Tag Archives: retirement plans

Buckle Up! The New Bear Market Has Begun!

1-5-2000-to-6_30-2014My Comments: The writer has a powerful message to send. He was right about this back in 2008 but that doesn’t mean he’s right this time. I have clients and prospective clients asking when the next downturn is going to begin. And yet there are many articles that suggest it’s still a long way off.

This week I received my copy of Investment Advisor. In it five famous advisors share their preferred asset allocation of the month. The most conservative of them has 30% in stocks, 50% in bonds with 20% in cash. The previous month he had 30% in stocks, 40% in bonds and 30% in cash. Clearly, he doesn’t think interest rates are going up soon. The other four had about 65% of their holdings in the stock market.

Another example is an investment manager whose results in 2013 were a plus 17.51%. Rather than moving away from the stocks, he is now fully invested in the stock market to the tune of 120%. (To understand how that works, you need to call or email me.)

PS – I’ve left out the charts since they do not add much to the message other than the one at the top.

Craig Brockle / May. 8, 2014

• This article reveals the convincing evidence that a new bear market has already started.
• Those who failed to sell near all-time highs in 2000 and 2007 have a chance to do it here in 2014.
• Learn the two proven, reliable assets that go up when everything else is going down.

Did you or a loved one lose money in the 2008 Financial Crisis? How about the real estate bubble bursting two years earlier? And if we go back to the turn of the millennium, there was the Dot-com Crash. Remember that one?

This article is intended to help as many people as possible avoid another devastating loss. I will explain where we appear to be in the current economic cycle, what appears to be coming next and how you can protect and grow your money like the top 1% of successful investors.

I’ve done my best to make this article understandable by everyone who reads it, whether you have previous investment knowledge or not. Investment terms, when first introduced have a link to their definition to help aid comprehension. If you see something you don’t understand, a Google search of the word + definition can help.

Before we go any further, observe what the above-mentioned financial events look like on a graph. First, we’ll look at the 2006 real estate bubble. Shown below is the past 20 years of home price data based on 10 US cities.

Up until 2006, the consensus was that real estate only goes up in value and that one’s home was a great investment. By 2009, this belief was proven to be utterly false as foreclosures and short sales became widespread.

There is a great deal of evidence that suggests the real estate market is again poised for a significant drop, but explaining that would be an article of its own. Perhaps after reading this article, you’ll agree that the next financial bear market has indeed begun. If so, you will likely conclude that owning real estate through this period will be hazardous.

Now let’s look at the overall US stock market over the past 20 years as represented by the S&P 500 index in the chart below. This shows the S&P 500 from 1994-2014. (at the top is the S&P from 2000-2014)

If a picture is worth a thousand words, I believe the above chart could be worth 30-60% of your current investment portfolio. That is if you fail to recognize the pattern that’s developed and act accordingly, you could stand to lose that much money.

It’s been over five years since the last bear market bottomed and many investors have forgotten what it was like. The following short clip from CBS 60-Minutes titled “The 401k Fallout” will remind you what average investors were experiencing at the time. Those who cannot learn from history are doomed to repeat it.

Now, let me give at least one reason why you might want to listen to me. After all, there are so many conflicting opinions and obviously not everyone can be right. I’m the first to admit that the market has a mind of its own, which no one, including myself can accurately predict at all times. That said, I went on the record in late 2007 with this YouTube video warning viewers to prepare for the upcoming market crash. That video was released the exact month the S&P 500 index peaked, after which it dropped 57%.

After the real estate bubble collapsed in 2006, it became obvious to my contrarian colleagues and me that it would have a spillover effect into the rest of the financial world. There were other telltale warning signs at that time that I’ll explain below as these signs are giving the same message today.

By October 2007, the S&P 500 index (500 largest US companies) was the focus of attention as it set a new all-time high that month. Meanwhile, the Russell 2000 index (2,000 of the smallest publicly-traded US companies) had already been in a bear market for three months, after peaking in July of that year. This is a sign of stock market exhaustion where only a smaller group of stocks continue to push higher while the overall pack falls off. You could picture this as a huge pack of companies climbing a wall. By the end of it, the overwhelming majority were already in their descent while only the biggest companies inched higher.

Today we’re seeing the exact same thing as the Russell 2000 has again been showing obvious signs of weakness, even though the S&P 500 has been revisiting its all-time highs. The Russell 2000 Index Peaked at 1,213 on March 4, 2014.

Another warning sign that a new bear market has begun is courtesy of the volatility index (VIX). In finance, volatility is a measure of the variation of stock prices over time.

Volatility, investor emotions and stock prices are all very closely related. In periods when volatility is low and investors are feeling complacent or even euphoric, we experience high stock prices. Conversely, when stock prices collapse and fear becomes widespread, we see volatility spike much higher.

Volatility measures can be a very early warning signal. For instance, in the last financial crisis, volatility began to rise seven months before the bear market in the Russell 2000 began and 10 months before the S&P 500 started its decline.

Taking a look at volatility in the current cycle, we see that it reached its lowest point on March 14, 2013. Since then volatility has been in an uptrend, setting a consistent pattern of higher lows. This time around, it has taken the Russell 2000 almost 12 months to peak, hitting its high on March 4th of this year. I suspect the S&P 500 will make at least one last push higher, at least above 1900. This would also help fool more people into believing that there’s nothing to worry about when they should actually be most concerned.

Other warning signals are currently blaring today as they did in 2007. These include stocks being extremely overpriced, selling by the most experienced investors and heavy buying by the least informed, the general public. Let’s look at each of these factors briefly.

Adam Hamilton, a contrarian colleague of mine, recently published an excellent article. In it he points out that as of this year, stocks are more overpriced than they were prior the 2008 financial crisis. In case you’re unfamiliar, the value of a stock is determined by comparing a company’s current stock price to how much profit it earns. This is referred to as a price to earnings ratio. For instance if a stock is currently priced at $10 and has earned a profit of $1 over the past year, the stock would be said to have a price to earnings ratio of 10.

Over the past 125 years, the average price to earnings ratio has been 14 for the largest 500 companies in the United States. Prior to the 2008 financial crisis, these same stocks reached peak price to earnings ratios of 23.1. As of the end of March of this year, the average price to earnings ratio for these same 500 stocks was 25.7. This indicates that even if corporate profits were to remain constant, that stock prices would need to drop 45% just to reach their historical average of 14.

Furthermore, we’ve recently seen a significant increase in insider selling of stocks combined with heaving buying by the general public. Insiders include directors and senior officers of publicly traded companies, as well as anyone that owns more than 10% of a company’s voting shares. Insiders are among the most knowledgeable and successful investors as they have such strong understanding of what’s really going on in their company and industry. When insiders are selling, it’s usually wise to take notice. Insiders are among the top 1% of successful investors and act more on logic rather than emotion.

Lastly, we have the average investor. We could refer to them as the other 99%, based on their sheer numbers. These are the least informed investors and have the worst track record. This group tends to react emotionally rather than rationally at major turning points in the market. This is evidenced by the fact that the heaviest selling of stocks by the general public occurred in the first few weeks of 2009. This was right before the last bear market transitioned into one of the strongest bull markets in history.

Recently there hasn’t just been strong buying by the general public, but they have been borrowing more money to buy stocks than they ever have. As always, knowledgeable insiders, commercial traders and contrarian investors are unloading their positions near the current all-time highs to an unsuspecting public that really should know better by now-especially after what happened in 2000 and 2007. Here we are in 2014, another seven years later and it is again time to prepare for another bear market.

While no one, including me, likes to live through difficult economic times, at least we all have a choice as to how we are affected. There are truckloads of lemons coming our way, so I think we’d best get started making lemonade. And while we’re at it, help as many other people as possible do the same.

In crisis, we find both danger and opportunity. Reportedly, there were more millionaires created during the Great Depression than any other time in American history. And that’s back when a million dollars was worth many times what it is today. A million dollars in the Great Depression would be worth over $35 million today.

So, what is one to do? How can you avoid becoming road kill and instead conquer the crash? Fortunately there are proven, reliable ways to protect and grow your money in a bear market. Below are the two best assets I know for doing so.

The first chart shows the US Treasury fund (TLT) rise as the US stock market fell. The period shown is the 2008 financial crisis. When investors panic, they sell everything they can and put their money in something they consider reliable. This is called a “flight to safety” and US Treasury bonds are considered one of the safest assets during times of trouble.

Based on the information in this article, I hope you too realize that a new bear market has begun. Volatility bottoming last year was the first warning signal. More recently we’ve seen the Russell 2000 run out of steam, corporate insiders selling and the general public buying in droves. On top of this, stocks are more overvalued today than they were at the peak in 2007.

My goal in writing this article is to help you and as many other people as possible avoid another devastating financial loss. My 2007 YouTube warning reached over one hundred thousand viewers. This time I’m hoping that millions of people are able to get this message in time. I appreciate you following me here on Seeking Alpha, leaving your comments and sharing this article with others.

Bear markets are not to be feared. In fact, they can be very profitable for those who are well prepared. Buckle up. This is going to be one heck of a ride!

Source: http://seekingalpha.com/article/2202043-buckle-up-the-new-bear-market-has-begun?ifp=0

3 Retirement Planning Essentials to Understand

retirement-exit-2My Comments: I’ve now reduced retirement years to three types of years. They are “go-go”, “slow-go” and “no-go”. Planning for them before you reach retirement is a matter of attempting to get as many $ in the pot as possbile.

After that, it’s a timing issue that is driven by health, the expected life style, and the nature of your bucket list. Plan to spend more in the “go-go” years than you will in the “slow-go” years and they dry up in the “no-go” years.

by: Rachel F. Elson / Financial Planning / Monday, June 9, 2014

HOLLYWOOD, Fla. — Longevity increases and cultural shifts have changed the way Americans plan for retirement — and advisors need to make sure they’re keeping pace.

That was the message from Lena Rizkallah, a retirement strategist at J.P. Morgan Asset Management, at the Pershing Insite conference here on Thursday.

A generation ago, said Rizkallah, the mantra was “be conservative” — whether in lifestyle or in investment decisions. “Now, though, boomers have a bucket list,” she said. “They want to retire in good condition financially but also have goals for themselves.”

That changes some of the calculus for advisors said Rizkallah, who joined Elaine Floyd, a director of retirement and life planning at Horsesmouth, for an energetic discussion of retirement planning.

Among the recommendations they made:

1. Make sure clients have a retirement plan.

“I call this the heart attack slide,” Rizkallah said, posting a chart that mapped a client’s age and current salary against retirement savings benchmarks. “It helps clients gauge where they are.”

She encouraged advisors to talk frankly about both saving rates, for those still in the workforce, and spending plans. In general, she said, spending tends to peak at age 45, then decline in all categories except health care.

But she added a big caveat: “Note that housing continues to be 40% of spending. … More people are entering retirement with a mortgage.”

2. Know the threats to a secure retirement.

Rizkallah outlined three big risks for retirees.

Outliving life expectancy. Remember, she cautioned, that as we age our life expectancy gets longer. There is now a 47% chance that one spouse in a 65-year-old couple will live to 90,” she said, pointing out that the likelihood had increased even during the last year.

Not being able to keep working. People may think they’re going to bolster their retirement plan by working longer, but not everyone can control the timing, Rizkallah said, citing such issues as poor health, family care needs, and layoffs and other workplace changes. “There is a disparity between people’s expectations and the reality,” she said, encouraging advisors to tell clients: “You want to keep working? Great. But don’t make that part of the plan.”

Facing higher costs of health care. Costs continue to rise, she pointed out, adding that there’s a lot of uncertainty around future costs. “It’s really crucial to have this conversation,” she said. “Say, ‘Because we’re seeing this, let’s talk about saving, let’s talk about diversifying.’”

3. Do the math on Social Security.

It’s critical that advisors understand — and are able to communicate to clients — the real impact of delaying Social Security benefits, Floyd told listeners.

She cited as an example a maximum earner who turns 62 this year, noting that if the client takes Social Security at 62, he or she will have collected $798,387 by age 85. But by deferring until age 70, that same client will have $1,035,653 by 85. If the client lives to 95, Floyd added, the deferral would have a more than $600,000 payoff.

Other Social Security nuances are important as well, said Floyd, who received the lion’s share of questions during the Q&A period at the end of the panel. “We are getting lots of questions about the earnings test … which suggests that people are continuing to work and filing for Social Security” — something she said clients “just shouldn’t do.”

Advisors should understand whether their clients are eligible for spousal benefits, whether and when clients can change their minds and undo a Social Security election, and how to maximize benefits for a surviving spouse. That last part gets particularly tricky given boomers’ penchant for divorce, Floyd added: “Social Security rules can get really complicated when there are multiple divorces.”

The Return of the Inflation Chupacabra

My Comments: A few weeks ago I wasted several hours exchanging replies with someone who asked “who is responsible for inflation?” My initial response was to the effect it is a “what” question and not a “who” question.

But that soon devolved into discussion about irrelevant issues that I decided meant the writer had never taken Economics 101, much less passed it. By the fourth day, it was obvious he had heard on Fox News that the Fed was evil incarnate, and he was looking for confirmation. I couldn’t give it to him.

Inflation, in moderation, is a good thing. That’s mainly because deflation to any degree means we are sliding backward into a pool from which escape is very difficult. Since equilibrium is virtually impossible given the number of people on the planet and inevitable lag times between supply and demand, some inflation is desirable. Just not too much.

posted by Jeffrey Dow Jones May 29,2014 in Cognitive Concord

The first quarter GDP was revised lower. It was the first time the economy contracted since 2011, an annualized rate of -1.0%. The market celebrated by making a new all time high!

I wrote for Pro Subscribers last month that a new high in the market would indicate that the “sideways” market we’ve had in 2014 might be coming to an end. The market did indeed break out to a new all time high and it did it quickly enough inside my expected time horizon to maintain a sense of bullishness about the market.

The funk of the first few months of a year may be wearing off. And GDP this quarter is projected to increase at a 3.5% clip.

There aren’t any major other warning signs flashing right now, either. Yes, what’s happening in small caps and certain pockets of technology might be indicative of broader volatility to come. But as I’ve written about repeatedly, as long as earnings keep growing the market is a fundamental buy.

Wait until companies start lowering earnings guidance before adopting too bearish a stance. In the meantime, let’s shift our focus to a long-forgotten topic around these parts. Inflation!

The Return of the Inflation Chupacabra

The reason why the world spends so much time speculating about Fed Policy and interest rates is that it matters to the market. If you think it doesn’t, let me ask: how would you feel about the stock market if cash paid you 3%?

Because that’s what the Fed says the overnight rate may be by 2016 or 2017.
CONTINUE-READING

How Will The Federal Reserve Raise Interest Rates?

house and pigMy Comments: There is little argument that sooner or later the Fed will start to push interest rates up. And when they do, there is going to be confusion about how fast and how far they push. This in turn will cause some volatility and timing issues on Wall Street.

But all this is part and parcel of being a democracy in a capitalistic world. It’s how you manage the movements that separates the survivors from those who will die. If you have money with me, you’ve heard me talk about this ad nauseum. But that’s what I do, so if you have more questions, you know how to find me.

(Unrelated to any of this is our recognition that 70 years ago today, many brave men landed ( and died ) in France to evict the Nazis. My father landed on Dday plus 3, with the British forces. He was in charge of the recovery of all German field equipment; tanks, guns, etc for analysis by the British Army.)

John M. Mason / May. 30, 2014

Summary
• The Federal Reserve continues to taper its security purchases.
• Within the Fed further discussions are taking place with respect to how interest rates might be raised in the future.
• The Fed has already been experimenting with the use of reverse repurchase agreements as a tool to smooth the transition to a “more normal” functioning of the banking system.

This is a question that Robin Harding briefly examines in the Financial Times. The concern is growing… and will continue to grow in the coming months.

As reported in the article, the Fed “debated these tools at its April meeting and instructed the New York Fed to step up tests on a range of experimental facilities.”

The Federal Reserve is looking at “tools” to raise interest rates because the financial markets are not experiencing enough demand for funds relative to the supply of funds to warrant increases in interest rates.

Although the effective Federal Funds rate, the interest rate the Fed targets for executing monetary policy, has been as high as 20 basis points during the time the central bank has been exercising its efforts of Quantitative Easing, over the past year the effective Federal Funds rate has fluctuated around 10 basis points.

On May 28, 2013 the effective Federal Funds rate was 9 basis points and on May 28, 2014 the effective Federal Funds rate was 9 basis points. In between the rate got as high as 12 basis points and as low as 6 basis points, but it never got outside of this range.

There is essentially no demand pressure on the effective Federal Funds rate to rise. Usually at this time in the business cycle, almost five years and counting, the demand pressure in the market is causing money market interest rates to rise.

Not this time! And, why should interest rates rise? The commercial banking system has almost $2.7 trillion in excess reserves, on which reserves member banks are receiving a risk-free 25 basis points. Certainly better than making risky business loans or risky mortgage loans where the spread the banks earn are not a whole lot better than this 25 basis points. Plus, the banks don’t have to put up with the criticism of regulators about the loans that they are making.

So why should the commercial banks be lending?
The point of the Harding article seems to be that if short-term interest rates are going to rise in this extremely weak business recovery, it is going to have to be the Federal Reserve that causes the interest rates to rise.

Not a lot is going to happen, however, in the current environment as the Federal Reserve continues to “taper” its monthly purchases.

Over the last four-week period ending May 28, 2014, the Federal Reserve added a “net” $35.7 billion to its securities holdings. This is consistent with what it said it was going to be doing.

This increase is “small potatoes” compared with the “net” acquisitions over the past 52-week period, which was almost $950 billion.

One should note that this “net” amount of new securities added to the Fed’s portfolio was a little greater than the whole Fed balance sheet before the financial crises began.

But the Fed, over the past year, has been practicing its “exit” moves in the repo market. Harding reports that the most practical method of raising the effective Federal Funds rate is what it calls the “Overnight Fixed-Rate Reverse Repurchase facility”…or, ON RPP.

Well, as I have reported over the past four months, the Fed has been executing Reverse Repurchase Agreements. One must be careful with this title because the reverse repurchase agreements must be interpreted from the side of the government securities dealer and not from the side of the Federal Reserve.

The Federal Reserve is selling securities to a government securities dealer under an agreement to repurchase the securities at a given future date under a set price. By selling the securities the Federal Reserve “reduces” bank reserve balances.
The objective of these “reverse repos” is to reduce the bank reserves that are in the banking system and this could cause interest rates to rise.

At the close of business on May 28, the Federal Reserve had over $170.0 billion in reverse repurchase agreements on its balance sheet. On May 29, 2013, the Fed did not show any reverse repurchase agreements on its balance sheet. Over the past 13-week period the Fed added slightly more than $40.0 billion in reverse repos to its balance sheet so it is obvious that this exercise has been going on for a fairly lengthy time.

In terms of what is happening in the monetary statistics, the same old story applies that I have been reporting over the past four years. Demand deposits at commercial banks are continuing to rise at a fairly rapid rate — they are up almost 16.0 percent from last year but this increase in demand deposits is not coming from lending activity in the commercial banking system.

The major reason that demand deposits are increasing so rapidly is that individuals and businesses are still transferring funds for low-yielding short-term assets into demand deposits. As I have argued before, this is not a sign of strength in the economy, but an indication of the weakness that still exists. Of course, people and businesses are receiving next-to-nothing in interest rates on their “savings” but it is also true that because of the sorry economic state of so many economic units, these economic units want to keep their funds ready for spending, so they keep moving funds to “transactions” accounts.

Furthermore, the rate of increase in currency holdings continues to be historically high. Year-over-year, the rate of growth in currency in the hands of the public is almost 8.0 percent.

Small deposits at commercial banks and thrifts are down, year-over-year, at a 12.0 percent rate. The growth in retail money funds is basically non-existent for the past year and the growth in money in institutional money funds is down for the year.

So, “tapering” continues and officials at the Federal Reserve wonder how they are going to raise interest rates in the future when the time is right. And there still is the major question of what the Federal Reserve is going to do with the $2.7 trillion excess reserves in the banking system.

The answers to all these questions are crucial to the future of the United States economy. That is why it is important to keep a close watch on what the Federal Reserve is doing… and what its officials are thinking. Again, we are in completely new territory.

Be Flexible On 4% Rule

retirement_roadMy Comments: Increasingly, I find myself working with older clients. After all, I’m an older advisor. From time to time there is a question of how fast you should decumulate your nest egg(s). (I’m not sure if “decumulate” is an approved word, but the intent is to convey the opposite of accumulate.)

The rule of thumb has been to restrict withdrawals to 4% annually to help insure the money will last until you die. Only no one is willing to tell me when they will die. From my perspective as an advisor, I try to find common ground with a client so that in their mind we have reached a reasonable conclusion. It might be 3% or it might be 6%, leaving 4% somewhere in netherland.

May 21, 2014 • Debbie Carlson

Although many advisors have used the 4 Percent Rule for determining clients’ retirement withdrawals, there are times to break it, says J.P. Morgan Asset Management’s chief retirement strategist.

After taking account of longevity, health, investment returns, income and other factors, financial advisors need to talk to their clients about what makes their retired clients happy, said Katherine Roy, executive director of individual retirement at J.P. Morgan Asset Management.

Rather than looking at how much money can be withdrawn from portfolios and then adjusting spending, she said, financial advisors should run simulations to determine how much money clients can spend based on their risk profile and projected investment returns. Retirees should be able to enjoy the early years of their retirement when they are more active but still have enough money for their later years when health-care costs start to rise, she said.

In other words, if an active retiree couple wants to take their family to Europe, they should do that while they are healthy enough to enjoy the time and not worry about making a future trade off. By talking with their clients about their portfolio income and projected returns, financial advisors can guide spending decisions to maximize happiness in retirement and avoid the fear of running out of money at an older age. What she’s concerned about is clients regretting not having enjoyed their golden years, she said.

Roy spoke at the HighTower Apex 2014 conference in Chicago Tuesday and presented J.P. Morgan Funds’ 2014 Guide to Retirement, released earlier this year.

She broke down retirement spending into three categories, “go-go,” “slow-go” and “no-go,” a concept popularized by Michael Stein, CFA, in his book, The Prosperous Retirement, Guide to the New Reality. The concept suggests that in the “go-go” stage, usually the first 10 years of retirement, retirees spend more on travel and other luxuries. In the “slow-go” years, clients stay home more and spending less on luxuries, while in the “no-go” years, they may do even less but spend more on health-care costs.

She said she spoke to Stein, who is now retired, and he told her his own retirement trajectory has fallen into these categories. “But he said if he could go back and write his book, he would add that it doesn’t matter how much money you have, but that you must be happy,” she said.

Thus, she said, taking a dynamic approach to retirement planning is critical for financial advisors and their clients, rather than advisors sticking to the 4 Percent Rule, which basically sets the total withdrawal in the first year of retirement at roughly 4 percent of a client’s portfolio and in every subsequent year that initial amount is adjusted for inflation. In a more dynamic approach, advisors may adjust client’s spending annually so that they spend less when portfolio returns are lower and may spend more when returns are higher.

Roy said one way financial advisors can map out spending in retirement is to make health-care costs their own line item. Health-care costs rise toward the end of a person’s life and have higher inflation than other expenses. By making health care its own category, it will help clients understand what they have available for other living expenses.

What’s critical to making this dynamic approach work, versus sticking to the 4 Percent Rule, is that financial advisors meet at least annually to update the client’s goals, age, portfolio size, market assumptions and other factors.

“It’s important to have discussions with clients, rather than (relying on) just a rule of thumb,” Roy said.

7 Retirement Planning Risks You May Not Have Considered

retirement-exit-2My Comments: We wonder sometimes why the media is so consumed with bad news; it’s hard to find items that make you feel good.

Unfortunately, I herewith add another element of negativity to the days actvity. On the other hand, knowing about these seven may help you avoid them which is a good thing. Does that help?

By Adam Cufr / May 12, 2014

The American College’s RICP® curriculum includes a list of 27 risks that retirees face. 27! I discuss this list regularly with clients to help them understand how important this phase of their planning is, and also to pinpoint a few risks that are incredibly important but often overlooked.

Beyond basics like market risk and interest rate risk, here are a few that you may find valuable:

Longevity risk – Medical advances are leading to longer lifespans. This is probably no surprise to you, but I would like you to consider a new twist on this growing challenge. When retirees live longer lives, not only do they run a greater risk of depleting their assets, they can lose perspective about time itself. This can have a significant impact in the realm of behavioral economics. Specifically, the decisions they make early in retirement may not have immediate consequences. A bad choice in the first year of retirement may not show its effects in year two.

But over many years, the outcomes of their decisions compound, either positively or negatively.
A lifestyle choice can feel good for a few years but cause significant harm as the years pass. Therefore, the risk of living long in retirement needs to be considered in more ways than just asset allocation.

Overspending on a new home in a tennis community hundreds of miles from family feels great until one spouse is confined to a wheelchair without extended family nearby to lend a helping hand.

Frailty risk – Are you a practitioner of the systematic withdrawal income planning strategy? When administered correctly, this requires an annual (or more frequent) adjustment of the client’s spending to reflect the safe withdrawal rate their portfolio can support. What happens when the client ages, slows down, and is unable to respond to phone calls or visit you in your office to make those adjustments? Worse yet, what if they lose their decision-making abilities altogether? Their need for income and care hasn’t diminished, but they’re unable to work closely with you.

This risk of the client’s age-related frailty can have meaningful consequences for your ability to serve their needs if you have chosen a complex income strategy for them. This may warrant a discussion about guaranteed income strategies that will help provide needed income, even when the client isn’t as healthy as they were when they began their income plan.

Forced retirement risk – Your client plans to work until age 66 in order to reach full retirement age with Social Security benefits. Unfortunately, a personal health issue forces them to retire at 61. Are they financially prepared to support the lifestyle to which they’ve grown accustomed? How will you adjust their planning to respond to this change? Are their assets positioned in such a way that they have adequate liquidity to meet their needs or will they be forced to tap into assets at a cost to them?

A big emergency fund may not generate attractive yields, but the peace of mind it provides can help turn an unexpected retirement into a blessing.

Loss of spouse risk – What happens to the family income when a death occurs? Oftentimes, you’ll hear that retirees don’t need life insurance. After all, they have enough assets to retire, so they’re self-insured, right? Not so fast. It is imperative to evaluate survivor benefits in pensions and Social Security.

What may feel like a comfortable retirement can become downright terrifying upon the death of a spouse. Income sources are often halved, yet lifestyle costs for the widow remain very similar to those of a couple.

Widows may need to pay for home maintenance that was once done by their spouse. Travel costs can increase because of trips to visit family located across the country. The last thing a widow needs to be concerned with is where to get income after the death of her spouse. By asking a few simple questions when times are good, we can insure them against a disappointing finish to a race well run.

Legacy risk – Retirement income planning is all about balance. Balancing often competing interests is the name of the game. One example is that of legacy risk. Case-in-point: Your client wants to maximize her retirement income and wishes to leave assets for her children and grandchildren as a legacy. Meanwhile, she would like to avoid all market risk and have abundant flexibility and access to cash for unforeseen emergencies. In this example, building a maximumincome plan using guaranteed annuities will most likely eliminate any meaningful financial legacy or bequest for her family.

While the annuities may maximize her income, they will likely be exhausted upon her death, leaving nothing behind. This may be fine if she has a home and other non-financial assets that will become part of her legacy. The risk here is that her wishes are not well-documented and provided for in her planning.

Health care expense risk – It’s no mystery that health care is on the minds of aspiring retirees. How can we plan for this risk when we cannot accurately quantify the cost? Reduce the variables. As in a mathematical equation, too many unknowns create an unsolvable problem. In retirement planning, too many variables can prevent us and our clients from adequately addressing any particular concern. The result is a swirling storm of questions and partial answers.

Rather than questioning whether your client can afford to pay more for health care during retirement, have them track their spending for a month or two. Learn how much money is going out each month to maintain their chosen lifestyle. Compare that to known income sources like Social Security, pensions, income available from their investment portfolio, etc. Once you know their true lifestyle costs and income, you can discover how much is truly excess or discretionary.

This may provide more wiggle room to account for rising health care costs. By isolating this variable, you can perform true risk assessment for them and move toward greater clarity.

Long-term care risk – For people age 65 or older, there is a 40 percent chance they will step foot into a nursing home during their lifetime. This risk is not new to most advisors. What’s interesting is how much this risk affects their retirement income later in retirement. Some refer to this retirement spending curve as the “retirement smile.”

The most damaging inflationary force for the retiree is long-term care expense. We have so many tools at our disposal compared to 10 years ago, that it’s a shame to not be well-versed in this planning area. As longevity continues to increase, more and more of our retired clients will qualify to receive income from a long-term care qualifying financial product. Why not address long-term care risk for your client with leveraged and tax-advantaged dollars in the form of traditional or hybrid long-term care products.

Investors’ Next Disappointment Will Come From Risk Mismanagement

080519_USEconomy1My Comments: Reader of this blog know that I try to include meaningful comments about investments and investment outcomes. Over the years, I’ve done well for some clients and done poorly for others. And while the past is history, there are always lessons to be learned. I have a personal mandate to try and do better in the coming months and years.

Here are some really good insights that I think will help you. Mistakes are part of the game, whether you prefer to make your own mistakes or hire someone to make them for you. I’ve you’ve hired me, you know that we’re on a really solid track these days and the future looks really good.

John S. Tobey / 3/29/2014

Risk mismanagement is everywhere. Many investors (individual and professional), investment advisors and even Wall Street are guilty of overstating, underweighting or misunderstanding risk. As a result, portfolios are being designed to disappoint. Worse, we have finally reached the best of times for investing, only to have investors’ prospects mucked up by bad investment decisions.

Disclosure: Fully invested in stocks, stock funds and bond funds. No position in Oppenheimer Holdings, mentioned below.

So, what’s wrong? There are three basic mistakes being made:
1. Overstating risk and investing for the next catastrophe. Here, protection from risk is taking priority. The focus is on what could go wrong. The result? Invest for protection, avoiding or hedging (watering down) equity risk/return and holding “safe” investments.
2. Understating risk and investing for top return. This attitude is a return of the performance chaser, looking for more return and less risk. The mistake is buying into a trend that happens to be exhibiting those characteristics, thereby underestimating risk.
3. Misunderstanding risk and investing inappropriately. There are many types of risk at work. Understanding them and how they relate to the investor’s situation is imperative for investing appropriately. Too often, a risk measure is chosen that over- or under-emphasizes an investment’s risk (e.g., a high or low price/earnings ratio for a stock).

How to avoid the mistakes

First, realize risk is everywhere. OppenheimerFunds has a current ad, headlined “Taking risks is not the same as using risk.” It makes the key point about investing: All investments carry risk, so make sure to carry (use) risk for your benefit, not simply accept it as a cost of owning a desired investment. (Even cash carries risk – the loss of purchasing power through inflation – so an investor must choose which risks are acceptable and in what combination.)

Second, realize you can’t have it all. As a new stockbroker in the 1960s, I was given a sales kit that included the golden triangle. It depicts investing’s tradeoffs that exist in all markets – i.e., within the triangle below, we must pick our desired point. There is no ducking the fact that investing is the ultimate compromise – that we cannot have our cake and eat it, too. (Interestingly, Oppenheimer has brought this message back in its aptly-named website, GrowthIncomeProtection.com.)

Third, start with the basic allocation and work from there. The long-held, rule-of-thumb allocation is 60% stocks (equities) and 40% bonds (fixed-income). This mix provides the most oomph (return) per unit of risk. That doesn’t mean it should be every investor’s choice, but it is the perfect place to start. Varying from it has consequences that need to be understood and accepted.

Fourth, control that risk over time.
Controlling a portfolio’s risk means taking two actions:
1. Rebalance as needed. Different investments will follow different paths. The resulting performance differences reset the portfolio’s risk, so it’s important to periodically rebalance back to the desired allocation and risk level.
2. Monitor the chosen investments. Changes happen to funds and companies, so it’s important to ensure the reasons for choosing them remain in place. If not, they should be replaced.

Fifth, check performance infrequently and do not use it to change allocation. It’s a proven fact that more frequent checking makes risk look greater and trends look longer. Both erroneous perceptions can lead to equally erroneous portfolio allocation changes that adversely affect risk and return. If the portfolio has been designed appropriately, expect to keep the allocation unaltered. Only a change in personal circumstances might require an allocation change.

Sixth, avoid all combination investments unless you fully understand and need them. Wall Street is filled with combination investment “products.” While some have a financial purpose (e.g., convertible bonds and mortgage pass-through bonds), some are designed more for investors’ desires (e.g., leveraged funds and stock + written call funds). Options, by themselves, are also a combined investment. All of these investments have odd risk-return characteristics that need to be understood. Otherwise, investors can see win-win where none exists.

The bottom line
Happily, we are now in a normal market environment. That does not mean everything is headed up and there is no uncertainty – that would be an abnormal market. Rather, it means we can rely on time-tested investment wisdom to design our investment approach. Starting with the basic 60%/40% mix, we can fashion a portfolio that best fits our needs, ignoring today’s headlines and any left over Great Recession worries.

Another risk, not discussed above
The academics refer to it as “specific” risk. It’s the uncertainty attached to an individual investment (e.g., a favorite stock), a non-diversified portfolio (e.g., a biotechnology fund) and an investment strategy (e.g., a small-cap growth fund). Selecting successfully can increase return, but picking poorly can reduce return. Because so many experienced investors are actively involved, Warren Buffett offered his advice to buy a broad index fund and leave the stock picking to others.

Social Security Tips: How to Use File & Suspend

SSA-image-2My Comments: I offer great thanks to the author of the following article, Michael Kitces. You’ll find his credits at the end of this post.

This will take a little time to read and understand. But if you are getting ready to file for Social Security benefits, or are just now starting to think about when and how to file, you need to read this and develop at least a basic understanding.

As part of our efforts at Florida Wealth Advisors, we will provide you with a no-cost analysis and report that creates a timeline to help you maximize your benefits over time. The two caveats are (1) we have no idea when you are going to die and (2) we make no assumptions about cost of living increases each year.

Getting it right is important. There are 97 months for you to choose from when it comes to filing for benefits. The difference between the best one and the worst one can be as much as several hundred thousand dollars over your lifetime. Doesn’t it make sense to ask us for one of these reports?

by: Michael Kitces / Monday, March 24, 2014

An especially popular strategy for maximizing Social Security benefits is to utilize the file-and-suspend rules. These permit an individual to file for benefits but suspend them immediately, allowing delayed retirement credits to be earned while letting the spouse begin spousal benefits simultaneously. They can even be used to activate family benefits for young children.

Yet the file-and-suspend strategy is not just an effective planning tool for couples and families with minor children. Since benefits that have been suspended voluntarily can be reinstated later, even singles may wish to routinely file-and-suspend if they intend to delay anyway, as a way to hedge against a future change in circumstances.
At the same time, there are caveats to the file-and-suspend strategy, as well: Suspending will put all benefits on hold (which limits couples from crisscrossing spousal benefits by having each file and suspend); filing and suspending also triggers the onset of Medicare Part A benefits, making a client ineligible to make any more contributions to a health savings account.

UNDERSTANDING THE RULES

The basic concept of file-and-suspend is straightforward: A client files for retirement benefits (triggering all the rules that normally apply), but then suspends the benefits without receiving any payments (allowing the client to earn delayed retirement credits that increase the future benefit by 8% of the individual’s primary insurance amount). The strategy’s primary purpose: By filing for benefits, the client can render a spouse eligible for spousal benefits (only available once the primary worker has applied for retirement benefits), while still earning delayed retirement credits.
• Example 1: A 66-year-old man eligible for a $1,500-a-month benefit chooses to file-and-suspend, letting his 66-year-old wife begin a $750-a-month spousal benefit. The husband continues to accrue 8% a year delayed retirement credits on his monthly $1,500, which by age 70 rises to $1,980 a month, plus cost-of-living adjustments.

Notably, the ability to suspend benefits is available only to those who have reached full retirement age (66 years old for those born between 1943 and 1954; up to 67 for those born in 1960 or later). If benefits are filed early, the election generally cannot be undone (though clients can change their mind within 12 months of the first filing).

Even if benefits were filed early, they can still be suspended going forward once full retirement age is reached. This will not undo the reduction that applies for taking benefits early, though it can almost fully offset the original reduction as delayed retirement credits are earned.
• Example 2: A 66-year-old woman eligible for a $1,000 monthly benefit filed for benefits early at age 62, reducing benefits by 25% to $750 a month. If she now chooses to suspend benefits, she can begin to earn 8% a year delayed retirement credits for the next four years, ultimately increasing the benefit by 32%, back up to $990 a month. (Ongoing cost-of-living adjustments would also be applied along the way.)

While the file-and-suspend strategy is often explained as a loophole to maximize benefits, it actually was a provision added to the Social Security system in 2000, under the Senior Citizens’ Freedom to Work Act, to allow for the associated planning strategies (especially for couples’ benefits).

FILE-AND-SUSPEND FOR COUPLES
As noted in example 1, the primary purpose of the file-and-suspend strategy is for married couples to better coordinate the claiming of individual and spousal benefits – in particular, for one spouse to claim spousal benefits while the other continues to defer individual retirement benefits to accrue the credits. Otherwise, both members of the couple could face benefit delays. If the husband in example 1 had chosen to delay benefits without going through the file-and-suspend strategy, for instance, both he and his wife would have had to wait until he reached age 70 for retirement benefits.

File-and-suspend may be relevant even in situations where both spouses have their own benefits, but each wishes to delay. By adopting the file-and-suspend strategy, one spouse can claim benefits while both generate delayed retirement credits.
• Example 3: Both members of a couple are 66; the wife is eligible for $1,600 a month in benefits and the husband for $1,300 a month. Both are very healthy and wish to hedge against the risk that they could live well into their 90s, so both want to wait and earn delayed retirement credits. If the wife goes through the file-and-suspend process, then the husband can file a restricted application for just spousal benefits while delaying his own individual benefits. The husband gets $800 a month in spousal benefits based on his wife’s record, then can switch to his own $1,300 monthly individual benefit in the future (and earn 8% a year in delayed retirement credits while he waits). And because she filed and suspended, she also earns 8% a year delayed retirement credits on her benefit.

Another benefit of the file-and-suspend rules is that by filing, the primary worker not only activates eligibility for a spouse to claim spousal benefits, but also for dependent benefits to be paid on behalf of minor children as well (albeit subject to the maximum family benefit limitations).

RULES FOR INDIVIDUALS

While the file-and-suspend rule primarily helps married couples, the strategy also allows individuals who started benefits early to change their mind, suspend benefits and begin to earn delayed retirement credits.

There is another file-and-suspend planning opportunity as well. Under Social Security rules, those who are full retirement age can file for retroactive benefits, but only as far back as six months (resulting in a lump-sum payment of prior benefits). An individual who is 66 1/2 can retroactively file for benefits back to age 66, receiving makeup payments for the prior six months; at age 68, the payments can only go back to age 67 1/2.

Yet if the individual files-and-suspends at full retirement age, a subsequent filing for retroactive benefits goes all the way back to the date of the file-and-suspend. Under Social Security rules, there’s a difference between the standard filing for retroactive benefits and a request to reinstate voluntarily suspended benefits. To preserve flexibility, a client who plans to delay benefits may want to file-and-suspend rather than simply waiting.
• Example 4: A single 66-year-old woman is eligible for a $1,600 monthly retirement benefit. Because she’s in good health, she plans to delay her benefits until 70 to earn delayed retirement credits. But at 68, her health takes a significant turn for the worse and she believes she may not live much longer. Realizing there’s no longer a reason to delay her Social Security benefits, she applies immediately – and retroactively – but at best she can only get benefits going back to age 67 1/2.

If the same woman had filed and suspended at 66, then when she got the unfortunate health news, she would be able to reinstate her benefits all the way back to age 66 – giving her a lump-sum payment for 24 months, rather than just six.

Alternatively, if the woman stayed healthy after doing file-and-suspend, she could still delay her benefits to age 70.

CAVEATS TO THE STRATEGY
There are a few caveats to the strategy. First, remember that the request to suspend benefits will suspend all benefits, barring couples from crisscrossing spousal benefits.

The act of filing also makes the client eligible for Medicare Part A. In fact, because enrollment is automatic for anyone older than 65 who applies for Social Security benefits, clients can’t opt out of Medicare Part A even if they want to.

Automatic enrollment in Medicare Part A isn’t necessarily problematic – at worst, it’s duplicated coverage, but doesn’t have separate premiums or cost like Medicare Part B. However, it renders a client ineligible to contribute to a health savings account. For clients with a high-deductible health plan, file-and-suspend will render them ineligible to make new contributions.

Beyond these caveats, the file-and-suspend strategy provides a great deal of flexibility, a lot of opportunity to maximize Social Security benefits and the ability to hedge the risk of delaying benefits with the potential to reinstate the voluntarily suspended benefits in the future.

Michael Kitces, CFP, is a partner and director of research at Pinnacle Advisory Group in Columbia, Md., and publisher of the planning industry blog Nerd’s Eye View. Follow him on Twitter at @MichaelKitces.

12 Steps to a Blissful Retirement

retirement_roadMy Comments: Monday morning, the sun is shining, and perhaps an exciting week ahead. Only I tried retirement, and it was not blissful (billsful maybe). So I’m back working full time, knowing that what used to take me an hour to accomplish, now takes at least two.

That being said, whenever I see a list presented about something in which I have an interest, I tend to read it. I suspect that may also be true for some of you. Or at least it will be when you have enough years under your belt.

By Paul Merriman / Jan. 29, 2014

OK, maybe “blissful” is a bit too strong to be realistic as an image describing retirement. But some of the smartest people I know have figured out how to make this stage of their lives very satisfying and rewarding.

This article isn’t about money. I would be the last person to play down the importance of having adequate financial resources when you retire. But no matter how much — or how little — money you have, the quality of your life will be determined mostly by what you do with your time, energy and opportunities.

I’ve had the good fortune to know lots of very smart people, and they taught me a lot about how to live well. Here are some pearls of that wisdom:

1. What I just said
Happiness in later life isn’t a direct function of how much money you have. This is no surprise to the smartest people I know. To a large extent, your happiness depends on your attitudes, your behavior and your choices. This is equally true before you retire, but sometimes it becomes more obvious after you stop working.

2. You won’t stand out if you wait to be told what to do
The happiest people I know cultivate habits and follow rules that others don’t. Want examples? Look closely at the people in your life that you most admire. What do they do that you don’t?

3. Smart people know what makes them tick
They’ve found whatever it is that’s likely to make them want to get up in the morning — and they make sure their daily life has some of that special something. Want examples? Again look around at the people you know who are actively embracing life.

4. Have fun
The smartest retirees I know make a point to have fun every day. Here’s an interesting thing about fun: It isn’t the activity itself. What’s fun to one person (golf?) may be drudgery — or worse — to somebody else. If you pay attention, you may notice that what makes something “fun” is often an attitude of playfulness, mischief, creativity, surprise. Try to pay attention to what’s going on when you’re having fun. Chances are you will find that you’re focused instead of scattered, loose instead of uptight.

5. Search for balance
Smart retirees look for a balance of taking it easy and working on things that matter to them. The right balance between relaxation and activity won’t be the same for you as it will be for your friends, and it will undoubtedly evolve over time. The key point is to find it and maintain it.

6. Have a mission
The happiest retirees have at least one driving force or mission in their lives. It can be as complex and demanding as running an organization or as seemingly simple as mastering a craft or fulfilling a family obligation. You will know you have found this special something when, every time you do certain things, you just feel good about yourself and you’re glad to be alive. For many people, this leads naturally to my next point.

7. Find something you can do for others
Whether you realize it or not, you have something valuable to give somebody. If you figure out what that is, and if you actually give it, I am pretty certain that a couple of things will result. First, the world will be a little bit better place because of you; second, your life will be richer and more satisfying. In the words of an old country song , “He who’d walk a mile just to hold an empty hand, knows what it means to be a wealthy man.”

If you have an entrepreneurial bent, look around in your community and see what needs fixing. Then figure out whether or not you can get it fixed. If you are looking for a worthwhile established charitable or other nonprofit organization, I think a great place to start is at greatnonprofits.org .

8. Combine passion (No. 6 above) with generosity (No. 7)
When you find something that gets you out of bed in the morning with a spring in your step AND it’s something you regard as really worthwhile in some way, you have truly found your calling. If anything deserves to be called a home run in retirement, this is it.

9. Surround yourself with people you love and who love you
As I wrote last winter, the quality of your life will be shaped by the quality of people in your life. Cultivate friendships with young people, and try to learn from each of them. Many studies have found that having a close group of family and friends is strongly correlated with health and happiness in retirement.

10. Don’t wait too long to do the most important things on your bucket list
We’ve all known retirees whose health or other circumstances prevented them from doing things they had so eagerly anticipated. If travel is a high priority for you, as it is for so many people, do it in the early years of your retirement, while you are physically able.

11. If you are a grandparent, be a good one
Spoil your grandkids. Love them. Teach them. Learn from them. Introduce them to people, experiences and places they wouldn’t know otherwise. Remember that they will learn most just from the example you set. It’s highly likely that even decades after you are gone they will still remember some of the things you said and did. There are many books on grandparenting. One that I particularly like, by Janet M. Steele, is Great Ideas For Grandparents: How to have fun with your grandchildren and promote positive family relationships .

12. Keep your mate happy
If you are married or in a primary relationship, keep your spouse or partner happy. Some of the smartest people I know express that commitment by regularly telling their spouses: “You should have what you want.” Obviously you cannot give your spouse the world. But you can seriously adopt this attitude. As one of my friends likes to say, “Life works best when my sweetie is happy.”

You may not need any guidance other than that. But if you want specific ideas, here’s an article that suggests 50 ways to please a wife and here’s one written for women on 50 ways to please a husband.

There is much more that could be said about living well after retirement. You can find a lot of it in a book I like: The Joy of Not Working: A Book for the Retired, Unemployed and Overworked- 21st Century Edition by Ernie J. Zelinski.

Click HERE for the source article and all the links.

The Affordable Care Act’s Most Important Date: Not What You Think

My Comments: You already know my opinions about the PPACA and how it will morph over the next ten years. Here’s another element that will focus people’s attention as contrasts start to appear between states that are willing to participate and those that do not. Since Florida has chosen to NOT participate in the Medicaid component of the law, where will the money come from to take care of Florida citizens?

Personally, I don’t see why I have to see my tax dollars carry the full burden. Because they are, when you understand that non-insured people are being cared for. We’ve not yet reached the point of simply letting people die. Even though hospitals and physicians are paying up front for their care, the financial burden is reflected in higher than necessary prices across the board. Which you and I are paying.

by Charles Ornstein, ProPublica.

Many people have asked when we’ll know if the Affordable Care Act is a success or failure.

Was it October 1, the date of the federal health insurance marketplace’s problem-filled launch? Or was it the end of November, when Healthcare.gov was supposed to be fixed?

Is it December 15, the last day consumers can enroll (since extended) for coverage that begins on January 1? Or March 31, when the enrollment period for buying insurance for 2014 closes?

In my mind, there is a different date that will have far more bearing on the number of people covered under the law. It’s June 28, 2012, the date the U.S. Supreme Court ruled on the act’s constitutionality.

What most people remember about the high court’s decision is that it upheld the core of the law: an individual mandate that requires practically everyone to buy health insurance or pay a penalty.

But the most consequential part of the ruling, which got less attention at the time, gave states discretion over whether to expand their Medicaid programs for the poor.

The law originally called for each state to expand Medicaid to people making less than 138 percent of the federal poverty level (now $15,856 for a household of one or $32,499 for a household of four). But the court said states could refuse to go along and not risk losing the federal government’s contribution to their Medicaid programs.

Why is this so important? Because about half the states have refused the expansion (or haven’t approved it yet), putting Medicaid out of reach for millions of their residents. Those states include Texas, Florida and almost all of the south. Here’s a map of what each state is doing.

ACA by stateWe’re seeing Medicaid’s importance play out as consumers sign up for health coverage through the health insurance marketplaces. In fact, far more are enrolling in Medicaid than in private health plans. Consider this report Monday from The Wall Street Journal:
In Washington state, one of the states that operates its own exchange, 87% of the 35,528 people who had enrolled in new insurance plans from Oct. 1 to Oct. 21 were joining Medicaid plans, according to state figures. By Thursday, 21,342 Kentuckians had newly enrolled in Medicaid, or 82% of total enrollees. In New York, about 64% of the 37,030 people who have finished enrolling were in Medicaid.

Some states like Maryland, Washington and California are using aggressive outreach to get people into Medicaid, including contacting those who are already on other programs such as food stamps, said Matt Salo, executive director of the National Association of Medicaid Directors.

“When you actively go out and aggressively target people, they sign up,” he said.

It’s easy to understand why. Medicaid is free; private health plans may not be (depending on the subsidy a person qualifies for). Medicaid is relatively easy to sign up for; the private plans, not so much.

But in states that refused to expand Medicaid, millions of consumers are ineligible for this health coverage.

The Kaiser Family Foundation has an interesting policy paper showing the consequences of these decisions.

Igor Volsky at ThinkProgress has a good roundup of this issue, as does Dan Diamond at The Advisory Board. Diamond has done a great job chronicling the states and their Medicaid expansion decisions.

For states, the decision to expand Medicaid seems like a good deal. The federal government has agreed to pick up 100 percent of the cost for the first three years, and its support will phase down to 90 percent. Governors who reject the aid say they don’t trust the federal government will keep its word; they believe health costs are unsustainable, and they don’t believe their states will have enough money to pay their share in the future.

So what’s going to happen? Health care organizations and consumer advocates are hoping that some states will reconsider and sign on for the expansion, as Ohio did last week, giving coverage to about 275,000 people. But some officials, including North Carolina‘s governor, are holding firm against it.

Will that stance hold firm as millions of people in neighboring states receive coverage? If the start of Medicaid is any guide, the answer is likely no.

That said, it took 17 years for the last holdout, Arizona, to sign on. In 1982.