Generic Ketchup, It’s Not All That Bad

12420540 - tomato puree squeezed from a bottle, isolated on white.I had a nice couple come into my office last week, let’s call them Steven and Denise, who are seeking advice regarding the best moves to secure their money. Steve is a successful self-employed builder here on the Cape and Denise helps Steve with their business. They are in their late 50s and remind me a lot of my in-laws. Hard-working, middle class family of four, having worked their whole lives, saving for retirement, paying for their kids’ college and weddings; and now hoping to eventually have that margarita on 5th Street in Naples.
 
They have two issues. They feel like their income is stretched and, in their words, had “lost a boatload of money” in 2008. At the end of the month, after paying their necessary expenses, they don’t seem to have enough to save much. And having that uneasy feeling that there could be another market blunder on the horizon, they are looking for ways to protect themselves better for the next one.
 
You see, Denise mentioned that they had adjusted their savings and spending in recent years. Steve told me he isn’t too happy about one of these changes in particular: Denise now buys generic ketchup. Denise simply shrugged and said, “You have to save where you can!”
 
Now, buying name brand ketchup wouldn’t set this couple back to the point of disrupting their future retirement plans, but Denise’s response to 2008 isn’t uncommon. Folks, Denise’s spending decisions are a symptom of their larger problem. Denise and Steve have less money to spend, and they are not alone.
 
Look, savvy consumers save where they can. No one loves a bargain more than me. My friends tell me that I am their only friend who still has his First Communion money, so I get it. What can I say is that I am a saver.
 
However, over the past 10 years, Americans have spent less on food, housing, clothing, and transportation, and that has a significant impact on the growth of our economy. But there is one place where we are all spending more: health care. Over that same 10-year span, when we have seen decreased spending in so many other areas, healthcare spending has risen by 25 percent nationally, even worse here in Massachusetts. And it is not getting any better; according to recent reports, prices for 2017 are projected to rise, on average, 30 percent. So, since 2014, consumers’ premium prices are up 50 percent, just to buy watered-down insurance. Sure, many folks get subsidies, but unfortunately Steve and Denise, like so many self-employed folks, don’t qualify for any subsidies.
 
However, even if they did receive a subsidy, they still would have to wrestle with their very high deductible.
 
Steve and Denise, like most Americans, can survive by skimping on ketchup, but health care is another story. Their $1,525 per month premium and $6,500 deductible is just killing them. Assuming that they meet their deductible, this couple will spend 24,800 bucks this year.
 
Hmm. We have a problem.
 
And for retirees, the math gets more complicated.
 
For most people, the government deducts Medicare Part B payments from Social Security checks. This year, the price of Medicare Part B is expected to climb more than 20 percent, or about $27 per month. But inflation has remained tame, so the Social Security cost-of-living adjustment (COLA) could be as small as 0.3 percent, and that is on top of no COLA for 2016. For those receiving the average benefit of $1,335 per month, this equates to less than $3 per month. The increase in Medicare Part B could eat up all of that gain and then some.
 
In fact, some health insurers, such as Aetna and UnitedHealthCare, have recently announced they would pull out of the Obamacare exchanges, saying Obamacare patients have turned out to be sicker and costlier than expected.
 
According to a new Blue Cross Blue Shield Association report, its cost of care associated with plans sold through exchanges, was 22 percent higher than the costs associated with work-based health plans in 2015, or $559 a month, on average, for Obamacare enrollees versus $457 for those in employer plans.
 
It’s this cost that is contributing to higher and higher expenditures for average Americans. According to CNN Money, large insurers aren’t the only ones running into trouble. More than half of the co-op insurers, created and funded by the health reform law, have failed. This means consumers in a growing number of areas have only one or two insurers to pick from.
 
The majority of average-income households now spend more on health care than any other cost, besides housing. The budgetary allocation for health care in those households rose by 3 percent from 1984 to 2014, taking up nearly 9 percent of the total budget, and as mentioned above has even got worse since 2014, with consumer prices increasing by a startling 50 percent.
 
One of the scariest things about healthcare costs is that they generally are unaffected by an economic downturn. If the economy resets, which historically occurs every six or so years, and financial returns drop, the cost of health care will remain high.
 
So what does all of this mean for Steven and Denise? What does this mean for you? Well, some believe in a single payer system; I’m not sure that would fix the problem. I have some ideas, but that is a topic for another column.
 
One thing I know for certain is this. Steve and Denise’s investment strategy (and yours) is more important than ever. Costs that are unaffected by market downturns, such as healthcare costs, highlight the need to address market volatility, and having rules in place to help mitigate it—especially for those nearing retirement or in retirement.
 
Think of it like a bathtub. If your stream of income filling up the tub stutters to a drip, but your drain of expenses, such as health care, is still drawing out money at an alarming rate, your tub will run dry much sooner than projected, right?
 
Is your investment plan designed for this? Or is generic ketchup soon to be the least of your worries?
 
As the stock market has gone sideways for the past few years and consumer misery is in the tank, something has to give.
 
What is your strategy? What are your rules?
 
Now would be the time to have that discussion, just like Steve and Denise did. If not, then just make sure you have enough in the bank to pay for your premiums, and your deductible.
 
Be vigilant and stay alert, because you deserve more!