Tag Archives: financial planner

The Biggest Risk Retirees Face Right Now

My Comments: On TV and in murder mysteries, there’s often a reference to ‘being in the wrong place at the wrong time’. Well, it can happen to any of us planning to retire, but instead it reads this way: ‘being born at the wrong time…”.

These words from Michael Aloi from earlier this year show what this means. And it has special meaning for any of you planning to retire in the next twelve months or so. We’re close to the end of an historic bull market and for some of us, it will be painful. Look at the two respective totals in the chart below.

Michael Aloi, CFP | March 23, 2018

Those planning to retire face many risks. There is the risk their money will not earn enough to keep up with inflation, and there is the risk of outliving one’s money, for example. But perhaps, the biggest risk retirees face now is more immediate: Retiring in a bear market.

To put this in perspective, First Trust, an asset manager, analyzed the history of bull and bear markets from 1926-2017 and found bull markets — which are up or positive markets — lasted on average nine years. If that is the case, this bull market should be ending right about now, as it just turned 9 on March 9, 2018. Consider also the study found that the typical bear market lasts 1.4 years, with an average cumulative loss of 41%.

Not to be all doom and gloom, but the chart below illustrates why the biggest risk retirees face right now is a bear market. It shows what happens to two identical $1 million portfolios, depending on the timing of bad stock market years.* Adjusted for 3% inflation

Mr. Smith and Mrs. Jones start off with the same $1 million portfolio and make the same annual $60,000 annual withdrawal (adjusted for 3% inflation after the first year). Both experience the same hypothetical returns, but in a different sequence. The difference is the timing. Mrs. Jones enjoys the tailwind of a good market, whereas Mr. Smith’s returns are negative for the first two years.

The impact of increasing withdrawals coupled with poor returns is devasting to Mr. Smith’s long-term performance. In the end, Mrs. Jones has a healthy balance left over ($1,099,831), whereas Mr. Smith runs out of money after age 87 ($26,960).

With stock market valuations higher and this bull market overdue, by historical averages, retirees today could be faced with low to poor returns much like Mr. Smith in the first few years of retirement. However, retirees like Mr. Smith still need stocks to help their portfolios grow over time and keep up with the rising costs of living. Unfortunately, no one knows for sure what the equity returns will be in the next year or the year after.

This is the dilemma many retirees face. The point is to be aware of the sequence of return risk, illustrated in the chart above, and take steps now if retirement is in the immediate future.

Here are two of the many planning possibilities retirees today can use to avoid the fate of Mr. Smith:

1. Use a “glide path” for your withdrawals

In a study in the Journal of Financial Planning, Professor Wade Pfau and Michael Kitces make a compelling argument to own more bonds in the first year of retirement, and then gradually increase the allocation to stocks over time. According to the authors’ work, “A portfolio that starts at 30% in equities and finishes at 60% performs better than a portfolio that starts and finishes at 60% equities. A steady or rising glide path provides superior results compared to starting at 60% equities and declining to 30% over time.”

The glidepath strategy flies in the face of conventional wisdom, which says people should stay balanced and gradually conservatize a portfolio later in retirement.

The glidepath strategy is a like a wait-and-see approach: If the stock market craters in the first year of retirement, be glad you were more in bonds. Personally, I would only recommend this strategy to conservative or anxious clients. My concern is what if markets go up as you are slowly increasing your stock exposure — an investor like this could be buying into higher stock prices, which could diminish future returns. An alternative would be to hold enough in cash so one does not need to sell stocks in a down year per se.

Though not for everyone, the glide path approach has its merits: Namely not owning too much in equities if there is a bear market early on in retirement, which coupled with annual withdraws, could wreak havoc on a portfolio like Mr. Smith’s.

2. All hands on deck

The second planning advice for Mr. Smith is to make sure to use all the retirement income tools that are available. For instance, if instead of taking money out of a portfolio that is down for the year, Mr. Smith can withdraw money from his whole life insurance policy in that year, so he doesn’t have to sell his stocks at a loss. This approach will leave his equities alone and give his stocks a chance to hopefully recover in the next rebound.

The key is proper planning ahead of time.

The bottom line

Retirees today face one of the biggest conundrums — how much to own in stocks? With the average retirement lasting 18 years, and health care costs expected to increase by 6%-7% this year, retirees for the most part can ill afford to give up on stocks and the potential growth they can provide. The problem is the current bull market is reaching its maturity by historical standards, and investors who plan on retiring and withdrawing money from their portfolio in the next year or two may be setting themselves up for disaster if this market craters. Just ask Mr. Smith.

There are many ways to combat a sequence of poor returns, including holding enough cash to weather the storm, investing more conservatively in the early years of retirement via a “glide-path” asset allocation, or using alternative income sources so one doesn’t have to sell stocks in a bad market.

The point is to be mindful of the risk and plan accordingly.

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Civility Has Its Limits

My Comments: Instant gratification, or the desire for it, is the norm in 21st Century America. It may be OK when you discover you’re hungry and have no need to go into the woods and shoot something, or instead of waiting days for the mail to arrive, you simply go to your phone and look for a text message. But…

As a society, we’re experiencing a massive shift in thinking and it’s going to take time, years even. But it is coming. Just as women in the early 20th Century were finally allowed to vote, and before that, years of agony for immigrants from Africa to shake off the shackles of slavery. And here we are 150 years later, still not fully responding to that seminal upheaval of what was then ‘normal’ arrangements in society.

The recent societal and political chaos involving the Supreme Court will be seen in years to come in the same light. This article by Peter Beinart helped me come to terms with what happened and will allow me, hopefully, to move on and resume my ‘normal’ life. I’ll continue to resist, but I now have a positive goal of eventual gratification.

by Peter Beinart on Monday, October 8, 2018

When it comes to Brett Kavanaugh, there are three camps. The first believes it’s a travesty that he was confirmed. The second believes it’s a travesty that he was smeared. The third believes it’s a travesty that the process was so divisive.

David Brooks is in camp number three. The Kavanaugh hearings, he wrote on Friday, constituted an “American nadir.” You often hear such phrases from people who think the biggest problem with the Kavanaugh battle is that the participants weren’t more courteous and open-minded. Jeff Flake said that in debating Kavanaugh, the Senate “hit bottom.” Susan Collins called it “rock bottom.” Think about that for a second. For most of American history, Supreme Court nominees—like virtually all powerful men—could sexually assault women with complete impunity. Now, because allegations of such behavior sparked a raucous, intemperate political fight, America has hit “rock bottom,” a “nadir.”  How much better things were in the good old days when sexual-assault allegations didn’t polarize the confirmation process because sexual-assault victims were politically invisible.

Implying, as Brooks, Flake, and Collins do, that America’s real problem is a lack of civility rather than a lack of justice requires assuming a moral equivalence between Brett Kavanaugh’s supporters and Christine Blasey Ford’s. “What we saw in these hearings,” writes Brooks, “was the unvarnished tribalization of national life.” The term “tribe” implies atavistic, amoral group loyalty: Huns vs. Franks, Yankees vs. Red Sox, Hatfields vs. McCoys. There are no larger principles at stake. “There was nothing particularly ideological about the narratives,” laid out by Kavanaugh and Blasey Ford, Brooks declares, “nothing that touched on capitalism, immigration or any of the other great disputes of national life.”

But gender is indeed one of the “great disputes of national life.” The Kavanaugh fight pitted people who worry that #MeToo hasn’t changed America enough, that it’s still too easy for men to get away with sexual assault, against people who fear that #MeToo has changed America too much, that it’s become too easy for women to ruin men’s lives by charging them with sexual assault. That’s not a tribal struggle; it’s an ideological one. It involves competing visions of the relationship between women and men.

Describing Democrats and Republicans as warring tribes has become a political cliché, but it’s wrong. If tribal implies unthinking or inherited group loyalty, then Democrats and Republicans were actually more tribal in the mid-20th century. Back then, when being a Democrat or a Republican signified less about your view of the world, party identity was more a function of regional or ancestral ties. Whether or not they supported civil rights or higher taxes or the Korean War, Irish Catholics from Boston were mostly Democrats; Presbyterians from Kansas were mostly Republicans. Today, party identity is more a function of what you believe. The parties are so bitterly polarized not because they’ve become more tribal but because they’ve become more ideological.

But for Brooks, depicting the supporters of Kavanaugh and Blasey Ford as tribes is useful because it doesn’t only suggest moral equivalence, it also implies an equivalence of power. The “tribalization” of American politics, Brooks argues, “leads to an epidemic of bigotry. Bigotry involves creating a stereotype about a disfavored group and then applying that stereotype to an individual you’ve never met. It was bigotry against Jews that got Alfred Dreyfus convicted in 1894. It was bigotry against young black males that got the Central Park Five convicted in 1990. It was bigotry against preppy lacrosse players that led to the bogus Duke lacrosse scandal.”

This is misleading. There is no equivalence between the “bigotry” faced by preppy lacrosse players and that faced by black males. There’s no equivalence because preppy lacrosse players, in general, enjoy far more privilege and power and thus, the stereotypes people hold of them don’t generally land them in jail or dead. Similarly, there is no equivalence between the “bigotry” faced by men accused of sexual assault and the “bigotry” faced by women who suffer it. There’s no equivalence because men wield far more power. If you don’t think that matters, try imagining Kavanaugh getting confirmed by a Senate comprised of 79 women.

The struggle over Kavanaugh was, at its core, a struggle between people who want gender relations to change and people who want them to remain the same. And throughout American history, whenever oppressed groups and their supporters have agitated for change, respectable moderates have warned that they were fomenting incivility and division. In April 1963, seven white Alabama ministers and one rabbi wrote a letter to Martin Luther King. The letter articulated no position on segregation and the right to vote. It assumed, instead, a moral equivalence between blacks that wanted race relations to change and whites who wanted them to remain the same. Both sides held “honest convictions in racial matters.” Both “our white and Negro citizenry” should “observe the principles of law and order and common sense.”

The real danger, the authors claimed, was “friction and unrest.” Averting it required “forbearance” and “restraint” on both sides. King, whose Birmingham campaign was titled “Project C”—for confrontation—was purposefully fomenting such friction and unrest through marches, sit-ins, and boycotts. While “technically peaceful,” the ministers and rabbi warned, the “extreme measures” adopted by King and his supporters “incite to hatred and violence.”

In his response, written from jail, King argued that the white clergymen were mistaking symptom for disease. The problem wasn’t “friction and unrest” between Birmingham’s two tribes. It was centuries of oppression, which there was no frictionless way to overcome. “I am not afraid of the word ‘tension,’” King explained. “We must see the need of having nonviolent gadflies to create the kind of tension in society that will help men to rise from the dark depths of prejudice and racism to the majestic heights of understanding and brotherhood.”

Even as Bull Connor’s men savagely beat black protesters in the streets, King recognized that Birmingham was not hitting “rock bottom.” It was rising from an almost century-long nadir in which white supremacy—no matter how murderous—was barely even a subject of political controversy, in which black powerlessness was the foundation on which comity between two America’s white-dominated political parties rested.

The problem that the Kavanaugh struggle laid bare is not “unvarnished tribalism.” The problem is that women who allege abuse by men still often face male-dominated institutions that do not thoroughly and honestly investigate their claims. That problem is not new; it is very old. What is new is that this injustice now sparks bitter partisan conflict and upends long-standing courtesies. Rape survivors yell at politicians in the Senate halls. The varnish—the attractive, glossy coating that protected male oppression of women—is coming off. Brooks, Collins, and Flake may decry the “tension” this exposes. But, as King understood, the “dark depths of prejudice” can’t be overcome any other way.

Source: https://www.theatlantic.com/ideas/archive/2018/10/has-american-politics-hit-rock-bottom/572452/

4 Financial Life Stages and How to Plan for Them

My Comments: As a financial planner, I’ve described the three primary phases most of us travel through in life: childhood, adulthood, and retirement. As a child, we’re dependent on others to maintain our lives; as adults we’re dependent on our ability to fend for ourselves and typically work for money; in retirement we’re dependent largely on our earlier ability to set aside resources and have money work for us.

These words from Sunita Abraham break down ‘adulthood’ into four financial stages and they are worth noting. Even if you’ve already retired, you may find it interesting for yourself and others in your family.

by Sunita Abraham \ October 10, 2018

Having a different financial planning strategy for different stages of one’s life cycle can help simplify the task of investing for various tenures

If the laundry list of “things to do” puts you off financial planning, then here is a way to make it easier. The elements that form part of the financial planning exercise include budgeting to generate savings, investing for goals, securing , protecting income through life and general insurance, managing debt and planning for the transfer of wealth.

While each element plays an important part in securing your finances, not all of them are equally significant at every stage in the life-cycle. Categorize the activities as critical, important, urgent and optional in each phase of your life. Focus your resources on those activities that are identified as critical and important that need immediate attention. Consider activities that are labelled as urgent only if they are also seen as essential. For example, while you may consider holding off increasing contribution to the retirement corpus in favor of paying life insurance premium, you should not consider doing it to fund a holiday even if it is urgent.

We tell you the four critical stages in a life cycle and how different financial planning approaches and tools can fit into each to make it a smooth ride for you.

The first income stage

When you first begin earning an income, budgeting is the critical financial skill that you need to master. Develop a suitable budget and build the discipline to live within your income so that you don’t fall into a debt trap. Once you learn to contain your expenses to available income, start building savings into your budget. The emergency fund will have the first claim on your savings and this is an urgent and important task.

Initiating some investments for retirement is an important task at this stage even though the goal may seem too much in the future to be relevant now. Investments for other goals are optional at this stage and can commence once your income and savings stabilize.

Unless you have dependents on your income, life insurance is optional at this stage and you need not assign scarce funds for life cover. However, a basic health insurance is important, particularly if you don’t have a health cover from your employee. Other products such as auto insurance and personal accident insurance should also be included as required. Servicing debt that you may have, such as student loan, is an important element, as is controlling debt use and building your credit history. A misstep can have long-term consequences on your borrowing ability in the future.

Estate planning is optional at this stage and you can consider it in the future when wealth has been created.

The dependents stage
This is the phase that is the most demanding since many of the elements of financial planning need to be serviced. You are likely to have dependants on your income and, therefore, life insurance is a critical element for security. Consider term insurance which gives you the required protection at the most efficient cost. Expand health insurance to cover your family too.

Your income and expenses would have both expanded and you should be better at budgeting and saving by this stage. Living by the budget is critical to be able to find the savings for the many short-, medium- and long-term goals you are likely to have at this stage. Revise and fine-tune your budget periodically to reflect your income and need for savings. Invest the savings to construct a portfolio that is aligned to growth, income or liquidity needs of goals.

Use a professional to help you do this efficiently if you find yourself procrastinating. Build basic estate planning into your finances by making clear nominations on your investments and insurance.

Debt management is a critical function at this stage given that your needs are likely to be more than availability of funds. Keep your ability to repay in mind while adding debt and ensure you do not harm your credit score or credit history. You should not have to meet debt repayment obligations at the cost of your retirement savings, insurance protection and essential goals like housing. Borrow primarily for appreciating assets where it will help grow your net worth over time.

The growth stage
If you have managed your personal finances prudently so far, then this will be the golden stage for your finances. Your income would be high and seeing an upward growth trend, while your expenses would have stabilized resulting in growing savings. Being mindful of expenses is important even at this stage and the focus of budgeting would be to maximize savings.

Managing investments is critical in this period. Many of your goals would be close to being funded and the investments have to be rebalanced to reflect this. This is also the time to catch up on important goals like retirement with the excess savings being assigned to this. Where the goals are well in the future, the investments should reflect the ability to take risk to earn higher returns.

Life and health insurance should be updated and aligned to your situation.

Now that you have accumulated wealth, take time to plan how you would like to distribute your estate and formalize a Will. Make sure that the assets and investments do not have nominations that are contrary to what you have decided in your Will.

Servicing debt should not be difficult at this stage given the high income. But consider the funding needs of your other goals before you add to your debt burden.

The retirement stage
Budgeting becomes the focus of finances once again during retirement. The object now is to control expenses to stay within the available income. Managing the investments to generate income and protect the corpus from inflation becomes the primary investment activity at this stage.

Adequate health insurance is critical since health costs can throw your income off rails. Life insurance may be relevant only if it is required to protect retirement income for the spouse and debt should not be a big part of your finances at this juncture.

An important activity at the beginning of retirement is to simplify finances. This would include cutting down on multiple accounts and investments, organizing documents, updating details and consolidating investments to a few relevant ones. Make sure all your financial documents are updated and accessible.

Make optimum use of limited time, funds and energy by concentrating on the activities that are important and critical at each stage in your life. Over time you will find that you have knit together all the elements without finding the whole exercise too intimidating.

Source: https://www.livemint.com/Money/r946kZa4ZiqNghWh6GUP1H/4-financial-life-stages-and-how-to-plan-for-them.html

This Data Visualization Shows What’s Really Responsible For Our Current Bull Market

My Comments: Apart from my concern that many of us will wake up one day soon and discover much of our money has disappeared, it is helpful to understand where all the gains have come from since the last significant crash in 2008.

By Nicolas Rapp and Clifton Leaf September 25, 2018

Who’s responsible for the bull market: Trump, Obama, Bernanke, Yellen? Answer: Tech companies. Here’s a look at what’s really driving growth.

As Wall Street’s raging bull continues its historic charge, there has been plenty of chatter about who deserves the credit: Mr. Trump? Mr. Obama? Former Fed chairs Ben Bernanke or Janet Yellen, perhaps? But the answer seems not to be a “who” but rather a “what”: tech companies. From the market bottom in 2009 to now, the capitalization of companies listed in the S&P 500 index grew by more than $18 trillion. But three of every 10 dollars in gain came from the 73 tech companies in the index. And the true bull market of the past decade was even narrower than that. Nearly 16% of the market cap growth derived from just four stocks: Apple, Alphabet, Microsoft, and Facebook. Their combined valuations soared from just over $300 billion to more than $3 trillion.

[ FORTUNE ]

We’re underestimating China’s economic power. Here’s why

My Comments: By first choosing to opt out of participating in the Trans Pacific Partnership (TPP) and then inviting a trade war with China, the US has effectively ceded global economic supremacy to China. The expressed logic behind these moves was in the guise of ‘Make America Great Again”. Hah!

In turn, China is attempting to match their new found economic supremacy with military supremacy. It’s only a matter of time before we find ourselves in a conflict or “Cold War” with echoes of what we lived with years ago and the Soviet Union.

September 27, 2018 Knowledge@Wharton

China’s economy is so large – and growing so rapidly – that it’s difficult to get a true read on the size of its influence on the world stage, according to this opinion piece by David Erickson, a senior fellow and lecturer in finance at Wharton. Before he taught at Wharton, Erickson was on Wall Street for more than 25 years, working with private and public companies to raise equity strategically.

Some of the rhetoric out of Washington recently has been suggesting that the U.S. is “winning” the trade war because the U.S. stock market is near all-time highs as China’s domestic equity markets have declined significantly. While the domestic Chinese equity markets have suffered since the trade tensions started earlier this year, I think that premise underestimates the economic power of the rapidly growing number-two economy in the world and really needs a bit of context.

The Chinese equity stock market — as represented by Shanghai stock market — actually peaked in 2015. This is not too dissimilar from the market cycles we have experienced in the U.S. in the last 20 years. This includes what we saw in the Dow Jones Industrial Average (DJIA), which reached 11,000 in May of 1999 but took more than seven years to reach 12,000. While the DJIA advanced from October 2006 to July 2007 from 12,000 to 14,000, it took almost six years, until May 7, 2013, before it advanced to the 15,000 milestone. For the NASDAQ market, the cycle was even more dramatic where it took 15 years to reach new highs in 2015. Markets do go through cycles.

But hasn’t the Shanghai stock market been quite volatile since the trade war started? Yes, it has. This is not surprising with much of the domestic Chinese equity market activity largely being from retail investors, especially with many having very limited experience in Chinese equity investing (which I will address shortly). With the uncertainty of the trade rhetoric over the last few months, there was likely to be some significant volatility. However, by way of comparison, the U.S. equity markets went through significant volatility earlier this year after a significant run since the 2016 U.S. election. If you go back a bit further, the U.S. equity markets, which are largely institutionally driven, had significant periods of volatility during the 2008 Financial Crisis, where the DJIA fell almost 800 points on September 29th; the technology “bubble” in 2000, where on April 14th the NASDAQ fell 9% and for the week 25% (and the NASDAQ 100 index lost 78% of its value in two years); and when the Dow Jones fell almost 23% in one day on “Black Monday” of 1987.

Why do I go back to 1987 for context? Because in 1987, while a Wharton finance student could study “Black Monday” in the context of previous crashes in the U.S. stock market, the Chinese domestic equity market didn’t exist and wouldn’t until 1990. That’s right, a Chinese student studying finance on mainland China at the same time couldn’t learn about investing in the Chinese equity markets because it did not exist until a few years later. The Shanghai Stock Exchange was founded in 1990 (and Shenzhen around a similar time) creating a domestic equity market for both mainland Chinese companies to list and finance, and for Chinese institutions to invest. Today, it is estimated that the Shanghai Stock Exchange has over 200 million retail investors — total U.S. population is just 327 million — and for the full year 2017 was the number-two IPO market globally in terms of proceeds raised. So, while the Chinese equity market has suffered significant losses this year, given the “rapidity” of its evolution, these changes need to be put in context.

“Now, markets in Hong Kong, Shanghai and Shenzhen collectively represent the largest IPO market in the world….”

These are just a couple of the things we learned on our recent trip to Hong Kong, Shanghai and Shenzhen as part of Wharton’s MBA course called Strategically Investing in the Growth of China. A delegation of 58 Wharton Executive MBA students, along with three faculty members, met with prominent Chinese companies, leading Chinese public equity and private equity investors, as well as representatives of the Hong Kong and Shanghai Stock Exchanges, and explored how they strategically invest in the growth of China. While I had been to China many times during my previous investment banking career (though the last time was in 2013 before I retired), about 85% of our students had never been to Hong Kong or mainland China.

When we started our trip, given that many of our students had never been before, I wanted to give them a few numbers to provide some context as to the size and scope of the Chinese economic opportunity. Here are some of them — all approximations:
• a population of 1.4 billion people;
• 620 million mobile internet users as of 2015, according to China’s Mobile Economy: Opportunities in the Largest and Fastest Information Consumption Boom;
• 400 million in the middle class.

And to get some sense of the rapidity of the change:
• Exports have grown for the last 30 years at a 17% compound annual growth rate (CAGR), making China the world’s largest exporter at $2.3 trillion in 2015, according to The China Questions – Critical Insights into the Rising Power;
• In 1980 about 70% of Chinese labor force was in agriculture; by 2016 only 30% was in agriculture;
• In 1980 only 2% were university educated; by 2016, approximately 30%;
• In 1980 Shenzhen had a population of 30,000; by 2016, Shenzhen had a population of some 12 million.

What I realized as we progressed through our visits to these companies and investors was that these numbers were understated, and significantly under-estimate the economic power of China. Let me outline three of the specific attributes that we learned about and discussed as part of our trip:

How to Prepare for Costs Medicare Won’t Cover

My Comments: Health issues in retirement are a given for those of us not already passed. Whether they end up costing an arm and a leg depends to some extent on how prepared we are before they happen.

Both my wife and I are covered by Medicare and each of us has a ‘medigap’ insurance policy, designed to cover most of what Medicare does not cover. But make no mistake, between the Medicare Part B premiums and the ‘medigap’ policy, it still represents a significant monthly outlay if you don’t think of yourself as financially comfortable.

And then there is Medicare Part D which covers prescription drugs. My wife is a diabetic, and that too can be very expensive. She and I both elected to purchase a Part D plan. All this assumes you have the resources to pay the extra premiums.

As for Medicare Part C coverage, or Advantage Plans, I have a bias against them so we didn’t go that route. But that’s a personal preference.

The real benefit to me for having what we have is that when we decide we need to speak to one of our many physicians, the out-of-pocket expense is not a deterrant. Being able to deal with health issues as they surface provides real peace of mind as the years flow by.

Katie Brockman Aug 19, 2018

When you think about how you’ll spend your retirement savings, you probably imagine traveling the world, getting more involved in your hobbies, or spoiling your grandchildren. What you probably don’t envision is spending every spare dime on healthcare expenses.

Unfortunately, that’s the ugly reality some retirees face.

The average 65-year-old couple retiring today can expect to spend roughly $280,000 on healthcare during retirement, according to a recent report from Fidelity Investments. That includes costs like premiums, deductibles, and other out-of-pocket expenses.

This may come as a shock to some, as many people mistakenly believe that Medicare will cover all their healthcare expenses during retirement. The truth is that while Medicare can offer significant financial assistance, it doesn’t cover everything. And some of the costs it doesn’t cover can put a serious crack in your nest egg.

What Medicare does (and doesn’t) cover

First, it’s important to understand what Medicare does cover and how much you’re paying for it. Original Medicare consists of Part A and Part B. Part A covers hospital visits, visits to skilled-nursing facilities, and in-home healthcare services. As long as you’ve been working and paying taxes for at least 10 years, you generally don’t need to pay a premium for Part A coverage. You do have a deductible for each benefit period, though, and for 2018, that deductible is $1,340. Also, if you have to spend an extended period of time in a hospital or skilled-nursing facility (typically longer than 60 days for hospital stays and 20 days for visits to a skilled-nursing facility), you may have to make coinsurance payments, which range from $167 to $670 per day — or Medicare may not cover your stay at all.

Part B covers more routine care, like doctor visits and flu shots, and the amount each person pays varies based on their income. Those earning less than $85,000 per year (or $170,000 for married couples filing jointly) pay $134 per month for Part B premiums. You also have to pay a yearly deductible, which for 2018 is $183. After you meet that deductible, you pay 20% of the remaining expenses.

You also have the option of enrolling in Part D, which covers prescription drugs. This coverage is provided by private insurance companies, though, so the amount you pay will vary widely depending on which plan you have.

Even considering all that Medicare Part A and Part B cover, there’s a variety of expenses that basic Medicare won’t touch. For example, you still need to pay for all copayments, deductibles, and coinsurance out of pocket, and those costs can add up quickly. You’re also not even eligible to enroll in Medicare until you turn 65, so if you retire before that and lose your health insurance when you leave your job, you’ll need to find coverage outside of Medicare.

Then there are healthcare expenses that most people don’t realize aren’t covered. Most dental care, for example, isn’t covered by Medicare, and neither are eye exams, hearing aids and exams, dentures, or long-term care.

These aren’t necessarily hard rules, because there are always exceptions. Expenses that are considered medically necessary are often covered by Medicare, while routine care is not. So if, for example, you have a dental emergency, then Medicare may pick up the tab, but if you simply get your teeth cleaned or have a cavity filled, then you’ll likely need to pay for that out of pocket. And even routine care can cost hundreds of dollars per visit. If you’re not prepared for those expenses, they can drain your savings quickly.

Don’t let healthcare costs catch you off guard

The best way to avoid paying tens (or hundreds) of thousands of dollars in healthcare costs is to do your research, understand what Medicare does and doesn’t cover, and figure out how to pay for uncovered medical care before you retire.

One option is to enroll in a Medicare Advantage Plan (also known as Medicare Part C). A Medicare Advantage Plan is a health plan offered through private insurance companies that includes all the benefits of Medicare Part A and Part B, as well as some additional coverage for vision, hearing, and dental. Advantage Plans are similar to the insurance plans you likely enrolled in while you were working: You have to visit a doctor within your plan’s network or risk not being covered, and the premiums and deductibles vary by plan and provider.

Although prices vary, you typically get more coverage with an Advantage Plan. Depending on the type of care you need, it could be worth it to pay more for an Advantage Plan in order to pay much less out of pocket for routine care.

Another option is to use a health savings account (HSA) to cover some of your medical expenses. An HSA is essentially a retirement savings account just for healthcare costs. You’re eligible for an HSA if you have a high-deductible health insurance plan, and for 2018, that means you have a deductible of $1,350 for an individual or $2,700 for a family, as well as maximum out-of-pocket costs of $6,650 or $13,300 for an individual or family, respectively.

If you’re eligible to open an HSA, you can contribute up to $3,450 per year (or $6,850 for family health plans) in pre-tax dollars. Those aged 50 and over can contribute an extra $1,000 per year. When you withdraw the funds, so long as you spend them on qualified medical expenses, you don’t need to pay taxes on withdrawals either.

Regardless of which route you choose, it’s crucial to have a plan in place. If you go into retirement assuming you won’t need to pay a dime more in medical expenses than you used to, you’ll be in for a rude awakening. But if you prepare yourself and come up with a plan before you make the leap into retirement, your wallet will thank you.

Source: https://www.fool.com/retirement/2018/08/19/how-to-prepare-for-costs-medicare-wont-cover.aspx

Ride Out The Next Market Storm With These Balanced Vanguard Funds

My Comments: Readers of my blog posts know at least two things: (1) I’ve been expecting a significant downturn for longer than I can remember and (2) I like Vanguard Funds. I have much of my money there, to some extent because of their insanely low fees compared with what I lived with for most of my 42 years in the money business.

The economic consensus is that a downturn is really coming, though at this point whether it’s tomorrow or 3 years from now is anyone’s guess. That being said, this article explains the logic behind the idea and offers reasons why two of Vanguards funds should be considered.

The article below is very long, has many charts, and is not an easy read. If you are so inclined, there is a link to it at the bottom. Have fun…

Also, please understand that I no longer charge anyone for investment advice and am offering this because I can and because many people out there are going to get hammered when the inevitable happens. (BTW, I cannot find the name of the author below so please forgive me for not providing proper attribution.)

Sep. 24, 2018

The stock market has sailed to record gains of more than 400% since the 2007-2009 financial crisis, and investors who didn’t abandon ship have weathered the storm and are now likely in terrific financial shape. However, as the market waters have risen to new heights, investors flush with unrealized gains may be looking to navigate toward calmer seas during the next crisis. In this article, I take a thorough look at two actively managed, balanced mutual funds from Vanguard that provide capital appreciation as well as income from stock dividends and bond distributions, and that also provide a level of capital preservation during periods of market turbulence. The data below reveal how adding these funds can help buoy your hard-fought portfolio from sinking to the next market bottom.

Riding the Current Bull Market Tailwinds

For investors who have witnessed their portfolio value rise dramatically as we have officially entered the second-longest bull market in history, it may be difficult to remember the dread and angst that was felt by many as the S&P 500 index lost 56.8% of its value from Oct 9, 2007 to the market bottom on March 9, 2009. Since then the S&P 500 share price has more than quadrupled, rising 329.3% as of Sept. 18, 2018 and is currently trading near its all-time high. When factoring in reinvested dividends, the S&P 500 has done even better, generating total returns of 424.4%.

Continue Reading HERE