Counting on Medicare? You Need a Backup Plan

We're running out of money.

Last month, the government released a report crunching the numbers on Medicare and Social Security. The takeaway: Medicare will become insolvent in 2026.

That's just eight years from now... and three years earlier than expected.

Medicare is the largest health insurance program, insuring nearly everyone 65 and older. About 60 million Americans use it for their insurance. Medicare only pays for roughly half of total health costs – most folks have supplemental plans. But about 8% of Medicare participants only have Medicare to help them.

As I always tell my readers: Don't depend on anyone or any agency to take care of you. It's time to take your finances into your own hands.

Today, I'll explain three steps to help you build real wealth and limit dependence on government-run programs that could go under just when we need them most...

Being a diligent and disciplined saver is a critical first step... But it isn't enough to put you on the path to wealth. You must be an investor.

Why do you need to invest? Because real freedom comes from income. And income comes from invested savings.

In his book, Money: Master the Game, Tony Robbins gives a great description of the goal of saving and investing:

The core concept of successful investing is simple: Grow your savings to a point at which the interest from your investments will generate enough income to support your lifestyle without having to work. Eventually you reach a "tipping point" at which your savings will hit a critical mass. This simply means that you don't have to work anymore – unless you choose to – because the interest and growth being generated by your account give you the income you need for your life.

Remember, building wealth is about having the freedom to do what you'd like to do. And it frees us from relying solely on mismanaged government programs.

To reach Robbins' "tipping point" and the income that comes from it, you have to invest.

Lots of people let a variety of hurdles prevent them from being successful investors: the jargon, the account types, the fees, and the number of stocks and funds to choose from... It's easy to put off getting your finances in order until next year.

The good news is, if you're ready to get more out of your investments, you can devise a simple plan out of three key principles...

  1. Invest in index funds.

There are two types of funds. Actively managed funds have a portfolio manager who tries to find the best investments and beat the market. Index funds simply track the market.

Hiring high-priced experts may sound like a good idea... But it turns out, most active managers aren't worth the cost. A recent study by Morningstar found that only one in five large-cap funds beat the market over the past 10 years. Dozens of other studies have shown the same.

You don't need funds with active – and expensive – management. Index funds perform better and cost less.

  1. Avoid fees and taxes.

One of the reasons index funds work better for individual investors than actively managed funds is the fees involved. Fees and taxes only take a little bit of your money at a time, but can add up to tens or hundreds of thousands of dollars over the years.

Investment funds charge annual management fees. For expensive actively managed funds, this can be around 2% of the account value. But index funds can charge as little as 0.16%. Use cheap index funds and tax-advantaged accounts like 401(k)s and IRAs when you can.

  1. Make consistent investments at regular intervals.

We've all heard to "buy low, sell high." But how do you know what's low or high?

Investors try to answer that question in several ways. But one simple way to take the calculations out is to invest a consistent amount of money at regular intervals, like once a month or quarter.

As a result, you'll necessarily buy more shares of a stock when markets are cheaper and fewer shares when markets are more expensive. Taking the calculations out by keeping your investments consistent lets the costs average out, which practically forces buy-low-sell-high success. (If you want to sound smart at your next cocktail party, you can call this a "dollar-cost average" strategy.)

In short, the entire concept of building wealth and freedom requires that you earn a return on your savings.

And if your spending comes out of your savings, you'll never enjoy it.

It's only when you hit the "tipping point" – when you make enough income to cover your spending – that you'll truly enjoy the freedom that wealth can bring.

Here's to our health, wealth, and a great retirement,

Dr. David Eifrig

Editor's note: Doc has discovered an extra stream of income that could transform your retirement account. Most Americans don't know it exists. But with a few simple steps, you could collect thousands of dollars each month – in addition to your current Social Security and retirement income – for as long as you want. Click here to learn more.

Further Reading

"Consistent and safe income is key to any successful retirement," Doc writes. Learn more about how to collect dividends with a variety of assets right here: Why We Don't Use 'Get Rich Quick' Strategies.

"The retirement landscape has undergone vast changes over the past couple of decades," Doc says. For one thing, people are living longer. Read more about the building blocks of long-term retirement planning right here: Will You Outlive Your Money?

DailyWealth Premium

Investing is key to growing your long-term wealth. And Austin Root has discovered three secrets to help you become a successful long-term investor...

Market Notes


Today, we're checking in on a company back on the rise...

Longtime DailyWealth readers know the term "bad to less bad trading." By buying assets when they're cheap and hated, you can make solid gains as the market evens out. We've covered this idea recently with apparel maker Under Armour (UA) and social media platform Twitter (TWTR). Today, we're looking at another example...

Eli Lilly (LLY) is a $98 billion pharmaceutical giant. The company struggled earlier this year... First, global competition hurt its animal health drug sales in the fourth quarter. Then, the market correction struck. LLY dropped more than 15% in just eight trading days. But the underlying business was still strong... In the latest quarter, Eli Lilly reported sales of $6.36 billion, up 9% year over year. And it announced plans to spin off its lagging animal health unit.

As you can see in the chart below, shares are up more than 20% from their February lows, and they recently hit a new 52-week high. When investors overreact, it can set up a rally as things simply get "less bad"...