Tag Archives: financial advisor

3 Ways to Maximize Your Medicare

My Comments: Given that we are living much longer and that death is inevitable, if follows that access to affordable health care plays a role in our quality of life. This is especially true for those of us moving into or are already well into, our ‘golden’ years.

Medicare has become a critical component in the health and well being of Americans of every stripe. The fact that some of our elected officials see it as a threat to our survival as a nation is beyond comprehension. But then I remember I have clients who freak out if you suggest the current euphoria on Wall Street will not last forever.

I get asked frequently about Medicare and it’s implications. For me and my wife, our ability to seek help whenever a health issue surfaces, without having to first calculate it’s likely cost, is an enormous contributor to our peace of mind and quality of life. Here are three important suggestions.

Selena Maranjian \ Mar 27, 2017

There’s significant uncertainty about Medicare’s future in our current political environment, but for now, the program is helping more than 57 million people, or 18% of the U.S. population, have access to affordable healthcare.

Medicare will likely play an important part in your future health — and how you pay for healthcare in retirement will have a major effect on your overall finances. For maximum benefit and minimum cost, it’s smart to learn more about Medicare and how to get the most out of it.

Don’t be late signing up

Enrolling late can increase the cost of coverage for the rest of your life. You’re eligible for Medicare at age 65 and can sign up anytime within the three months leading up to your 65th birthday, during the month of your birthday, or within the three months that follow. That’s your Initial enrollment period. Miss it and your Part B premiums (which cover medical services, but not hospital services) can rise by 10% for each year that you were eligible for Medicare but didn’t enroll.

If you fail to enroll during your initial enrollment period, you can always enroll during the “general enrollment period,” which is from Jan. 1 through Mar. 31 of each year — though that coverage won’t begin until July and the late penalty might apply.

Fortunately, if you’re already receiving Social Security benefits when you turn 65, you’ll be automatically enrolled in Medicare. Many people don’t start collecting Social Security that early, though. And even if you are already collecting benefits, be sure to double check that you’ve been enrolled.

If you’re still working, with employer-provided healthcare coverage, at age 65, or are serving as a volunteer abroad, you can delay enrolling in Medicare without penalty.

Choose between original Medicare or a Medicare Advantage plan

Medicare enrollees get to choose between original Medicare, featuring parts A and B, and Medicare Advantage plans, which are sometimes referred to as Part C. With traditional (or “original”) Medicare, Part A covers inpatient hospital stays, hospice, and skilled-nursing facility stays, while Part B covers outpatient services, such as preventative care, laboratory tests, ambulance services, medical equipment, and necessary doctor services.

Medicare Advantage plans, meanwhile, are administered by private insurers but are regulated by the U.S. government. Each must offer at least as much coverage as original Medicare (i.e., the benefits you’ll find in Part A and Part B). Many go beyond that, though, offering broader coverage, such as vision care, dental care, and/or prescription drug coverage. (Those in original Medicare typically buy Part D for prescription drug coverage.) Roughly a third of Medicare enrollees are in Medicare Advantage plans.

So which Medicare plan is best for you and why should you choose one over the other? It depends on your needs and preferences. Original Medicare is accepted by the broadest swath of doctors and you can see them without referrals. So you can find and see a doctor anywhere in the U.S., which is especially handy if you’re a traveling retiree. Medicare Advantage plans, often similar to HMOs, feature defined networks of doctors (though some of the networks are quite large) or steeper costs for seeing out-of-network physicians, and they’re typically limited to your local region. (Some do, on a limited basis, cover healthcare outside the U.S., unlike original Medicare.)

While original Medicare will often have you footing 20% of many bills with no limit on how much you end up spending, your out-of-pocket costs in a Medicare Advantage plan are capped. (The average out-of-pocket cap was recently $5,223, but many plans feature caps below $3,000, and the limit for 2017 is $6,700.) Once you hit the limit, the plan will pay all further costs. Better still, many plans charge the enrollee nothing in premiums. (The Medicare program pays the insurance company offering it a set sum per enrollee and if the insurer thinks it can make a profit without charging its customers anything, it can do so.) The average monthly premium for Medicare Advantage plans was recently $33.

When deciding between original Medicare and Medicare Advantage, think about what doctors you see, what services you need, and what drugs you take and then compare coverage and costs for available plans. The Medicare Plan Finder at the Medicare website can help you compare plans and choose. Note the star ratings of your candidate plans and aim to choose only a four-star or five-star plan.

Once you decide, know that you can change your mind and choose a different plan next year. In fact, it’s a good idea to review all your options and their costs on an annual basis.

Take full advantage of your plan’s offerings

Medicare offers lots of screenings and preventive care that’s generally at no extra cost to you. Getting screened and seeing your doctor regularly can help identify problems early, before they grow worse and more costly. That can keep you healthier and living longer and better, while also keeping your healthcare costs down.

The kinds of services that should cost you nothing (though some require doctor’s orders) include: abdominal aortic aneurysm screening, alcohol misuse screening and counseling, bone density measurement, cardiovascular disease screenings, cervical and vaginal cancer screenings, colonoscopies and other colorectal cancer screenings, depression screenings, diabetes screenings, flu shots, hepatitis B shots and hepatitis C screenings, HIV screenings, some home health services, lung cancer screenings, mammograms, nutrition therapy services, obesity screenings and counseling, pneumonia vaccine, prostate cancer screenings, sexually transmitted infection screenings, and smoking & tobacco-use cessation counseling.

If your Medicare plan offers telehealth services, give them a whirl. They permit you to consult with doctors and other healthcare professionals electronically, often via a Skype-like video connection. These consultations can cost less than an in-person visit to your doctor and can be more convenient, happening immediately or within hours. They can be particularly helpful if you’re traveling and have a health concern. Telehealth isn’t generally an option for all original Medicare enrollees, but it’s available to some. And some Medicare Advantage plans offer it, too.

Finally, make use of wellness benefits included in your Medicare coverage. For starters, you’re entitled to one wellness visit annually. That’s when you can see your primary care doctor to review your health. Don’t skip this, as it’s available at no cost to you and gives your doctor a chance to discuss ways to get you healthier instead of just ways to treat the illness or injury you walked in with. You may have access to other health benefits and perks, too, such as discounts on gym memberships. Find out what your plan offers and make the most of those benefits. When you’re shopping for a Medicare plan, review available wellness perks, too, to see which would serve you best.

You can maximize your Medicare by signing up on time, choosing the plan that will serve you best while keeping your costs low, and making the most of screenings, telehealth services, and wellness benefits. Doing these things can not only boost your health, but they may also save you a lot of money.

The Best Way to Invest in Index Funds

My Comments: It’s important that some of your money be exposed to the risks and rewards of the stock and bond markets. Not all your money, perhaps 25% of it.

So what’s the next step? There’s an increasing awareness of fees and commissions and how they have the potential to erode the value of your holdings over the years. If someone is adding value to your life, it’s appropriate they be compensated fairly. The challenge is to determine what is fair.

Index funds are among the most cost effective choices to build a well diversified portfolio. Many of us have the ability to be passive investors, even stepping up our game from time to time to be active investors. If you need help beyond that, look for someone willing to do it for you for about ½ of 1% per year.

Nellie S. Huang / February 2017 / Kiplinger

Investors’ passion for indexing these days reminds us of a classic Cole Porter lyric: “Birds do it, bees do it, even educated fleas do it.” Yep, everybody, it seems, is falling in love—with index funds. Since 2010, investors have withdrawn a net sum of $500 billion from actively managed U.S. stock funds and invested that amount and more in index-tracking mutual funds and exchange-traded funds. But one of the cardinal rules of investing is that whenever everyone agrees on something, chances are high that just the opposite will occur. So could indexing be the wrong way to go?

The answer: yes and no. The benefits of indexing are indisputable—the strategy is cheap, it’s transparent, and it’s no-fuss (once you’ve decided which benchmarks you want to track). And in recent years, indexing has worked particularly well with the world’s most widely mimicked benchmark, Standard & Poor’s 500-stock index. Over the past five years, the S&P 500 generated a cumulative gain of 98% (14.7% annualized). During that period, only 14% of actively managed, large-company mutual funds beat the index. (All returns are through December 31.)

But indexing has its shortcomings, too. It’s not as effective in some categories as it is for large-capitalization U.S. stocks. If you index, you cannot beat the market; actively run funds at least give you the chance to outpace a benchmark. Plus, says Daniel Wiener, editor of the Independent Adviser for Vanguard Investors newsletter, “good timing” is required even in indexing. In particular, this may not be the best time to hitch your wagon to the S&P 500, which is what many people think about when they consider indexing. Indexing’s defenders may scoff, but there have been times—long stretches, even—when active managers dominated their benchmarks.

In the end, your best strategy may be to own a combination of index and actively managed funds. Choosing good active funds is key, of course. The other trick is knowing which markets or market segments are best suited to indexing, and in which slices active funds stand a better chance of winning. Below, we tell you where to index and where to go active.

The indexing advantage

The price is right. Index funds buy and sell securities less frequently than actively managed funds, so they incur fewer trading costs. More important, index funds charge substantially lower fees. The expense ratio for the typical actively managed large-company stock mutual fund is 1.13%. But mutual funds and ETFs that track large-cap U.S. stock indexes cost 0.49%, on average, and many charge far less.

How Timing Impacts Your Retirement Portfolio Longevity

My Comments: Many a client has asked “How long will my money last?” and the only rational, unsatisfactory answer is “It depends”.

Unfortunately, luck plays a major role in our lives. If you’re alive and well today, chances are you’ve had at least some good luck. In answering the above question, much depends on timing, which is typically something over which we have NO control. Little more than deciding the date of your birth.

Follow these thoughts by Kevin Michels to get some additional insights.

Kevin Michels, CFP® February 20, 2017

How long will your retirement nest egg last? This is an intricate question to answer and many factors come into play such as rate of return, the value of your savings, annual withdrawals, inflation, etc.

However, one factor that is very important and is largely not spoken of is the timing of when you retire. In fact, the timing of when you retire is so important it can make the difference between running out of money in retirement or leaving a multi-million dollar inheritance to your children and grandchildren.

A Retirement Example

Let me explain by example. Let’s take 10 imaginary couples and pretend they have each saved $1 million for retirement. Each couple invests the full $1 million in the S&P 500 for the duration of their retirement, which we’ll assume lasts for a period of 30 years. Each couple also plans on withdrawing $100,000 per year from their portfolio and will increase that amount by 3% per year to account for inflation. The only difference between each couple is the timing of their retirement. The first couple retires in 1977, the second couple in 1978, the third couple in 1979, and so on and so forth.

All else being equal, aside from the timing of each couple’s retirement, how will they each fare over a 30-year period? The disparity between the longevity and value of each couple’s retirement portfolio is staggering.

Three out of the 10 couples actually ran out of money before the 30-year period ends, simply because they chose to retire one year too early or one year too late, while the other seven couples end the 30-year period with balances ranging from $500,000 to $3.2 million.

The three couples that ended up running out of money (1977, 1981, 1986) all had something in common. The first five to 10 years of their investment returns were subpar. The perfect storm for a short-lived retirement portfolio is created when you pair investment losses with withdrawals in the first five to 10 years of retirement. You get so far behind, that it becomes impossible to catch up. This is known as “sequence of returns risk.”

To put this into perspective, take a look at the table below regarding the most successful couple, who retired in 1979 and ended with $3.2 million, compared to the least successful couple who retired in 1977 and ran out of money in 20 years.


Longevity of Retirement Nest Egg

Average Annual Return of S&P 500 for 30-Year Period

Average Annual Return of S&P 500 for First 5 Years of Retirement

1977 – 2006

$0 after 20 years



1979 – 2008

$3.2 million after 30 years



Although over the long term the S&P returned 1.48% more per year in 1977 to 2006 than 1979 to 2008, the couple that retired in 1979 will leave a multi-million dollar estate largely because in the first five years of retirement they have superior investment returns than the couple who retired in 1977.

Safeguards to Protect Retirement Investments

Fortunately, we can put safeguards into action to mitigate the sequence of returns risk.

1. Don’t invest your entire portfolio in the S&P 500 or any other one asset class.

For the most part, it is good for retirees to be invested in stocks. This protects against inflation risk and low yields in the bond market as we’re seeing now. But volatility comes with stocks so it’s also important to include some bonds or bond funds in your portfolio as well, to smooth out returns.

2. Always keep at least the next two years of expected withdrawals in cash or short-term bonds.

In our example, each couple planned on withdrawing $100,000 per year and increasing that amount by 3% a year for inflation. So in their first two years of retirement, they could have liquidated $203,000 ($100,000 for year one and $103,000 for year two) and kept it in cash to safeguard against short-term volatility. This would have saved the couples who retired in 1977 and 1981. Both of those couples started their retirement with negative returns.

3. Rebalance your portfolio annually.

Rebalancing is simply the practice of selling high and buying low. If your portfolio is invested in 70% stocks and 30% bonds and the stock market underperforms the bond market for a year or so, naturally the stock portion of your portfolio will decrease while the bond portion will increase. If at the end of the year your portfolio is now made up of 65% stocks and 35% bonds, you can sell the 5% of bonds to reinvest in low-priced stocks or to keep in cash for future withdrawals.

4. Aim for a lower withdrawal rate in the first five years of retirement.

Your withdrawal rate is calculated by dividing your total withdrawals for the year by your total portfolio value at the beginning of the year. In our example, the withdrawal rate for our retirees starts at 10% ($100,000/$1 million), which is high for the first five years of retirement. As previously stated, the longevity of your retirement portfolio is greatly affected by your returns and withdrawals in the first five years of retirement. If each one of these couples would have started with a lower withdrawal rate, even 9%, they all would have had money left over at the end of the 30-year period. Try to start with a lower withdrawal rate and then increase it as your portfolio grows.

In the end, the decision of when to retire isn’t as important as the plan you have in place to ensure your retirement capital lasts the duration of your life. Before you begin living the golden years, make sure you work with your spouse and potentially a financial planner to have a plan in place that will provide peace of mind during those years of market turmoil.

3 Charts That Show Stock Market Euphoria Is Totally Unprecedented

My Comments: I’m thinking of getting into the markets. That’s a sure sign the bottom will soon drop out.

Jesse Felder on March 18, 2017

Last week I focused on fundamentals, sharing 3 charts that show stock market valuations are totally unprecedented. This week I’ll focus on sentiment.

When looking at sentiment many people like to look at surveys. I prefer to look at what people are actually doing with their money. It’s a fact that we are now seeing record inflows into the equity markets but how do we put this into context?

First, I would just note that Rydex traders have been a good contrarian indicator for a long time. They recently positioned themselves more bullishly than any time in the history of this fund family, even surpassing the peak seen during the height of the dotcom mania.

I also like to look at margin debt, or total borrowing in brokerage accounts, as way of assessing speculative fervor. Nominal margin debt recently hit a new record high but I prefer to normalize this measure by comparing it to the size of the economy. This adjusted measure also recently hit a new, all-time high greater than that set in 2000.

Finally, we can look at household financial assets invested in the stock market compared to those in money market funds. Here is where we see the direct result of 7 years of zero percent interest rate policy. Households now have more than 15 times as much money invested in stocks than they do in money market funds, well beyond anything we have seen since the invention of these cash vehicles.

With as much money as they are now pouring into the equity markets, investors might do well to remember that bull markets aren’t born on euphoria.

Source: http://seekingalpha.com/article/4056252-3-charts-show-stock-market-euphoria-totally-unprecedented

A Retirement Checklist

My Comments: There’s a fundamental difference between strategies and tactics. If you don’t now know the difference, and you realistically plan to retire at some point, then I encourage you to learn and understand the difference.

Too many people get caught up in tactical steps, responding to what they might see on TV or in response to a salesman or saleswoman wondering why their commission is still in your pocket.

In the context of retirement, your first effort is to develop a comfort level with the strategic implications of moving away from the work force and into what we favorably think of as retirement. Only when you (and your significant other) come to terms with how you want the rest of your life to play out should you then explore the various tactical steps that will allow you, hopefully, achieve your strategic goals.

The following checklist is about the best outline I’ve found to help you get where you want to go.

Kelly Henning, CFP  \  July 8, 2016

Clients often ask financial planners, “Will I be OK in retirement?” Before looking at a client’s assets and expenses to answer that question, we ask follow ups such as, “What do you want your retirement to look like?” Each individual’s perspectives on retirement are unique. Some people want to remain in their current house and community. Others wish to downsize and stay in the area close to family and friends. There is yet another group that wants to leave expensive Northeast states and move south or west.

Thus, it’s key to expand on a client’s retirement goals earlier rather than later.

The checklist below illustrates different items to think about as retirement approaches, from ten years before to right after retirement begins. The earlier one starts planning for retirement, the more prepared one should be not only financially, but also emotionally.

5 to 10 Years Before Targeted Retirement
• Brainstorm retirement goals and dreams of what your retirement will look like.
• Think about where you want to live and whether you want to downsize.
• Revisit goals and timeframe annually.
• Obtain annual credit report.
• Pay down mortgages and other debts to strive to become debt-free by retirement age.
• Revisit progress toward achievement of retirement goals, and adjust retirement contributions and/or spending as appropriate.
• Review estate planning needs and update documents, titling and beneficiaries as needed.
• Consider the need for Long Term Care insurance.

1 to 5 Years Before Targeted Retirement
• Attend pre-retirement workshops and/or consider a personal life coach to help prepare for the transition.
• Get comprehensive medical, dental and vision exams while still covered by employer health insurance plans.
• Consider Social Security claiming strategies.
• Request estimates of pension or retiree medical benefits.
• Get educated about Medicare options.
• Revisit estimated budget for income and expenses anticipated in retirement.

6 to 12 Months Before Targeted Retirement

For income tax planning:
• Speak with your accountant about your expected new income bracket and how to plan for it.
• Discuss possible Roth IRA conversion or other tax planning strategies.
• Know if you are eligible for any outside retirement plan contributions.

401(k) or 403(b) plan:
• Plan to max out contributions for the current year.
• Confirm all funds in 401(k) accounts are vested.
• Confirm whether funds are pre-tax only or pre-tax and after-tax.
• Coordinate with wealth manager to keep 401(k) or 403(b) funds in the plan or roll to an outside IRA.
• If rolling to an outside IRA, open new account and obtain account number and custodian address/wire instructions for future deposit.
• If retiring between ages 55 and 59.5, you may want to wait to roll over due to options to take penalty-free withdrawals from your 401(k) in year of retirement or take 72t distributions for at least five years.

Pension benefits:
• Obtain all pension benefits available through current employer.
• Determine whether or not a lump-sum pension option is available and whether it is preferable for you.
• Other qualified and non-qualified retirement benefits.
• Obtain information on all additional plans offered by the company and information on vesting, tax, and transfer of these accounts.

Social Security Benefits:
• Login to http://www.ssa.gov, create an account and obtain a current benefits statement.
• Be sure to complete this step for spouse.
• If divorced, contact Social Security directly at (800) 772-1213 and obtain information on taking benefits as an ex-spouse.
• Coordinate Social Security Analyzer tool with benefits statements to determine your claiming strategy.

2 to 3 Months Before Retirement
• Paid time off: If you have any accumulated sick days, vacation time or other PTO days, determine if/how you will be paid for these days.
• Advise your supervisor and HR representative in writing of desired retirement date.
• Hopefully you’ll agree on a specific date (e.g. first week in January depending on payroll and other items).
• Consider a date which you will be eligible for year-end bonus or other benefits, including 401(k) matches, profit sharing, or stock options.
• Request retirement package of paperwork from HR.
• Depending on the size of your company, HR will generally provide its own packet of paperwork and forms that need to be completed.
• Determine date for exit interview with HR/supervisor.
• Make final decision on all insurance, including medical, dental, vision and life insurance (timing will depend on company policies).

One Month Before Retirement
• Obtain via online or phone all the paperwork to roll your 401(k), 403(b) or other retirement accounts, out of the plan into an outside account, if that’s the choice you’ve made.
• Complete paperwork and contact HR to see if plan administrator signature is required.
• Paperwork will be sent in following retirement date.

One Week Before Retirement
• Confirm that HR retirement package has been completed and all relevant documents are signed.
• Clean-up desk/emails, etc.
• Remove any personal/private information from work email and computer.

Post Retirement
• Complete the 401(k) rollover paperwork, which you should submit following retirement date

There are many decisions to consider as one prepares for retirement, from healthcare options to account logistics. Understanding what should be done and when well in advance of your retirement date can be key to reducing stress in the months and weeks before you stop working. Employers will have deadlines on paperwork submission, some of which are your last day of work or thirty days after. Knowing these deadlines and seeking information in advance is essential. Use all available resources, such as your company’s human resources department and your professional advisors, to help make the transition as smooth as possible.

The Big Problem With Democrats’ and Republicans’ Social Security Proposals Is They’re Both Right

My Comments: We long ago decided as a society that letting huge swaths of our population, the elderly, suffer and die early was not in our best interest. This premise has been part of the fabric of every society for millions of years.

In the 1930’s it was decided that it was not enough to hope it would happen, but that society should formalize the premise at the Federal level. What resulted was the Social Security Administration and today we have over 41 million people getting financial help every month.

There are now those in leadership positions at the Federal level that want to make fundamental changes. Many feel the burden on society that benefits elderly members of that same society are onerous. Never mind we’ve long accepted the premise of looking after the elderly. Perhaps it’s a matter of degree, but whatever the case, a vigorous debate is necessary.

So, sometime in the next 20 years, structural changes will be made to Social Security in this country. Demographics will demand it, along with the many millions of Americans who have been paying into the system their whole working life. That is, unless we are now willing to ignore the elderly, push them out into the streets, and wait for them to die.

Sean Williams \ Mar 11, 2017 at 9:35AM

The importance of Social Security for America’s retirees simply can’t be overstated.

As of January, the Social Security Administration’s (SSA) monthly snapshot showed that nearly 41.4 million retired workers were receiving monthly payments averaging $1,363. This may not sound like a lot of money, but the SSA’s data from 2016 shows that 61% of all retired workers receiving benefits relied on their monthly Social Security checks to account for at least half of their income. Without this money, there would presumably be a considerable poverty problem among seniors.

Both solutions work — that’s the problem

But America’s most sacred social program is caught in a tailspin. Two ongoing demographic shifts — the retirement of baby boomers and the steady lengthening of life expectancies over the past couple of decades — are expected to push Social Security to the brink, so to speak. While the program is in no danger of going bankrupt (as long as people are working, payroll taxes will be collected, and payments made to beneficiaries), the current payout rate may not be sustainable.

According to the Social Security Board of Trustees report from 2016, the more than $2.8 trillion in spare cash currently held by Social Security should be depleted by 2034, at which point an across-the-board benefits cut of up to 21% may be needed to sustain the program through 2090. While there are numerous proposals on the table to fix Social Security, doing nothing and cutting benefits when the Trust burns through its spare cash is essentially the least favorite “fix” among the public.

Perhaps the greatest irony here is that solutions aren’t the issue. Well over a dozen separate fixes for Social Security have been proposed. The crux of the problem is that Democrats and Republicans on Capitol Hill can’t agree on a plan.

The way I see it, the real issue with the Democrat and Republican proposals is that they’re both right, which makes compromising extremely difficult. While both approaches clearly have downsides, both the Democrat and Republican solutions would extend the life of Social Security for retired workers. In other words, both plans work.

How Democrats would fix Social Security

Let’s begin by taking a generalized look at the three ways Democrats often propose to fix Social Security. We won’t be looking at any bill in particular; just the general concepts that most lawmakers in the Democratic Party tend to agree on when it comes to Social Security reform.

1. Raise the payroll tax earnings cap

Pretty much every Democratic proposal involves increasing Social Security’s payroll tax cap. As it currently stands, 12.4% of your pay between $0.01 and $127,200 is taxed as 12.4%. However, most Americans don’t pay the full 12.4%. They’re responsible for half (6.2%), with their employer picking up the tab for the other half (6.2%). Any earned income above and beyond $127,200 in 2017 is free and clear of the payroll tax.

As the argument goes, since roughly 90% of Americans are paying into Social Security with every cent they earn, it’s not fair that the wealthy are only paying tax on a smaller percentage of their income. Select payroll tax proposals have suggested providing a moratorium between the wage-indexed cap ($127,200) and, say, $250,000, then taxing all earned income above $250,000 at the 12.4% rate, or removing the maximum earnings cap completely. Removing the cap completely would go a very long way to narrowing Social Security’s more than $11 trillion budgetary shortfall.

2. Tie COLA to the CPI-E
Second, Democrats would like to stop using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) as the determinant of the annual cost-of-living adjustment (COLA) and replace it with the Consumer Price Index for the Elderly (CPI-E). The CPI-E strictly factors in the spending habits of households with persons aged 62 and up, meaning it would emphasize medical and housing expenditures more, and de-emphasize less important expenditures, such as education, entertainment, apparel, and transportation.

The Senior Citizens League has estimated that if the CPI-E were used in place of the CPI-W, seniors would have been paid an aggregate of $29,600 more over the past 25 years.

3. Give low-income workers a raise
Lastly, Democrats would like to see low-income retirees earn more. While there are minimum monthly benefits in place, this doesn’t mean seniors are necessarily earning enough annually to move above the national poverty income threshold. Democratic solutions to fix Social Security often include measures to boost payouts to low-income workers, women, and/or older Americans (i.e., those in their 80s or 90s).

Obviously, this plan isn’t perfect. It requires the rich to pay more without compensating them any more when they retire and begin claiming benefits. It also boosts payouts by using the CPI-E and giving low-income workers a raise, which is counterproductive to the current budgetary shortfall for Social Security.

The Republican solution for Social Security

Just like the Democrats, Republicans have a three-pronged approach to solving Social Security’s budgetary woes. Once again we’re not focusing on any specific bill here; we’re just examining the basic tenets of most Republican Social Security proposals.

1. Raise the full retirement age
Hands down the most popular solution for Republicans in Washington involves raising the full retirement age. Your full retirement age, which is determined by your birth year, is the age at which you become eligible to receive 100% of your monthly payout. Claim benefits before reaching this age, and your monthly payout is permanently reduced. Wait until after your full retirement age to claim benefits, and your monthly payout is even higher.

The various Republican proposals have suggested increasing the full retirement age from 67, which will be reached in 2022, to 68, 69, or even age 70. Raising the full retirement age would presumably coerce healthy seniors to remain in the workforce, ultimately adding more payroll tax revenue into the program. It would also account for lengthening life expectancies.

2. Tie COLA to the Chained CPI
Republicans also have a strong tendency to want to abandon the CPI-W. However, their proposal usually involves switching to the Chained CPI, not the CPI-E.

The difference between the Chained CPI and the CPI-W is that the Chained CPI takes into account a buying habit known as “substitution.” In other words, if the price of a good or service increases in cost by a lot, the Chained CPI assumes the consumer will trade down to a less expensive good or service. The CPI-W does not factor in consumer substitution. As a result, the Chained CPI would result in lower annual COLAs than the CPI-W, which according to Republicans would more accurately represent the inflation that seniors are facing.

3. Means-test for benefits
Finally, Republicans often suggest means-testing seniors for benefits. In short, means-testing would be an arbitrarily chosen annual income level at which well-to-do retired workers would receive a reduced benefit, or perhaps no benefit at all.

As a completely arbitrary example, if a Social Security-eligible senior were earning $200,000 a year, he or she might be deemed ineligible for benefits based on means-testing since the income provided by Social Security is essentially not needed to live comfortably and pay bills. Republicans believe means-testing will save money by eliminating unnecessary payouts.

The Republican plan isn’t perfect, either. Raising the retirement age and relying on the Chained CPI means a benefits cut for future retirees, along with lower annual COLAs. Seniors would either need to wait longer to file their claims, or be willing to accept a steeper reduction in monthly payouts.

While neither party’s plan is perfect, they both make fiscal sense and achieve the task of getting Social Security back onto stable ground. The real question at this point is whether Democrats and Republicans can work together on a joint plan when both of their current plans make sense. Only time will tell.

The US Is Going Through a Profound Demographic Shift That Will Affect Everyone

My Comments: Our economy is dying. And it has nothing to do with Republicans or Democrats. It has to do with demographics.

A solution is to encourage immigration, a source of new people to add to the labor force, buy homes, buy cars, buy groceries, buy insurance policies, and everything else normal people do. Yes, there are going to be some bad apples, just like there are bad apples today. Think Timothy McVea, the white American Christian who killed 160 people a few years ago in Oklahoma.

The challenge is similar to the one I teach people who are investing money; it’s not risk that is bad, it’s the inability to manage that risk that is bad. When it comes to immigration, it’s not the immigrants who are necessarily bad, but our inability to welcome the good ones and at the same time figure out how to screen for those who would do us harm.

The consequences of dramatically limiting immigrants to this country is a slow economic death, and forcing hard working people who might otherwise be on a path to citizenship, is foolish and stupid. Especially if you think free enterprise with a goal of making money is a viable objective.

If we are going to follow 45 and invest $1T in infrastructure, and at the same time reduce the existing $17T federal debt, we’re going to need lots of immigrants.

by Patrick Cox / March 6, 2017

The US fertility rate fell again last year, marking the lowest rate of reproduction since the CDC started keeping records in 1909. This prompted the amusing Bloomberg headline, “Make America Mate Again.”

The above chart shows that in 2015, there were only 62.5 births per 1,000 women of childbearing age. That fertility rate dropped even further, touching 62.3 births per 1,000 women, in the first half of 2016.

Demographic Headwinds

To put the fertility rate in perspective, it is now at about 1.85 births per woman. To maintain a stable population requires at least 2.1 births per woman. The US has been at or below the replacement fertility rate since 1972, as the chart below shows.

Demographers worry that a dwindling birth rate will hurt economic growth and tax revenues needed to fund transfer payments to a growing elderly population. Some project that fertility rates will rise when the economy expands.

If the Trump administration achieves higher economic growth, it’s unlikely to do so fast enough to support the mandated 9% increase in entitlement spending for older Americans without more deficit spending. Trump says he intends to preserve Social Security and Medicare spending levels, but he seems unaware of the demographic headwinds we are sailing into.

Few policymakers grasp the profound impact of an inverting demographic pyramid, simply because it has never happened before.

The Cure for a Broken Dependency Ratio

History does show, however, that there’s been a persistent downward ratchet effect in the US fertility rate: the downward movement may be temporarily interrupted, but then it resumes again.

Moreover, this is a long-term trend. Fertility rates began falling prior to World War II, despite the temporary uptick that led to the baby boom (blue segment of line). This chart shows births per 1,000 people in the US.

In short, the population dynamics that have broken the dependency ratio and created the unfunded liability crisis worsened in 2016. This dynamic won’t change fast enough to prevent a crisis that can only be fixed by extending health spans.

With longer health spans, older people can live healthier and longer and be more economically productive. They can then support their own retirements instead of relying on fewer and poorer young people to do so.