investments in equities or stocks. For most average investors, this means including broad-based stock index funds in their portfolio. This strategy remains relevant even in retirement, when conventional wisdom often leans towards ultra-conservative investing.

The challenge is that without stock investments, fixed-income or bond-only portfolios struggle to outpace inflation — particularly the rapid inflation associated with healthcare costs. To understand why, let’s examine the data from 1979 to 2022.

Unfortunately, we lack precise data on the annualized per capita out-of-pocket healthcare costs over the past 20 years. However, it’s reasonable to assume these costs have grown substantially, likely outpacing the modest 2.9% annualized returns typically seen with fixed-income bond investments.

As demonstrated earlier, stock investments offer returns that can outstrip healthcare cost inflation over the long term. However, it’s crucial to remember that stock prices can be highly volatile, with significant fluctuations in the short term. Investors must be prepared to endure these ups and downs, ideally maintaining a long-term horizon of 20 years or more.

One psychological strategy to combat rising healthcare costs is to allocate a portion of your portfolio specifically to healthcare stocks. This can be done efficiently through healthcare-focused index funds or ETFs. For instance:

• VGHCX (VANGUARD HEALTH CARE FUND INVESTOR SHARES) has delivered an impressive 13.2% annualized return since its inception in 1987, significantly outperforming the S&P 500’s 10.4% annualized return over the same period.
• For ETFs, consider VHT (Vanguard HealthCare Index ETF) or XLV (Health Care Select Sector SPDR® Fund), both of which offer diversified exposure to the healthcare sector.

By investing in these options, you not only align your portfolio with rising healthcare expenses but also capitalize on the sector’s potential for long-term growth which is very much correlated to the rising cost. 

Tools & Tips: Investment Return Calculators for Funds, Portfolios or Stocks

MyPlanIQ offers several investment return calculators designed to help users evaluate returns over specific time periods. These calculators can be used for various asset classes, portfolios, and investment scenarios. Here’s a list of available calculators:

• • Simple Investment Return Calculator: Enter your key figures, and the calculator will compute the final investment amount for you.
  • Dollar Cost Averaging (DCA) Calculator: This tool allows you to input a starting amount, periodic savings contributions, and highly customizable annualized return data. It is one of the most robust and versatile return calculators available, offering flexibility and comprehensive insights into potential investment growth.
  • Fund/Portfolio/Stock Quote Return Calculator: Each stock, fund, or portfolio page features two on-page embedded calculators for quick return analysis. One is a historical custom-period calculator that evaluates returns for the specific investment over a chosen timeframe. The other is a Dollar Cost Averaging (DCA) calculator, which calculates potential returns based on historical performance for regular, periodic investments.

 The following image demonstrates how to use the on-page return calculator to determine the annualized return of the Stock Index (S&P 500 VFINX) from 1979 to 2022.

The on-page calculator is available on all quote pages (for funds, and stocks) and portfolio pages. It provides a convenient way to quickly calculate returns for a specific period, including both annualized and cumulative returns. Additionally, it offers key risk metrics such as standard deviation and Sharpe ratio, giving users a comprehensive view of an investment’s performance.

Each quote page, such as VGHCX (VANGUARD HEALTH CARE FUND INVESTOR SHARES), also includes a Dollar Cost Averaging (DCA) calculator. This tool allows users to specify a different symbol (e.g., fund SPY, stock AAPL, or a MyPlanIQ portfolio such as P_77002 for the MyPlanIQ Core Three Assets) for comparison or analysis.

For instance, if you had invested $120 annually ($10 monthly) using DCA since 2000 (24 years), you would have accumulated approximately $10,000 by now. Alternatively, investing $100 monthly could have resulted in an accumulation of $100,000. This example underscores the advantages of consistently investing in healthcare companies to piggyback on their growth and help mitigate rising healthcare costs. By aligning your investment strategy with the performance of these companies, you can take advantage of their profit potential related to ever rising customers’ healthcare payments!

Of course, you can always set the regular investment amount to $0 and simply input a starting amount. This will give you basic return figures without factoring in periodic contributions.

In summary, MyPlanIQ.com offers a range of tools to explore and analyze how different investments might have performed historically. These investments can include anything from mutual funds, ETFs, and individual stocks to MyPlanIQ portfolios, providing versatile options for investors to learn and strategize various types of investments effectively.

Most Popular Stock Funds in 401(k) Plans

If you are enrolled in a large company’s retirement plan, such as a 401(k), you will likely find one of the following nine popular stock funds among your investment options:

• FDGRX (FIDELITY GROWTH COMPANY FUND FIDELITY GROWTH COMPANY FUND)
• VPMCX (VANGUARD PRIMECAP FUND INVESTOR SHARES)
• FCNTX (Fidelity Contrafund)
• AGTHX (Capital Group GROWTH FUND OF AMERICA CLASS A)
• DODGE & COX STOCK FUND)
• TRBCX (T. ROWE PRICE BLUE CHIP GROWTH FUND INC. )
• VIGRX (VANGUARD GROWTH INDEX FUND INVESTOR SHARES)
• VFINX (VANGUARD 500 INDEX FUND INVESTOR SHARES)
• VIVAX (VANGUARD VALUE INDEX FUND INVESTOR SHARES)

These funds are all highly ranked. Among them, Capital Group’s Growth Fund of America boasts the largest assets under management, followed closely by the long-standing favorite, Dodge & Cox Stock Fund. Additionally, several Fidelity growth funds and Vanguard funds are included in this group.

For more detailed information, interested readers can refer to our two previous newsletters discussing these funds:

• Ranking Biggest 401(K) Stock And Bond Funds
• The Best Stock Funds In The Long-Term

Market Overview

Economically, here are the latest developments:

GDP Growth: The U.S. economy expanded at an annual rate of 2.8% in the third quarter of 2024, surpassing economists’ expectations of 1.9%. This indicates continued strength in the economy despite the impact of high interest rates.

Job Market:

• Job openings rose to 7.744 million in October, up from 7.372 million in September.
• Initial jobless claims for the week totaled 213,000, slightly better than the expected 214,000.

In summary, these indicators create a favorable backdrop for financial markets. 

The following table shows the major asset price returns, as of last Friday: 

The year-end rally continues. 

We however repeat what was said previously: 

That said, we want to remind our readers to maintain perspective. The current bull market, which began in 2009, is one of the longest in modern history. Additionally, U.S. stock valuations are among the highest ever recorded. History has shown us that financial markets operate in cycles of ups and downs, and a down cycle is inevitable at some point.

While we encourage you to enjoy the present gains, it’s wise to remain vigilant and prepared for market corrections. Just as we celebrate in times of growth, we’ll also be here to provide encouragement and confidence during bleak periods. Let’s navigate this journey together—through the highs and the lows—toward long-term financial well-being.

Struggling to Select Investments for Your 401(k), IRA, or Brokerage Accounts?