Take a scalpel to those health care costs
In their new book on retirement planning and living, “The Motley Fool’s Money After 40: Building Wealth for a Better Life” (Fireside, $25), Fool co-founders David and Tom Gardner list 10 ways to cut health-care costs before retirement. Here are a few examples:
• Coordinate. Dual-income couples should coordinate insurance benefits. It might make sense to opt out of one plan and choose the family option on another. Maintaining coverage with two providers can make sense, though, if the two plans complement each other.
• Get a flexible spending account (FSA). This allows you to use pre-tax money to pay for medical costs not covered by a health plan, such as deductibles, co-payments and even eyeglasses. Ask your human resources department about FSAs, and if you’re self-employed, look into medical savings accounts (MSAs), which are similar.
• Freeload! Take advantage of free or discounted services offered by your health plan. Many providers will subsidize flu shots, gym memberships, nutrition classes and other preventive care.
• Work with Uncle Sam. If you incur extraordinary medical expenses in a year, you may be able to deduct from your taxable income the medical costs that exceed 7.5 percent of your adjusted gross income.
• Check your bills. According to a Consumer Reports survey, 5 percent of patients found serious errors in their hospital bills. Those who paid $2,000 or more out of pocket were twice as likely to find billing boo-boos. The most common blunders include “upcoding” (charging patients for more costly procedures); incorrect basic charges as a result of keystroke errors or canceled work; charging for individual tests that should have been combined (called “unbundled charges”); and overcharging for operating room time, which is calculated by the hour. This is nasty and expensive stuff. Be vigilant and look through all bills carefully, verifying all charges.
• Get healthy. Being healthy is not only good for you, but it will also keep your insurance and health costs down. Small investments in your physical, mental, emotional and spiritual health today should provide enormous rewards down the line.
Ask the Fool
Q: What does “split-adjusted” mean? — V.E., Sioux Falls, S.D.
A: It reflects a stock price that has been changed to account for stock splits that have occurred over time.
Consider Coca-Cola. It went public in 1919 at $40 per share and has split its stock 10 times since then. Its stock price is currently around $50 per share. Does that mean that the shares have appreciated by only $10 since 1919? Far from it. Remember the effects of splitting. With each split, you end up with more shares, worth proportionately less. (A 2-for-1 split, for example, gives you twice as many shares, each worth half as much.) One 1919 $40 share has now become 4,608 shares. If the stock had never split, each share would be worth several million dollars, and few people could afford to buy even one!
My smartest investment
My smartest investment was buying stock in Diebold Inc., a maker of automated teller machines (ATMs). I bought 300 shares for $13 each back in 1977 (cost: $3,900, plus commission). Diebold remained a leader in ATMs, and the stock rose. I sold in 1984 for $31,381, making eight times my original investment and netting $1,700 in dividends as well. Diebold continued to prosper and raise its dividend, even in poor business cycles. I began investing in it again in 1994, and the company is now making electronic voting machines. —M.L., Ohio
The Fool responds: You were smart to hold on for such a long time. Too often, people sell a stock after making a certain percentage gain, instead of holding on as long as the company’s performance and growth expectations remain impressive. Buying back into a past winner can also make sense, especially when it’s a company you’ve come to know well and you have a lot of confidence in its future.