Tag Archives: Alachua County

Are You Ready to Take Social Security Benefits?

My Comments: Today is Tuesday so today I talk about Social Security. These comments by Dan Caplinger may be old news, but for those of you just starting to think about retirement, know that Social Security is a fundamental income component for millions of people.

Chances are, you’ll be in that group. The sooner you get your arms around this idea, the happier you will be.

by Dan Caplinger on Sep 17, 2017

There are some things you need to be aware of before you file for retirement benefits from Social Security.

Social Security helps support tens of millions of Americans in retirement. Because of how important Social Security benefits are, you can’t afford to make any mistakes about how the program works and how you can get the most out of it that you can. In particular, these must-know facts about Social Security are often misunderstood, leading to critical errors that can result in getting lower benefits than you’re entitled to receive.

1. Social Security payments vary depending on when you take them

Most people understand that you can claim your Social Security as early as 62 or as late as 70, and when you claim can have an impact on how much money you get. Yet even though the mechanics are simple, many people don’t understand them. For starters, know that your “primary insurance amount” is the monthly benefit you’re entitled to receive if you claim Social Security at your full retirement age, which for those retiring now tends to be between 66 and 67. The Social Security Administration calculates your PIA based on your lifetime earnings and the year of your birth.

If you claim benefits early, then you lose a certain percentage of your PIA based on how early you claim. Up to 36 months early, you’ll lose 5% of your benefits for every nine months that you’re early, while shorter periods result in pro-rated decreases. If you claim more than 36 months early, then you’ll lose an additional 5% for every 12 months that you’re early in claiming them. That makes the maximum possible benefit reduction 35% (for those whose full retirement age is 67 and who claim at 62).

Those who claim their own retirement benefits late get a bonus of 2% for every three months that they wait beyond their full retirement age. That comes to a maximum bonus of 32% (for those whose full retirement age is 66 and who claim at 70). These bonuses aren’t available for spousal benefits but only for benefits paid on your own record. By understanding these provisions, you’ll be better able to calculate the impact of various options on your finances.

2. Your claiming decision can affect benefits for your entire family

Your family members may be entitled to Social Security based on your work history under certain circumstances. This is most common for spouses: If you’re married, your spouse may be eligible to receive up to 50% of your primary insurance amount as a spousal benefit. However, other family members, such as children or parents, may also be entitled to benefits.

In order for these family members to claim their benefits, you usually must file for and receive your own retirement benefits. In the past, alternative strategies allowed workers to file for benefits but then suspend them, opening the door to spousal and family benefits while letting the worker put off their benefits and thereby earn delayed-retirement credits. With the repeal of the file-and-suspend rule, that’s no longer an option, so families have to weigh the impact of having a worker delay benefits against the ability of other beneficiaries to get payments.

3. The government can take away some of your Social Security benefits in some cases

The laws governing Social Security provide for several instances in which benefits can be lost. If you claim Social Security before reaching full retirement age and while you’re still working, then you may start forfeiting part of your benefits if you earn more than $16,920 per year. Those who worked for public employers with their own pension programs can end up losing money because of the provisions of the Government Pension Offset and Windfall Elimination Provision.

The government may also take away part of your benefits indirectly through taxation. If you receive Social Security benefits, and the sum of half of those benefits plus your other sources of income exceeds certain thresholds, then a portion of your Social Security income is treated as taxable income and therefore boosts the amount of tax you’ll owe. It sometimes makes sense to defer taking Social Security benefits if you know that claiming them now will leave you open to losing some of those hard-earned monthly checks.

Be ready for Social Security

Claiming your Social Security benefits at exactly the right time can be tough, especially if you don’t have extensive financial assets to supplement those benefits. Nevertheless, it’s worth the effort to learn what you can about the program and the strategies that will help you get the most from it.

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Don’t Screw Up Index Investing By Making These 3 Mistakes

My Comments: First, my thanks to all of you who wished us well during IRMA’s visit to Florida. We came through unscathed. We were without power for a number of days and believe me when I tell you cold showers every day are not much fun. And we are now watching Maria carefully.

Second, there is increasing evidence that active asset management is starting to pull ahead of passive investing, which is the focus of this article, written a year ago by Walter Updegrave. Some of the references may be out of date but not the underlying message.

Passive investing as a strategy is always ok for some of your money. Overlaying it with some tactical steps to add value is the next step, something that can be done effectively without going all in with skills you perhaps don’t have.

Walter Updegrave – August 10, 2016

For consistently competitive returns, index funds and their ETF counterparts are the way to go. If you doubt that, just take a look at this new Vanguard research paper that lays out the case for indexing and check out the latest S&P Dow Jones Indices index vs. active scorecard, which shows that fewer than 20% of large-company stock funds beat the Standard & Poor’s 500 index over the five- and 10-year periods ending Dec. 31. But just buying index funds and ETFs doesn’t guarantee investing success. To do that, you’ll also need to steer clear of these three all-too-common indexing mistakes.

Mistake #1: Assuming all index funds are cheap. Since index funds simply buy the stocks or bonds that make up indexes like the Standard & Poor’s 500 or Barclays U.S. Aggregate bond index rather than spend millions on costly research and manpower to identify which securities might perform best, they’re able to pass those savings along to shareholders in the form of lower annual fees. Lower fees translate to higher returns and more wealth over the long term. That advantage is especially valuable today given the forecasts for lower-than-usual investment returns in the years ahead.

But not all index funds and ETFs are bargains. While many are available at an annual cost of 0.10% or less, others sometimes charge 10 times or more than that amount, according to Morningstar data. For example, one fund, Rydex S&P 500 Class C, levies a whopping 2.31% in annual expenses, prompting this headline on a recent post about the fund on the American Institute For Economic Research’s Daily Economy blog: “Is This the Worst Mutual Fund in the World?”

Before you invest in an index fund or ETF, make it a point to know how much it charges in annual fees, especially if you’re investing through a broker or other financial adviser. Then don’t buy unless its expenses compare favorably to funds or ETFs that track the same benchmark. You can gauge whether you’re overpaying by seeing how the expenses of the fund you’re considering stack up versus the expenses of the index funds and ETFs that made the cut for the Money 50, Money Magazine’s list of the best mutual funds and ETFs.

Mistake #2: Playing the niche index game. The beauty of index investing is that it allows you to easily and inexpensively create a well-balanced portfolio for retirement savings or other money you’re looking to invest. For example, by combining just three funds—a total U.S. stock market index fund, a total international stock index fund and a total U.S. bond market index fund (or their ETF counterparts)—you have the foundation for a broadly diversified portfolio of stocks and bonds that can get you to and through retirement.

But many investors fall into the trap of believing that the more bases they cover, the more diversified and better off they’ll be. And investment firms are all too willing to oblige them by marketing ever more specialized index offerings, allowing investors to invest in indexes that track everything from wind power and cyber security to obesity and organic foods.

Diversity is a good thing, but you don’t want to overdo it. Once you have a diversified portfolio of stocks and bonds, the extra benefit you get from venturing into investments that focus on narrow slices of the market or obscure niches can be minuscule or even disappear, since more arcane investments often carry higher fees. You also run the risk of ending up with an unwieldy and overlapping jumble of holdings that’s difficult to manage. And, let’s face it, a lot of what’s done in the name of broader diversification is really more about riding the latest fad.

In short, the more you stick to tried-and-true index funds that track wide swaths of the market at a low cost and resist the temptation to invest in every new indexing variation some firm churns out, the less likely you’ll end up “di-worse-ifying” rather than diversifying your portfolio.

Mistake #3: Using index funds to gamble rather than invest. When the indexing revolution got underway back in the 1970s, the idea was for investors to track the performance of broad market benchmarks like the Standard & Poor’s 500 index. The rationale was that since it’s so difficult to outperform the market, investors are better off trying to match the market’s return as much as possible.

Today, however, many investors see index funds as vehicles that can help them juice performance by quickly darting in and out of the stock or bond market as a whole or making bets on a sector they believe is poised to soar, be it growth, value, small stocks, energy, technology, whatever. ETFs are especially popular with such investors since, unlike regular index funds, ETFs are priced constantly throughout the day and can be traded the same as stocks.

Problem is, succeeding at this approach requires investors to have the foresight to know where the market or specific sectors are headed. That’s a dubious assumption at best. Consider how investors swarmed into tech and growth stocks at the end of the ’90s dot.com bubble, confident that double- or even triple-digit returns would continue, only to see shares crash and burn. Or, more recently, how pundits were predicting Armageddon for stocks in the wake of the Brexit vote, only to see the market climb to new highs.

Bottom line: Indexing works best when you use low-cost index funds that cover broad segments of the stock and bond markets as building blocks to create a diversified portfolio that matches your tolerance for risk—and that, aside from periodic rebalancing, you’ll stick with through good markets and bad. Remember that, and you’ll be more likely to benefit from all that indexing has to offer.

The Cost of Long-term Care is Going to Bankrupt Us

My Comments: Demographics and interest rates are things over which few people have any control. It used to be DEATH AND TAXES, but not anymore.

Before DEATH these days is an insidious threat called Long Term Care, or LTC. We can agree it’s not OK to just take old people out into the woods and leave them there. That solution is frowned upon, as it should be.

So… what is the best alternative, not only for them but for you and me who haven’t yet reached that stage of life? We had better start paying more attention, ‘cause hoping for hurricanes and wildfires and tornadoes is not the solution.

by Richard Eisenberg on September 8, 2017


This article is reprinted by permission from NextAvenue.org.

When policy makers, health care analysts and financial journalists talk about the staggering costs of long-term care, it’s often wonky, devoid of humanity.
We throw around statistics like this one from the U.S. Department of Health and Human Services: 52% of individuals turning 65 will require long-term care supports and services at some point in their lives.

But at a Bipartisan Policy Center (BPC) webinar recently pegged to its new report on long-term care financing solutions, family caregiver MaryAnne Sterling poignantly revealed the financial, physical and mental tolls that long-term care can take.

When the long-term care crisis hits home

Three of the four parents of Sterling and her husband died from, or now have, dementia. First, she and her mother provided care for her dad in Sterling’s home as long as they could. Then, her parents depleted their savings so Sterling’s father could qualify for long-term care from Medicaid. “As a surviving spouse, my mother was left destitute after the Medicaid spend-down,” said Sterling, co-founder of Connected Health Resources for family caregivers and patients and owner of Sterling Health IT Consulting, in the Washington, D.C. area.

After that, said Sterling, “my husband and I provided $250,000 for basic living expenses for my mom to keep her out of that system [Medicaid].” Sterling’s caregiving responsibilities for her parents, she says, led her to give up getting an advanced degree and not to have children. In 2013, her mother needed to go into assisted living and her father-in-law was diagnosed with dementia. Sterling and her husband turned to Medicaid for her mother. Otherwise, Sterling said, “It would have cost us $8,000 to $10,000 a month, which was completely untenable.”

To those who say people like Sterling’s family “game the system” so Medicaid will pay for their long-term care, Sterling responded: “You’re not gaming the system. You’re desperate. I kept Mom out of the system for 12 years. By the time we needed the support of Medicaid, we did a pretty good job of not utilizing its resources for as long as we possibly could.”

The long-term care financing morass

Families like the Sterlings might avoid some anguish and financial pain if the government, insurance companies and employers adopt or tweak proposals in the BPC report sponsored by The SCAN Foundation, Financing Long-Term Services and Supports: Seeking Bipartisan Solutions in Politically Challenging Times.

The time to fix America’s long-term care financing morass is long overdue. Over 12 million adults rely on long-term care supports and services (LTSS), the BPC report says, “and the need is expected to rise dramatically in the coming decades.” The average expected lifetime long-term care services and supports cost for a 65-year old American today, BPC says, is $138,000 — and $182,000 for women.

Today, few Americans can afford the steep cost of assisted living facilities, nursing homes or home care (median annual nursing home cost: $91,300; median annual cost for a home health aide: $45,800.) As a recent AARP Long-Term Care Scorecard report noted: “The cost of long-term services and supports over time continues to be much higher than what middle-income families can afford.”

Medicare generally doesn’t cover long-term care expenses. As The SCAN Foundation’s President and CEO Dr. Bruce Chernof said at the BPC webinar: “Medicare is not the primary source of long-term care financing, despite the fact that people think it is or should be.” (A recent Associated Press-University of Chicago NORC Center for Public Affairs Research poll found that 57% of Americans say they expect to rely on Medicare for long-term care services and supports.) And Medicaid essentially requires impoverishment.

Just 11% of Americans age 65 and older own long-term care insurance policies and the market is in decline. Many who don’t buy the coverage find the premiums too steep and the benefits too skimpy, while fearing that premiums will rise dramatically. “We need a vibrant private market and we don’t have that today,” said Chernof, who chaired the federal Commission on Long-Term Care in 2013. (Incidentally, that blue ribbon panel produced a bevy of proposals, but punted on long-term care financing ideas.)

Bipartisan proposals for long-term care costs

The Bipartisan Policy Center’s public-private partnership recommendations, some of which build on ones in the think tank’s 2016 report, include:
• Give employers incentives to offer affordable, simplified “retirement long-term care insurance” as an employee benefit and auto-enroll some employees age 45 and older (BPC estimates annual premiums for someone in the 25 percent bracket might be $600 rather than $2,400 today)
• Let employees withdraw from 401(k)s and similar retirement accounts without owing federal tax penalties if they use the money to buy long-term care insurance policies through their employers
• Let Medicare Advantage plans and other Medicare provider organizations offer up to 14 days a year of respite care coverage to high-need, high-cost Medicare beneficiaries who have three or more chronic conditions and functional or cognitive impairment and are part of a person- and family-centered care plan (today, Medicare only offers respite care to beneficiaries in hospice, who are expected to die within six months)
• Let Medigap and Medicare Advantage plans sell limited, affordable long-term care coverage as an optional, voluntary benefit or a separate insurance policy financed through premiums paid by beneficiaries who choose to enroll (maximum daily benefit: $75; cost of premiums: an estimated $35 to $40 a month or $420 to $480 a year)
• Allow state and federal health insurance marketplaces to sell those lower-cost, limited benefit retirement long-term care insurance policies
Dr. William H. Frist, former Republican Senate Majority Leader and now a BPC Senior Fellow and co-chair of its Health Project, said that if the report’s recommendations turned into reality, Americans age 45 to 69 might own 8.5 million long-term care insurance plans, “twice what we would have otherwise.” Added Frist: “That’s not a total answer, but it’s meant to say there are ways to shape and modify the existing system to take the burden off individuals.”

What the report didn’t recommend

One proposal the Bipartisan Policy Center experts couldn’t quite bring themselves to endorse: adding “catastrophic” long-term care coverage to Medicare and paying for it through an additional Medicare payroll tax. That idea was proposed last year by the Long-Term Care Financing Collaborative.

Today, about 15% of people with long-term care needs require care for five years or longer (what’s known as “catastrophic” care) — far longer than the typical two to three years. The Bipartisan Policy Center report said its experts “stopped short” of endorsing catastrophic long-term care coverage through Medicare. Yet about two-thirds of Americans surveyed favor such a catastrophic insurance program.

“While we are not able to reach agreement on a politically viable means of financing a public catastrophic benefit, we agree that a credible overall LTSS framework would include a public catastrophic LTSS program with a waiting period of two-to-three years,” the report said.

It’s easy to see why this otherwise sensible idea was a nonstarter right now. “Policy makers are focused on squeezing Medicaid today,” said Frist. But, he added, “I’m hopeful that once we get through this phase, we will look at a holistic model.”

The Bipartisan Policy Center analysts also rejected the idea of a family caregiver tax credit “given the high budgetary cost of the policy” and because with the direction of Congress and the administration, “the policy does not seem feasible in the current environment.”

Time for action

Tom Daschle, the former Democratic Senate Majority Leader who is co-founder of the BPC and co-chair of its Health Project, noted that long-term care financing is something that deserves more attention from policy makers. “I don’t think our solution is just spending more money. We’ve got to tear down the silos [between health care providers, long-term care supports and services and insurers] that make it so inefficient today. We need to find ways we can commit resources more effectively and we need leadership in the public and private sector to do that.”

As Chernof noted at the webinar: “Most of us will have long term services and supports needs. This is not something like being struck by lightning.”

Richard Eisenberg is the Senior Web Editor of the Money & Security and Work & Purpose channels of Next Avenue and Managing Editor for the site. He is the author of “How to Avoid a Mid-Life Financial Crisis” and has been a personal finance editor at Money, Yahoo, Good Housekeeping, and CBS Moneywatch. Follow him on Twitter: @richeis315.

This article is reprinted by permission from NextAvenue.org, © 2017 Twin Cities Public Television, Inc. All rights reserved.

Could a Reverse Mortgage Save Your Retirement?

My Comments: No, I am not trying to sell you a reverse mortgage. I AM saying you should NOT dismiss them out of hand. Under the right circumstances, they are a valuable tool. As a disclaimer, you should know that I arranged one for myself a year ago.

As a financial planner, I’ve encouraged clients to look closely at a reverse mortgage many times over the years. Financial freedom comes in many forms and reverse mortgages are increasingly a contributor to that freedom. Their reputation as a bad thing has diminished significantly of late. Their benefits can be very real and a solution to some of the financial threats you face in retirement.

By Kira Brecht | November 15, 2016

As baby boomers retire at the rate of 10,000 per day, many of them are woefully underfunded for their future retirement needs.

While reverse mortgages have gotten a bad rap over the last decade, the product has changed and become more regulated. Reverse mortgages are now gaining a lot of attention as a viable option for retirement income.

Most people tend to underestimate their life expectancy, save less than they should and fail to consider how much health care might cost in retirement, says David W. Johnson, associate professor of finance at the John E. Simon School of Business at Maryville University in St. Louis.

“Although we are living longer, we are also experiencing more health issues with our increased life expectancy,” Johnson says. “The typical 65-year old couple will need $305,000 to cover out-of-pocket health care costs over their lifetime. Most people have not planned for these type of expenses. Increased life expectancy and unexpected expenses increase the possibility of outliving your assets.”

As baby boomers move into retirement without sufficient income sources, many Americans are going to be unable to meet their basic financial needs in retirement, says Jamie Hopkins, associate professor at The American College of Financial Services in Bryn Mawr, Pennsylvania, and co-director at the New York Life Center for Retirement Income.

“This retirement income shortfall is nothing less than a crisis facing the United States,” Hopkins says.

Reverse mortgages are another tool in the retirement toolbox that could offer seniors cash flow needed to cover living costs. Admittedly, Americans have a strong negative bias toward reverse mortgages, Hopkins says.

“Much of that negative bias is rooted in misconceptions and issues with bygone reverse mortgage issues. The reverse mortgages of today are not the same as reverse mortgages 10 year ago. As such, reverse mortgages deserve a second look today,” Hopkins says.

“Reverse mortgage loans are one of the most misunderstood financial products in existence,” Johnson says.

One of the most common misconceptions is that the bank will own your home if you take out a reverse mortgage, says Reza Jahangiri, chief executive officer at the American Advisors Group in Orange, California.

“In actuality, with a reverse mortgage loan, borrowers retain ownership of their home, as long as they stay current on their property taxes, homeowner’s insurance and otherwise comply with the loan terms,” Jahangiri says.

“I believe in the product enough that I recommended a reverse mortgage for my own parents. I have seen firsthand how a reverse mortgage made a difference in the quality of their lives during retirement,” Johnson says.

The market has become simplified in recent years. The Home Equity Conversion Mortgage is used for nearly all reverse mortgages, Hopkins says. It is essentially a government loan sold by private companies.

“The HECM is extremely well regulated. However, that does not mean there are not differences between companies,” Hopkins says. “You should still shop around for the best rate, lender, service, and fees.”

For most seniors, the majority of their wealth is stored in their home, which is not a very liquid asset. A reverse mortgage is a way for homeowners to unlock some of the equity in their home without having to make monthly mortgage payments.

Who is eligible? To be eligible for a Home Equity Conversion Mortgage, you must be a homeowner 62 or older, own your home outright or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan. You need to have sufficient financial resources to pay for property taxes and insurance, and you must live in the home.

“The loan becomes due and payable when the last remaining homeowner leaves the home permanently,” Jahangiri says.

A reverse mortgage is a non-recourse loan, as the home is the only collateral that can be used to repay the loan balance.

“This means that if the sale of the home does not cover the entire loan balance, then FHA pays the difference, not the borrower’s family,” Jahangiri says.

How much could a borrower expect to receive? “Depending on their age, homeowners typically can tap between 50 percent and 75 percent of the home’s appraised value, with a maximum loan limit of $625,500. The older the borrower and the lower the interest rate, the higher the available loan amount,” says Tom Dickson, national leader financial advisor channel at Reverse Mortgage Funding in Bloomfield, New Jersey.

Another option that’s growing in popularity is one where a borrower takes out a reverse mortgage standby line of credit, Jahangiri says.

“This is a great option for borrowers who aren’t interested in tapping their equity unless an emergency arises or when they feel the funds are needed,” he says.

Tapping into your home equity through a reverse mortgage HECM line of credit can be an effective way to avoid selling your investments when they drop in value, Hopkins says.

“Let’s say the market drops 30 percent next year. Would you rather sell your stocks that are down 30 percent to get your retirement income or would you rather borrow from your home equity at 3 to 4 percent interest? The answer is clear,” Hopkins says. “You would be much better off using your home equity in a down market year. Doing this could substantially increase the sustainability of your retirement portfolio and help make your money last for a lifetime,” Hopkins says.

Repay loan to keep the house. If leaving your home to your heirs is important to you, a reverse mortgage may not be the best option.

“As home equity is used, fewer assets may be available to leave to your heirs,” Dickson says. “It should be noted that you can still leave the home to your heirs, but they will have to repay the loan balance.”

Just like any other financial product, it is important to educate yourself before you sign on the dotted line and it can pay to shop around.

There are about 10 reverse mortgage companies that do almost all the business in the industry, Hopkins says.

“Just like with a traditional mortgage you need to shop around,” he says. “LendingTree.com can allow you to do that. Check out at least three reverse mortgage companies before moving forward with one.”

Why Sign Up for Medicare If I Have Insurance Already?

My Comments: I’m increasingly asked about signing up for Medicare at 65 or not. This happens as more and more of us are still working at age 65 and expect to keep working for several years to come. This article by Matthew Frankel will give you the background necessary to help your decision.

by Matthew Frankel \ Jul 16, 2017

The standard eligibility age for Medicare in the United States is 65. However, many people don’t know if they need to sign up for Medicare if they already have other health insurance coverage, such as through a job, a spouse’s employer, from their former employer, or through COBRA. Here’s a quick guide that can help you determine if you need to sign up for Medicare when you turn 65 or if you can wait longer without paying a penalty.

How Medicare works with your other insurance

When you have more than one insurance provider, there are certain rules that determine who pays what it owes first and who pays based on the remaining balance. For seniors who don’t have other insurance, Medicare is obviously the primary payer. However, when you have other insurance, it’s a little more complicated.

Depending on the type of insurance you have (group coverage, retiree coverage, COBRA, marketplace coverage, etc.), Medicare can either be the primary or the secondary payer. If Medicare would be a secondary payer to your current insurance, you can delay signing up for Medicare Part B. If your current insurance would become a secondary payer to Medicare, you should sign up during your initial enrollment period, which is the seven-month period that begins three months prior to the month you’ll turn 65.

It’s also worth noting that although I’m specifically mentioning Medicare Part B, which is medical insurance, this applies to Part A (hospital insurance) as well. However, Medicare Part A is free to the vast majority of Americans, so it’s probably worth signing up for Part A whether you’re required to or not. On the other hand, Medicare Part B has a monthly premium you’ll have to pay, which is why it can make sense to delay signing up if it’s not going to be your primary insurance.

Who can delay signing up for Medicare?

So, whose insurance remains the primary payer? In a nutshell, if you have coverage through your or your spouse’s current employment, and the employer has 20 or more employees, your insurance plan remains the primary payer.

If you aren’t sure if your employer meets the “group health coverage” criteria, ask your employer’s benefits manager.

If you do qualify, you can delay signing up for Medicare for as long as you (or your spouse) are still working. Once the employment or your employer-based health coverage ends, you’ll have eight months to sign up for Medicare Part B without paying a penalty, which is a permanently higher premium.

It’s also important to note that regardless of whether you’re still working or not, if you’ve already signed up for Social Security benefits, you’ll be automatically enrolled in Medicare Parts A and B when you turn 65. If you don’t want to keep Part B, you’ll need to cancel it (instructions are on the Medicare card you’ll receive).

Who should sign up at 65, even if they have other insurance?

This leaves a fairly long list of other types of insurance that become secondary payers to Medicare. Therefore, if you’re turning 65 and any of these situations apply to you, you should sign up for Medicare during your initial enrollment period.

• You have group coverage through your or your spouse’s employer, but the employer has fewer than 20 workers.

• You have retiree coverage, either through your former employer or your spouse’s former employer.

• You have group coverage through COBRA.

• You have TRICARE, the healthcare program for military service members, retirees, and their families. Retired service members must get Medicare Part B when eligible in order to keep their TRICARE coverage. (Note: If you’re still on active duty, you don’t have to enroll in Medicare until after you retire.)

• You have veterans’ benefits.

• You have coverage through the healthcare marketplace or have other private insurance. Once your Medicare coverage begins, you’ll no longer get any reduced premium or tax credit for marketplace coverage, and you should drop this coverage as you’ll no longer need it (unless you’re not eligible for premium-free Part A, which is not common).

If one of these situations applies to you and you don’t sign up for Medicare Part B during your initial enrollment period, you could face permanently higher premiums when you do.

The World’s Most Deceptive Chart

My Comments: First of all, Happy Labor Day to everyone. I trust you are able to take some time off to spend with family or do something fun to celebrate the end of summer. I’m working very hard these days to complete a project that I call Successful Retirement Secrets (SRS). My plan is to find a way to reach out to the millions of people not yet retired, and share with them secrets I’ve discovered over the years.

These comments from Lance Roberts surfaced a couple of months ago, but they are even more relevant today. He has a lot of charts, some of which I’ve chosen not to include. I have put a link to his article at the end.

If you have money invested and are wondering how all this talk with North Korea might catch up with your retirement, this is good stuff. On the right of this page is where you can schedule a short conversation with me if you are so inclined.

by Lance Roberts | May 7, 2017

I received an email last week which I thought was worth discussing.

“I just found your site and began reading the backlog of posts on the importance of managing risk and avoiding draw downs. However, the following chart would seem to counter that argument. In the long-term, bear markets seem harmless (and relatively small) as this literature would indicate?”


This same chart has been floating around the “inter-web,” in a couple of different forms for the last couple of months. Of course, if you study it at “face value” it certainly would appear that staying invested all the time certainly seems to be the optimal strategy.

The problem is the entire chart is deceptive.

More importantly, for those saving and investing for their retirement, it’s dangerous.

Here is why.

The first problem is the most obvious, and a topic I have addressed many times in past missives, you must worry about corrections.

The problem is you DIED long before ever achieving that 5% annualized long-term return.

Let’s look at this realistically.

The average American faces a real dilemma heading into retirement. Unfortunately, individuals only have a finite investing time horizon until they retire.

Therefore, as opposed to studies discussing “long term investing” without defining what the “long term” actually is – it is “TIME” that we should be focusing on.

Think about it for a moment. Most investors don’t start seriously saving for retirement until they are in their mid-40’s. This is because by the time they graduate college, land a job, get married, have kids and send them off to college, a real push toward saving for retirement is tough to do as incomes, while growing, haven’t reached their peak. This leaves most individuals with just 20 to 25 productive work years before retirement age to achieve investment goals.

This is where the problem is. There are periods in history, where returns over a 20-year period have been close to zero or even negative.”

Like now.

Outside of your personal longevity issue, it’s the “math” that is the primary problem.

The chart uses percentage returns which is extremely deceptive if you don’t examine the issue beyond a cursory glance. Let’s take a look at a quick example.

Let’s assume that an index goes from 1000 to 8000.
• 1000 to 2000 = 100% return
• 1000 to 3000 = 200% return
• 1000 to 4000 = 300% return
• 1000 to 8000 = 700% return

Great, an investor bought the index and generated a 700% return on their money.

See, why worry about a 50% correction in the market when you just gained 700%. Right?

Here is the problem with percentages.

A 50% correction does NOT leave you with a 650% gain.

A 50% correction is a subtraction of 4000 points which reduces your 700% gain to just 300%.

Then the problem now becomes the issue of having to regain those 4000 lost points just to break even.

It’s Not A Nominal Issue

The bull/bear chart first presented above is also a nominal chart, or rather, not adjusted for inflation.

So, I have rebuilt the analysis presented above using inflation-adjusted returns using Dr. Robert Shiller’s monthly data.

The first chart shows the S&P 500 from 1900 to present and I have drawn my measurement lines for the bull and bear market periods.

It’s A “Time” Problem.

If you have discovered the secret to eternal life, then stop reading now.

For the rest of us mere mortals, time matters.

If you are near to, or entering, retirement, there is a strong argument to be made for seriously rethinking the amount of equity risk currently being undertaken in portfolios.

If you are a Millennial, as I pointed out recently, there is also a strong case for accumulating a large amount of cash and waiting for the next great investing opportunity.

Unfortunately, most investors remain woefully behind their promised financial plans. Given current valuations, and the ongoing impact of “emotional decision making,” the outcome is not likely going to improve over the next decade.

For investors, understanding potential returns from any given valuation point is crucial when considering putting their “savings” at risk. Risk is an important concept as it is a function of “loss.” The more risk that is taken within a portfolio, the greater the destruction of capital will be when reversions occur.

Many individuals have been led to believe that investing in the financial markets is their only option for retiring. Unfortunately, they have fallen into the same trap as most pension funds, which is believing market performance will make up for a “savings” shortfall.

However, the real world damage that market declines inflict on investors, and pension funds, hoping to garner annualized 8% returns to make up for the lack of savings is all too real and virtually impossible to recover from. When investors lose money in the market it is possible to regain the lost principal given enough time; however, what can never be recovered is the lost “time” between today and retirement.

Time” is extremely finite and the most precious commodity that investors have.

In the end – yes, market corrections are indeed very bad for your portfolio in the long run. However, before sticking your head in the sand and ignoring market risk based on an article touting “long-term investing always wins,” ask yourself who really benefits?

This time is “not different.”

The only difference will be what triggers the next valuation reversion when it occurs.

If the last two bear markets haven’t taught you this by now, I am not sure what will. Maybe the third time will be the “charm.”

Source: https://seekingalpha.com/article/4052547-worlds-deceptive-chart

The Middle-Class Squeeze Isn’t Made Up

My Comments: Are you a middle-class American? I used to be and may still be, but those like me are a dying breed. The economic devastation now engulfing a huge portion of Texas is going to reverbrate across the nation. Apart from the humanitarian crisis, it will add to the unseen crisis affecting middle class America.

Economic inequality led to the downfall of the Democratic Party last November. It’s manifest by the lower economic expectations of those who live in rural America, by those whose education is no longer enough to get ahead, and still pervasive social discrimination against those not white enough. To Trumps credit, he saw the problem and built a movement, even if he is likely to waste the opportunity.

Like many ‘economic’ essays, this may be hard for you to get through. But to the extent you want to preserve the underlying goodness of this nation, and protect yourself along the way, you would benefit from a better understanding of the problem.

By Barry Ritholtz / Feb 15, 2017

Benjamin Disraeli is reputed to have said “There are three type of lies: lies, damn lies and statistics.”

Today let’s address the third component of Disraeli’s formulation in the context of a recent National Review article with the headline, “The Myth of the Stagnating Middle Class.” The article observes that “more Americans have easier lives today than in years past.”

To regular readers, this is a variant of the assertion that “common folk live better today than royalty did in earlier times,” a claim we debunked two years ago. The current argument is more nuanced in that it: a) relies on a few statistical twists; b) contains statements that are true but don’t support the main claim; and c) is an argument against Donald Trump’s populism from the political right. It all has the general appearance of plausibility until you start digging.

This is where we come in.

Let’s begin with the claim that more Americans have easier lives today than in years past. This is true and almost always has been. Progress is humanity’s default setting ever since our ancestors climbed down from the trees and began walking upright on the African savanna.

Thus, it should come as no surprise that the standard of living for all Americans has been rising for many years, mainly because of technological advances. However, the main issue under discussion is actually about how the economic benefits of the U.S. economy get apportioned across the populace.

In other words, how the wealth is distributed. The National Review engages in a statistical sleight of hand that distracts from this.

For further insight I spoke with Salil Mehta, who teaches at Columbia and Georgetown, and is perhaps best known for his role as the top numbers-cruncher in the federal government’s $700 billion TARP bank bailout plan in the financial crisis.

Mehta made short work of the article:
The article is a peculiar mixture of motivating facts and fantasy logic, which is what makes cherry-picking statistics unsafe for policy conversation. The main issue with the piece is that that it continuously mixes and matches data to fit a fated narrative.

Mehta further observed that the National Review argument included in some cases various classes of Americans (such as minorities and immigrants), while excluding them at other times in statistics. This kind of data cherry-picking is always a red flag.

Consider for a moment how the Pew Research Center did its big research report, “The American Middle Class Is Losing Ground”: The report, which actually figures in the National Review article, analyzed the Current Population Survey from 1971 to 2015. It used data drawn from the Bureau of Labor Statistics, which has well-established standards for managing data and making empirical comparisons.

Maybe it’s best to make the point with two of the more telling charts in the report. Here’s the first one, showing that income growth for the middle class has trailed that of the upper class:

The second chart (below) shows that the wealth gap between the upper and middle classes also widened significantly (even after the losses from the financial crisis):

Best practice in these circumstances is to go to the original data source, cite it and analyze it in a way that is consistent, regardless of whether the outcome supports your conclusion.

As I’ve said before, there are many reasons to dislike this economic recovery: it has been lumpy and unevenly distributed by geography, by industry and by level of educational attainment. Much of that has harmed people who were once considered middle class. Add to this the decades-long impact of automation, globalization and the decline in labor’s bargaining power, and it adds up to economic stagnation for the middle class.

But wage and wealth stagnation alone don’t account for the full measure of middle-class angst. Inflation and its components also play a part. Prices for things we want have been deflating, while the cost of things we need have been going up. Mobile phones, computers and flat-panel TV are better and dollar-for-dollar cheaper than ever. The same is true for cars, which in a few years will likely be self-driving.

But those are mostly wants. When it comes to needs, it’s a different story. Housing, even after the 2008-09 crack-up, is expensive. Rentals have gone straight up as home ownership has fallen. The costs of education have skyrocketed and show no signs of slowing. Medical and health-insurance costs are among the fastest-rising of all consumer expenses.

The National Review article concludes by saying, “Government can’t fix that problem, because that problem doesn’t really exist.”

Wishing that a problem doesn’t exist doesn’t make it vanish. But it does offer some insight into why the Republican Party was blindsided by the rise of Donald Trump and his populist appeal. It isn’t that the party elite was myopic, but that it actively fabricated a bubble into which no contrary information was allowed entry. The troubling thing is that the GOP is still at it.

Middle-class anxiety has been building for more than a decade and it mixed in the last election with a general sense of frustration with America’s leadership class. No wonder the middle class feels squeezed — because it is.