Bob’s Journal for 10/27/22

Interest in Medicare Advantage Plans Surges

This year’s Medicare open enrollment season could be historic.

Enrollment in Medicare Advantage plans steadily increased over the years while the percentage of beneficiaries in original Medicare declined. Medicare Advantage plans might enroll more than half of Medicare beneficiaries for the first time after the 2022 season.

About 20% of beneficiaries who chose an Advantage plan said they did so because of the additional benefits, according to a survey by the Commonwealth Fund.

The benefits include vision and dental care, which aren’t covered by original Medicare or Medicare supplement policies. Some beneficiaries are enticed by other benefits, such as free transportation and meal deliveries, though those benefits are limited and often replace other benefits.

Another 20% said the limit on annual out-of-pocket spending was the deciding factor. Advantage plans have an annual cap on out-of-pocket spending regardless of the amount of covered care needed, which generally was $6,600 in 2022.

Beneficiaries in original Medicare effectively can cap their spending on covered care by taking out a Medicare supplement insurance policy in addition to their original Medicare benefits.

Those who opted for original Medicare usually did so because they wanted the freedom to choose their own doctors, hospitals and other providers. Members of an Advantage plan are restricted to the plan’s network providers if they want their care covered. They also need approval for most procedures and to see specialists.

Anecdotes from insurance agents who specialize in Medicare indicate many people sign up for Advantage plans because of the low initial cost and extra benefits, but then want to switch to original Medicare with a Medicare Supplement policy when they need significant medical care.

They might not be able to switch at that point, because Medicare Supplement insurers can deny coverage or charge high premiums based on the applicant’s health history.

The right Medicare plan for you depends on your circumstances and preferences. Be sure you consider all the factors and the long-term implications before making a decision.

This is a Good Time to Implement the Retirement Barbell Portfolio

The barbell portfolio is used by many wealthy people, and 2022 is a good time for some retirees and pre-retirees to consider implementing the strategy.

In the barbell portfolio, a large portion of the portfolio is in very safe investments, such as certificates of deposit (CDs), different types of annuities, treasury bonds and the like. The principal is protected, and it earns a steady yield.

The rest of the portfolio is invested aggressively, often more aggressively than a typical diversified portfolio. The investor will look for opportunities that seem likely to generate significant returns over time, though there’s also some risk of loss. The aggressive part of the portfolio isn’t invested in one or two ideas. You want a collection of ideas that have the potential to pay off and aren’t correlated with each other.

The risky part of the portfolio doesn’t have to be fully invested at one time. The allocation can be put into opportunities as they arise.

To achieve the barbell effect of balancing the two portions of the portfolio, the bulk of the overall portfolio is in low-risk investments, while a small amount is invested in a group of higher-risk investments.

You don’t want to be reckless with the aggressive investments. When you take diversified positions with reasonable risk in this part of the portfolio, the overall risk of losses is low unless all the investment decisions turn out badly.

This is a good time to consider a barbell portfolio because of changes in the markets.

Yields on conservative investments are much higher than at the start of the year and at any time in years. You can capture yields around 5% with CDs, multi-year guaranteed annuities and other investments. You also can generate guaranteed lifetime income with single-premium immediate annuities or deferred income annuities.

At the same time, the sharp declines in stocks, bonds and other investments are bringing their values down to reasonable levels. As the Federal Reserve continues to tighten monetary policy, bargains and longer-term capital gains opportunities are likely to be created.

Investors today have an opportunity that hasn’t been available for years. You can begin locking in reasonable yields on safe investments and get set to take positions in some more aggressive longer-term opportunities.

Many Retirees and Pre-Retirees Are Worried

Retirees and pre-retirees are feeling a lot of stress because of their finances, according to the Retirement Survey & Insights Report 2022 prepared by Goldman Sachs Asset Management. The report is the result of a survey of adults in different age groups that included 967 working individuals and 599 retirees.

The survey found that 56% percent of retirees left the work force earlier than they initially planned, and that’s consistent with surveys I’ve seen in the past.

Currently, 44% of retirees say they are stressed about their finances, while only 15% say they are comfortable. About 40% of retirees said they are uncomfortable managing their retirement income in volatile markets.

About 55% of retirees have guaranteed income that is 55% or more of their total income. But 51% of retirees have income that is less than 50% of their pre-retirement income, and only 25% retired with sufficient savings to generate 70% or more of their pre-retirement income.

Not surprisingly, 71% of retirees are concerned about inflation. Future health care spending is a concern of 51% of retirees, and 46% are worried about potential reductions in Social Security benefits.

Among working individuals, 64% are experiencing stress from managing their money in volatile markets, and 34% are uncomfortable managing money in these markets.

Among baby boomers who are still working, 53% say they are behind on their savings needs, while 51% of Gen Xers say their savings are less than what they should be.

More than half of those working say their top concern is they won’t have sufficient savings for retirement. Inflation is a top concern of 49%.

Surveys of past retirees show that many anxieties and worries are reduced or relieved by having a written plan that covers the key areas of retirement finances.

The plan should project income and estimate annual spending over time.

Having sufficient guaranteed lifetime income (Social Security, pensions and annuities) to cover standard living expenses also increases retirement security.

Other steps to relieve stress and increase financial security are to be sure you have the right Medicare plan for you and develop a strategy to pay for any long-term care expenses you might incur.

The Data

The PMI Services Index for mid-October declined to 46.6 from 49.3 at the end of September. This is the second-fastest decline in the index in two and one-half years.

The PMI Manufacturing Index for mid-October declined to 49.9 from 52 at the end of September. That’s the first time the index has been below 50 since June 2020. A reading below 50 indicates the sector is contracting.

The PMI Composite Index for the economy declined to 47.3 in mid-October from 49.5 at the end of September.

Home prices declined again in August, according to the S&P Corelogic Case-Shiller Home Price Index. The index declined 1.6% in September. The index still is up 13.1% over 12 months, but that’s down from the 16% rate through July.

The FHFA House Price Index reported similar numbers. Home prices declined 0.7% in August and were 11.9% higher than 12 months earlier.

Existing home sales in September declined by 1.5% from August’s level. That follows a 0.8% decline in August.

September’s sales were the lowest since May 2020, and September was the eighth consecutive month that sales declined from the previous month.

The median home price was $384,000 in September, 8.4% higher than 12 months earlier.

New home sales in September were 10.9% lower than in August. In August, new home sales were 24.7% higher than in July.

The Philadelphia Fed Manufacturing Index improved a little to negative 8.7 in October from negative 9.9 in September.

Employment and prices increased over the month. Survey respondents said they expect business activity to decline over the next six months.

The Richmond Fed Manufacturing Index declined to negative 10 in October from 0 in September. The October level is the lowest since May 2022. Shipments and new orders both fell significantly in October.

The Consumer Confidence Index from The Conference Board declined to 102.5 in October from 107.8 in September.

New unemployment claims declined by 8,000 to 214,000 in the latest week.

Continuing claims increased to 1.385 million.

The Markets

The S&P 500 rose 3.72% for the week ended with Tuesday’s close. The Dow Jones Industrial Average gained 4.32%. The Russell 2000 increased 2.30%. The All-Country World Index (excluding U.S. stocks) added 1.07%. Emerging market equities lost 2.70%.

Long-term treasuries lost 3.29% for the week. Investment-grade bonds decreased 0.69%. Treasury Inflation-Protected Securities (TIPS) rose 0.29%. High-yield bonds gained 0.47%.

In the currency arena, the U.S. dollar declined 1.06%.

Energy-based commodities increased 1.36%. Broader-based commodities rose 1.03%. Gold gained 0.16%.

Bob’s News & Updates

My next book will be “Retirement Watch: The Essential Guide to Retiring in the 2020s.” The official publication date is Jan. 3, 2023. You can make a pre-publication order or learn more about the book by clicking here and here.

My latest book is “Where’s My Money: Secrets to Getting the Most out of Your Social Security.” It has received mostly five-star reviews on Amazon for telling you clearly what your benefit options are in different situations and how to determine the best choice for you. You can find it on Amazon.com or Regnery.com.

The number of regular viewers for my Retirement Watch Spotlight Series continues to increase. You should sign up because I make in-depth presentations of key retirement finance topics. You can watch these online seminars from the comfort of your home or office at times you choose. To learn more about my new Spotlight Series, click here.

A recent five-star review of my book, “The New Rules of Retirement” on Amazon.com said, “A complete retirement guide! One of the best books on this topic!” Click for more details about the revised edition of “The New Rules of Retirement.”

If you’re interested in my books, check my Amazon.com author’s page.

I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.