According to the National Coalition on Healthcare, health care costs are increasing at rate of 6.2% per year while the GDP generally will grow no more than 4% per estimates. If an investor's portfolio is not generating significant cash flow, then retirees will eventually struggle making premium payments. Investing for health insurance wisely means designing a retirement portfolio around high dividends and low cost minimal health insurance.
Let Stock Dividends from Investments Pay Heath Insurance Premiums
High dividend paying stocks can be found in commodity plays such as natural gas trusts, utilities, and some successful mining operations. Enerplus, Penn West, and other Canadian energy trusts, pump out dividends around 9-11% per year depending on the profitability of operations. 10-13% dividends are not uncommon! Natural gas has fallen dramatically in value so the level of the dividends fell with it. Eventually, natural gas may rise and the high payments will likely continue.
With a $50,000 investment in a high dividend paying stock, the cash flow before taxes can pay a large portion of health insurance premiums at $5,000 per year. Considering that natural gas is at a relative low point compared to oil and it's recent high of $16+, it can rise dramatically. Then dividend payments will also rise, covering the high health insurance price increases. Nice and painless.
There are many high dividend stocks that can cover health care premiums. Utilities often have good dividends, though usually not as high as energy trusts. By selecting a few of these types of cash flow stocks, retirement health care costs can be automatically covered without digging into an investment nest egg.
Health Insurance Company Ratings To Watch
Paying high health care premiums is acceptable if the company stays in business long enough to back up the promises made regarding meeting expenses. While A.M. Best rates insurance companies, there have been cases where rating companies have missed internal problems. Another method of reviewing an insurance companies suitability is checking with the Secretary of State for complaints against them.
Despite assurances by even the largest insurance companies, such as A.I.G., they are all at risk for investment losses. When the stock market drops, even insurance companies suffer. If the value of U.S. bonds drops while interest rates rise, then bonds will crash in value. This will hurt even the strongest health insurance companies such as Blue Cross Blue Shield, Cigna, etc. Many of these companies have derivatives on their balance sheets. All of these risks must be considered when deciding how much to spend in retirement for health insurance.
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