The 8:30 Hosts Julie Hyman and Jake Conley sit down for a chat with 9i Capital Group founder and CEO, Kevin Thompson, to discuss several topical personal finance concerns: rising medical costs, asset allocation, and the significance of Social Security's cost-of-living adjustment (COLA) increase in the economy's hot inflationary environment.
This week we learned that there would be a new cost of living adjustment for social security that is the biggest since 2023. This is for 2027, effective in 2027. It's 3.6% increase. So let's talk about how individual investors and retirees and people who are preparing to retire, that is everyone eventually,
You hope so.
should think about these cost of living adjustments. Yeah. Uh let's bring in Kevin Thompson to talk about all this. 9I Capital Group founder and CEO for this week's ETF corner, brought to you by Capital Group. Oh, the glasses are fire today, Kevin.
I'm loving it.
Um,
Absolutely.
Appreciate you bringing bringing that that style for us. Um, let's talk about this this cost of living adjustment because um, I'm sure that some of your clients are going to be affected by this. Um, so and I'm sure it's welcome news, but how should people be thinking about it as they think about how they are budgeting in retirement and what are you telling your clients?
Well, we all know that the the Cola is actually a lagging indicator. And by the way, in Texas, we call it a Coke, not a Cola. Bad joke. But with that being said, like the the Cola is a lagging indicator. People are experiencing that right now. I mean, you have gas prices that were four and a half dollars, diesel prices at six six bucks in most places. So, um, what you're experiencing experiencing today is quite often not what you're going to get in the future. So when they get that 3.6% Cola, which in most cases, the average retire is getting about 70 to 90 bucks. If you're on the higher end, you're getting about $150 to $180.
It's not going to do what it's designed to do because you're always trying to catch up. So, uh what I'm telling my clients is if you own assets, you're in a great position because inflation begets inflation. So prices move up, housing prices are higher, everything's working well for those who own assets. but the people who don't own assets and only own their labor, it's not a very good market for right for them right now.
Kevin, Jake here. One of the questions and story lines we've been looking at are the increase in medical care premiums that we've seen just continuously going up. Is there a risk here that any benefit a retire might get here just gets eaten by things like a premium going higher and to your point, like a gas price going higher?
Yeah, well we're seeing Medicare premiums go up, but we also got to take it in with a grain of salt because when we're working, half of that's being subsidized by the employer quote unquote. And it's a, it's a much higher premium when we're working because but when we get to retirement, I mean people don't really realize this. Yeah, 200 a couple hundred bucks a month plus a little bit of a maybe a a premium on your Medigap and things like that. It's much smaller than when you were actually working. So I want to take that with a grain of salt. But yes, when you're on a fixed income, those things start to hurt and especially in the Medicare advantage space right now with all these uh all these individuals or all these companies starting to move out of the Medicare advantage space because of reimbursements coming down.
It's going to get a little bit tougher for individuals to get that uh that health care spend because at the end of the day, prices are going to continue to go up, cost is going to continue to go up and it's just going to become very a little bit more difficult for the retire. But like I said before, if you own assets, a lot of that's being inflated away.
Hopefully most of the folks that you are working with own some assets, right? It'd be true if they'd gotten to the to the especially if they gotten to the retirement stage and they did not. When you are talking to those folks, do you recommend that people sort of hallmark or earmark, I should say, some of their money for medical expenses specifically? Like how should they be thinking about about the different buckets if you will?
So like you mentioned that most of my clients have assets, so it's not necessarily a problem. What we're trying to focus in on in my clientele is is the IRMAA premiums. You know, the income uh monthly adjusted amount where we don't want to jump into higher IRMAA tiers and have to pay higher Medicare premiums if we don't necessarily have to.
So we're trying to control that. Now, that's a first world problem by the way. So what we're trying to focus on is is is minimizing that as much as possible. But for those who don't have that issue, and they're starting to see their Medicare premiums move higher, all you can do is just continue to pay the pay the cost. But just just try to focus on, you know, where you can get the best bang for your buck. And that's why again, I'm not a Medicare specialist, that that A B C D E F G alphabet soup gets very, very convoluted for people like me.
And I'm telling you right now, if I'm having trouble understanding that, I can't imagine what retirees have to go through, especially going through, you know, what should I buy? Should I be Medigap? Should I be Medicare advantage? It becomes very, very uh interesting and confusing for a lot of them.
Kevin, you mentioned that a lot of your clients do hold assets, you know, thankfully for them, but I want to step back a second and ask if you've noticed any shift in, you know, what those assets are, what's making up those allocations. We've seen the boom in equity wealth, but is a lot of that still your typical real estate? Is that more weighted toward equities? What's that distribution looking like among what your clients are holding?
Weighted towards equities. I mean, we always say that the best bang for your buck to outpace inflation is equities and you've seen that a lot of the allocations was a 60-40 at one point, now maybe a 65, 35 or maybe even a 70-30, they may be getting a little bit more aggressive on one end, but here's the issue and I had this conversation yesterday about private equity, private credit and all the other stuff that's out there.
Everything's moving in the same direction. And even if you own the S&P 500 and the VOO or the SPY or the whatever it is, you own the same five companies. So, how much we want to diversify is is relative to what you own, but at the end of the day, like you're owning the same things. So everything's moving in the same direction. My goal for my clients right now is I don't want to have to apologize to them. So how do I diversify that? I'm using a lot of treasuries right now because we're back to T-bill and chills, Julie. T-bill T-bill and chill is back.
So we're getting a lot of 4% plus on the, on the front end of the curve. We like that. and we may start locking a little bit longer term, uh longer duration things up uh on on the front end as well to offset our risk and get a little bit of a, a yield there.
I I'm curious, Kevin, since you mentioned that. This is something, this goes back to something we were talking about earlier today. Do you think then that yields have peaked because people like you and your clients are coming back into that Treasury market?
I don't know if they've peaked because inflation is just, I'm sorry, inflation is just high, it's going to be higher for longer. You saw the PPI numbers come out just yesterday. Uh, inflation is going to be coming back to the supply chain here in a matter of months. So, will they go higher? I think they will, but I don't think they're going to go dramatically higher. I think they've normalized. So, yeah, you're starting to see people come back into the treasury market and buy up those treasuries. uh buy up those, uh buy up those yields. And yeah, I love 4.5% or 4.3% on a 3, 6, 9 month treasury. I'll buy that all day long and that's what we're doing.