Chapter 9

Guaranteed American Growth Industries

Health Care

U.S. economic strength or weakness leads most sectors of the economy to experience rising or falling employment levels over time. For example, the nation’s manufacturing sector has seen total employment decline over the past two decades, even as total manufacturing output has risen. The culprit here has primarily been solid gains in worker productivity. The outsourcing of various jobs to lower-cost producers is also a factor. Employment totals in the construction and natural resources industries are typically tied in part to financing costs and prices of natural gas and oil.

Three major employment sectors will see their respective shares of total employment rise in coming years as compared to other sectors, even as the economy continues to experience ups and downs. These three industries will grow in economic clout compliments of the nation’s 78 million Baby Boomers. The three sectors are health care, financial planning, and leisure and entertainment.

Common sense would suggest that the Boomer generation will play a major role in the expansion of health care services over the next 30 to 40 years. Such services will include the traditional combination of public and private sector health care providers, clinics, pharmacies, and hospitals.

In addition, you can add greater demand for plastic surgery of all types: Make these bigger or smaller. Build this up or trim this down. Tighten this up. Raise this. Lower this. The list goes on and on. Boomers will not go willingly into our senior years. We will fight it constantly.

Vanity of the Boomers? Off the charts!

Monthly health care premiums and consumer out-of-pocket costs have been rising faster than incomes for many years. Rising demand for health care services by Boomers, our parents, our children and grandchildren, and indigents will strain the current system as never before. It is not at all a stretch of the imagination to suggest that health care spending will carve out a larger share of GDP over the next few decades.

Such a move towards greater health care spending was already underway. However, the move will clearly be aggravated by an aging Boomer population. While this shift will be “good news” in regards to U.S. job creation, it will be “bad news” in terms of trimming overall productivity and optimizing utilization of resources.

For a majority of American families, a mortgage or rent payment has typically been the single largest monthly expenditure. For too many families, the monthly premium for health care insurance has moved into the top spot.

Our ability to slow the surge in health care costs is arguably tied to a handful of issues. The first would be the need to limit malpractice awards by the courts. Too many doctors have been forced to sharply boost their professional fees as a means of meeting sharply higher malpractice insurance costs. Too many doctors have simply decided to end their respective medical practices, while other formerly independent practitioners have moved back under hospital control in order to handle insurance premiums.

Medical tort reform is mandatory in order to get medical malpractice costs under control. High profile medical problems attract aggressive attorneys who might gain an enormous financial award for a client (and for themselves), while resulting in higher malpractice premiums for all. Unfortunately, such a move under a Democrat-led Congress is unlikely as the legal profession is a major supporter of Democratic candidates.

Greater “control” of rising prescription drug costs is also necessary. Moves by various major retailers including Wal-Mart and Target to reduce costs of many generic drugs are a step in the right direction. The Congress could have critical influence in this area by pressuring major pharmaceutical firms to limit prescription drug costs. Price controls, however, are not the answer.

Private sector health insurance providers should have the ability to compete across state lines. Does it really make sense that a large health insurance provider in Connecticut cannot offer its services in Massachusetts or New York? Does it make sense that, for example, ABC Health Insurance of Oregon cannot compete with other providers in Washington or Northern California, in theory providing more options and lower prices to consumers?

Imagine a world where interstate competition for financing of residential mortgages was not a reality. How much higher would mortgage interest rates be? How much higher would life insurance premiums be if buyers were limited to dealing only with insurance providers in their respective states?

A similar competitive reality is needed in the nation’s health insurance sector. The cost savings to consumers could be impressive.

Rising utilization of health savings accounts is also in the nation’s best interest. Greater familiarity with such programs and more aggressive promotion by employers would help limit health care costs in the American economy.

Wellness programs will also rise in prominence as employers “reward” employees who exercise and take solid steps to minimize health issues. Employers will also “penalize” employees who smoke or are overweight with higher health insurance premiums.

As health care costs continue their unrelenting march higher, we are moving unavoidably in the direction of a government-sponsored, nationalized health care system—I find the thought truly scary. Placing government in direct control of another one-sixth of the American economy does not lend itself to rising consumer comfort levels. One has only to look at a struggling Canadian universal health care system to draw such a conclusion (see Chapter 12).

Baby Boomers en masse have not saved aggressively enough for our golden years. Such a painful reality is one that, in my mind, will drive millions of Boomers to save more diligently in coming years. In fact, recent data from various stock mutual fund providers has shown a solid rise in investment flows, most coming from Boomers. A similar mindset is also likely to build as members of both Generation X and Generation Y increasingly recognize that they are largely responsible for the financial condition of their own retirements.

Millions of Boomers will also shift more aggressive investment money away from residential real estate back to the stock market. This is likely to continue as the news media and recent real estate market data suggest that most of the upward move in residential real estate values on both coasts and in the Southwest has largely run its course. This reality is one that drives my continuing view that the stock market will do very well in coming years.

Stronger Incentives

At the same time, the Congress is likely to adopt more savings-friendly legislation in coming years to provide greater incentives for both Boomers and younger generations to put more money away for their retirement. For example, recent legislation now allows companies to roll out Roth 401(k) plans to their employees.

The Roth 401(k) provides the means to put after-tax dollars into an account for the future. The advantage? After age 59½, withdrawal of both the principal and the interest is tax free. This program should appeal primarily to those who expect to be in a higher income tax bracket in retirement. Those expecting lower income tax rates in retirement might be better off with traditional 401(k) and IRA programs.

Members of all four major generational groups will further acknowledge that they may not have the necessary skills to develop a sound investment program for the future.

• How much should I save?
• What kind of investment return assumptions should I adopt?
• How much can I withdraw annually in retirement?
• What if I outlive my money?

These major anxieties will translate into greater use of investment experts, financial planners, and commercial bank trust departments. In addition, the ongoing shift within corporate America from offering workers defined benefit programs to defined contribution programs puts the onus on workers more than ever before to effectively manage their money.

Greatest Benefit

Members of Generations X and Y have the most to gain from the use of financial professionals. Too many workers of all ages have typically selected the most conservative or “safe” sounding investment vehicle when selecting from various 401(k) options.

Placing retirement funds into lesser-risk money market funds or intermediate bond funds is logical for older workers, who favor greater preservation of principal and less investment risk as they approach retirement. However, younger workers with 30 or 40 or more years before retirement should have a majority of investment funds in stocks.

New defined contribution options wherein most 401(k) programs offer a “life cycle” fund is especially valuable to younger workers. Such funds opt for more aggressive investment options in a worker’s younger years, while moving toward less investment risk as the worker ages. The employee simply needs to select a date in the future when retirement is likely, and let the fund do the rest.

Travel, golf, college classes, new friends, cruising, hiking, new interests, spas, reading the classics, exercise, motor homes, the grand kids and great-grand kids, second (and third) homes.

You get the picture.

Baby Boomers will redefine the concept of retirement, just as we redefined or greatly impacted all other facets of life. Solid dedication to the first two growth industries discussed in the two prior sections will provide greater flexibility than ever before to enjoy life in our golden years.

Travel

Boomers will travel the world as no group before them. The sharp rise in ownership of vacation homes and motor homes will continue. More Boomers will take advantage of shared ownership of various leisure and travel assets, with a greater variety of time share and joint ownership options than ever before.

Tens of thousands of Boomers will establish second or perhaps primary residences in Mexico, Latin America, the Caribbean, and across Europe. Some will do so as a means of stretching retirement dollars, while others will do so as a means of experiencing other cultures first-hand. Other Boomers will routinely rent or lease a residence in Mexico or Europe or other destinations for one, two, or three months at a time. They will be able to enjoy other cultures, while avoiding potentially complex issues of residential ownership.

More options will also be available for Boomers and older retirees to live close to downtown areas in larger cities as a means of having close access to museums, shopping, the theater, and restaurants. Boomers will take advantage of such close proximity, while leaving the yard work or snow shoveling to someone else.

Universities, community colleges, and other sources will offer a wider array of classes and learning experiences than ever before, with many Boomers exploring interests and passions formerly displaced by the needs of generating incomes and raising families. Boomers will discover and develop talents never before considered.

Community Interest

More communities will entice retiring Boomers to live in their locales, recognizing the value they can bring to a community. The Boomer or Boomer parent in or approaching retirement age typically buys a local residence, shifts their financial resources to a local financial institution or brokerage firm, supports local retailers and restaurateurs, and creates little in the way of headaches for law enforcement personnel. One other major positive? They don’t bring children that need to be educated.

Boomers will follow a path formerly explored by many of their parents. A rising share of senior housing and assisted living centers for older people will have a wider array of recreational and learning opportunities than ever before. Limited medical care will also routinely be on site or close by.

Return to Top