November 1st is the start of open enrollment in the US healthcare sector. To celebrate, Unitedhealthcare notified me that my premiums are heading up by 25%. I wonder how the total compensation (salary, bonus, private jets, security, stock) of their senior people will compare to the next president’s cabinet?
I overreact to unexpected, but manageable, loses.
Perhaps you are the same?
The antidote is to always frame negative surprises in the largest possible context.
Our premium change is…
- …less than 1% of the increase in our net assets over the same period
- …less than 0.25% of my family’s net worth
- …less than 5% of my family’s core cost of living
The premium shock motivated me to take a deep dive into family assets, liabilities and expenditures.
We measure core cost of living in terms of healthcare, total taxation, education, food and housing (mortgage, taxes, insurance).
Our key discretionary items are childcare, vehicles, vacations, college funds and gifting.
- Sources of large changes in income // unemployment, vacancies, new initiatives
- Sources of large increases in expenses // lease rates, insurance premiums, tax rates
- Prudent future planning // long lifespans, persistent lower investment returns
What can go wrong? What can we do, when inevitable shocks arise?
What can go right? How can we increase our exposure to large positive outcomes?
- Capacity to help others with high-value work
- Equity investments
- Voluntary simplicity – our greatest wealth creator
While no one can predict the future, the 30-year bond (2.5%) is indicating that prospective returns are likely to be less than any of us have seen across our adult lives.
Historically, financial freedom targets net assets equivalent to 25 years of core cost of living. While that might be true historically, have a careful look at your joint life expectancies and quantify your longevity risk.
Young couples need to consider 50-year retirements, with 0.5-1.0% real rates of return (before taxes, fees and expenses).This possible outcome is far different than what I was taught in school, or even considered five years ago.