Housing has always been considered the biggest expense in a family’s budget. More recently, everyone’s grocery and restaurant bills have skyrocketed, bringing food costs into focus. But the biggest item in your budget is very likely to be healthcare, even if it is often disguised by your employer’s direct payment of part of the premium.

(Although employers seem to cover less and less every year… Employers love Health Savings Accounts (HSAs) as it allows them to justify pushing lower-cost high-deductible health plans (HDHPs) wherever possible. If you are a family with a kid with ongoing medical needs, HSA+HDHP does not work out to be a good deal.)

The NYTimes article How Health Care Remade the U.S. Economy (gift) shows us how this came to be over time. Healthcare costs include insurance premiums as well as drugs and other medical products.

As someone who has been thinking about early retirement since they were 25 years old, I am well aware that health insurance premiums for our family of 5 is roughly $25,000 a year. I’m not even counting our actual healthcare expenses like co-payments and deductibles. Healthcare has always been a huge expense to offset with investment income.

Some people try to keep their modified adjusted gross income low and use ACA subsidies, check out this KFF ACA calculator to estimate your numbers. Note that the ACA income “cliff” is set to return in 2026, meaning household incomes exceeding 400% of the Federal Poverty Level (FPL) will not be eligible for any ACA premium subsidies.

I was reading the thought piece Finance is other people when I came across an intriguing finance nugget:

Suppose you think that bitcoin will, like gold, have enduring appeal. During the reign of the Babylonian king Nebuchadnezzar, an ounce of gold purchased 350 loaves of bread according to Erb and Harvey (2013). Here we are 2,700 years later, and an ounce of gold will still get you around 350 loaves of bread. On the one hand, that’s an amazing record of retaining value. On the other, that’s a zero percent real return! If gold had merely beaten inflation by 30 basis points a year, an ounce of gold would get you a million loaves of bread today, instead of 350.

This claim was so specific, I had to dig further. So I looked up the paper by Erb and Harvey from 2013 called The Golden Dilemma. The only reference to Nebuchadnezzar was in a footnote:

Harmston (1998) mentions that in 562 B.C., during the reign of the Babylonian king Nebuchadnezzar, an ounce of gold purchased 350 loaves of bread. At the recent price of $1,600 an ounce, an ounce of gold could buy 350 loaves of bread priced at $4.57 a loaf.

This led to Gold as a Store of Value, published in November 1998 as a “research study” for the World Gold Council which states:

It is said that an ounce of gold bought 350 loaves of bread in the time of Nebuchadnezzar, king of Babylon, who died in 562 BC. The same ounce of gold still buys approximately 350 loaves of bread today. Across 2,500 years gold has in other words retained its purchasing power, relative to bread at least, and has had a real rate of return of zero.

In the end, I could not find a single piece of historical evidence support this claim. Just a lot of people repeating each other. Feels like a true factoid – an “assumption or speculation that is reported and repeated so often that it becomes accepted as fact”. Like “Humans only use 10% of their brains”.

Obviously, gold has been a store of value for a very long time, but how much money do you really want to commit to something that will end up with a zero return above inflation? Not to mention it is so volatile that it’s not a good short-term store of value. Nobody saves up for their house downpayment with gold coins.

So what’s the point of gold? I still fall back on a scenario where you want to flee quickly as society collapses around you and you want enough assets to start over somewhere else. Imagine you lived in Ukraine. It’s a form of “insurance” you can hold in your hand, and feel a bit more secure in this crazy world. I don’t think it’s completely irrational to put aside a small bit of your net worth into it. Such happy thoughts are echoed in the study:

Gold has not necessarily held its value in terms of purchasing power in times of war. This is partly because at such times the prices of other commodities, more immediately useful for the war effort, have tended to rise faster. However, gold’s liquidity, acceptability and portability are qualities that have been particularly important in times of crises such as occupation by a foreign power or collapse in a monetary system. At such times, these qualities may well be more important than gold’s rate of exchange with paper money. Given this, and gold’s role as a wealth preserver in some of the darkest periods of the twentieth century, gold has proved to be a haven on numerous occasions and in different places.

Photo by Tommaso Urli on Unsplash

Allan Roth takes a closer look at the role of fixed index annuities as part of an “efficient” portfolio, and as usual makes some great observations. The first thing about fixed index annuities is that no two are the same – the insurance companies don’t want to create a standardized product where they have to compete with each other on price. There are surrender charges, confusing indexes, caps, spreads, market value adjustments, participation rates, just to name a few. Even in the analyzed article, they had to use a theoretical FIA product that nobody can actually purchase. (Comparability is what makes MYGAs and SPIAs different than other annuities.)

The second thing about fixed index annuities is that within nearly every contract, the insurance company can significantly change the crediting rules after purchase.

From Annuity.org:

The growth of indexed annuities aligns with the performance of a particular stock index, such as the S&P 500. Interest rate caps denote the maximum amount of interest an annuity can earn — regardless of the change in the index. Insurance companies have the right to adjust these caps every year.

From Roth’s article:

Every FIA contract I’ve reviewed has the unilateral right of the insurance company to change the terms of the contract, such as lowering that 12% cap. Pfau agreed that insurance companies have that right. I asked Pfau how low those caps could go, and he responded, “As low as 1-2%.” I’ve seen 0.25%, meaning the contract owner would get between 0% and 0.25% annually. This right of the insurance company to slash returns was not mentioned in Pfau’s paper.

Here’s some fine print I just pulled off the internet for the first FIA product I could find:

The rates are guaranteed for the length of the crediting period. They are declared at issue and at the end of the crediting period. The minimum monthly cap for the monthly sum with cap crediting method is 0.50%. The minimum annual cap for the annual point-to-point with cap crediting method is 0.25%. The maximum annual spread for the annual point-to-point with spread crediting method is 12%. The minimum participation rate for the annual point-to-point with a participation rate and the 2-year MY point-to-point with a participation rate crediting methods is 5.0%. The minimum interest rate is 0.10%.

Note that the rates are only guaranteed for “the length of the crediting period” (one year is common, but can be up to 5-7 years). As of this writing, the current “annual point-to-point with cap” is 6.5% for the S&P 500 index. But in the next crediting period, they could lower it down to 0.25%. The current “annual point-to-point w/ participation rate” for the PIMCO Tactical Balanced ER Index+ is 120%. But in the next crediting period, the terms reveal they could lower it all the way down to 5%.

FIAs don’t offer easy comparison shopping that encourage consumer-friendly pricing, the index it tracks never includes dividends (that I’ve ever seen), and the insurance company keeps the power to change the return calculations after purchase. Hard pass.