Tag Archives: financial planning

Why Britain needs the immigrants it doesn’t want

My Comments: As someone born on British soil, I am more than casually interested as Britain comes to terms with it’s choice to leave the European Union. Immigration is but one of several areas with huge economic implications for Britain in the coming years.

There are parallels between what is expressed in this article by Ivana Kottasova and what the United States is moving toward in terms of immigration. The immigration fault lines in this country and the efforts of the current administration to curtail immigration will significantly influence the economic well being of your children and grandchildren in the years to come.

by Ivana Kottasová / Oct 18, 2017

Britain has a problem: It wants fewer immigrants, but its economy desperately needs more.

The British government is seeking to slash the number of immigrants from the European Union following its departure from the bloc in March 2019.

It’s planning tougher controls despite warnings that more EU workers are needed to harvest the country’s crops, build homes for its citizens and build its next startup.

The risks are especially pronounced in health care.

The National Health Service says there are over 11,000 open nursing jobs in England, and another 6,000 vacant positions across Scotland, Wales and Northern Ireland.

The overburdened system, described by the British Red Cross as facing a “humanitarian crisis,” already relies on 33,000 nurses from the EU.

“We would describe the NHS as being at the tipping point. There are huge staffing problems,” said Josie Irwin, head of employment at the Royal College of Nursing. “Brexit makes the situation worse.”

Jason Filinras, a 29-year old from Greece, was recruited last year to work as a front line nurse at a hospital just north of London.

Filinras joined the hospital’s acute admissions unit, where he runs tests and determines how to treat patients after they have been stabilized in the emergency room.

“If you have a patient who is not able to take care of themselves, you have to do all the basic things for them — from helping them with washes, helping them with toilet, feeding them,” he said.

Heis just one of 250 nurses recruited from the EU by the West Hertfordshire Hospitals Trust over the past two years to work in its three hospitals. EU citizens now make up 22% of its nursing staff.

The trust didn’t have a choice. The unemployment rate is at its lowest level in four decades, and there simply aren’t enough British nurses.

The shortage of workers cuts across sectors — from agriculture to education — and across skill levels. There aren’t enough fruit pickers and there aren’t enough doctors.

The political impetus to reduce immigration from the EU can be traced to 2004, when Britain opened its borders to workers from eight eastern European countries that had joined the bloc.

Government officials expected 5,000 to 13,000 people from the countries to come to Britain each year. Instead, 177,000 came in just the first year.

Critics say that increased immigration has changed the fabric of local communities, and undercut the wages of British workers.

It’s an argument that has currency with voters. Immigration was the most important issue for voters ahead of the Brexit referendum in June 2016, according to an Ipsos Mori poll.

Theresa May, who became prime minister in the wake of the EU referendum, has promised to bring annual net migration below 100,000. The figure was 248,000 in 2016.

It had been difficult to meet the target because EU rules allow citizens to move freely around the bloc. May says that Brexit will mean an end to free movement.

“The government is putting politics above economics, which is quite a dangerous game,” said Heather Rolfe, a researcher at the National Institute of Economic and Social Research.

Labor economists say that a radical decline in immigration would hurt the British economy.

The Office for Budget Responsibility, the government’s fiscal watchdog, said that 80,000 fewer immigrants a year would reduce annual economic growth by 0.2 percentage points.

“To lose these people would be pretty tough and it would mean that some sectors might find it very difficult to survive,” said Christian Dustmann, professor of economics at University College London.

Some EU workers, upset over political rhetoric and a lack of clarity about their legal status, are already leaving Britain. Net migration from the EU fell to 133,000 last year from 184,000 in 2015, according to the Office for National Statistics.

The impact is already being felt: The Nursing and Midwifery Council said that roughly 6,400 EU nurses registered to work in the U.K. in the year ended March, a 32% drop from the previous year. Another 3,000 EU nurses stopped working in the U.K.

“It’s all this uncertainty that will make us leave,” said Filintras. “I can’t say that I am 100% sure that I won’t think about leaving.” If he does move home, he will be hard to replace.

Irwin said the British government has made it less attractive for new British nurses to enter the profession by scrapping college scholarship programs and capping salaries. Applications for nursing courses are down 20% as a result.

Nurses make an average of £26,000 ($34,600), while German supermarket chain Aldi offers college graduates a £44,000 ($58,500) starting salary and a flashy company car.

Trouble also looms in other sectors.

A third of permanent workers supplying Britain with food are from the EU, according to the Food and Drink Federation.

The British Hospitality Association, which represents 46,000 hotels, restaurants and clubs, has warned that the sector faces a shortfall of 60,000 workers a year if the number of EU workers is sharply curtailed.

KPMG estimates that 75% of waiters and waitresses and 37% of housekeeping staff in Britain are from the EU. British farms are heavily dependent on seasonal workers from the bloc.

“If you cannot harvest your strawberries anymore … then supermarkets might buy the strawberries directly from Poland,” said Dustmann.

Business groups and labor unions have repeatedly called on the government to moderate its negotiating position. But May has shown no signs of backing down.

“The government is interpreting the vote to leave the EU as a vote against immigration … and to some extent that is true,” said Rolfe.

Boston, a town on the east coast of England, shows why: According to census data, the town’s foreign-born population grew by 467% in the decade to 2011. In 2016, the town had the highest proportion of voters choosing to leave the EU.

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How to Get Medicaid for Nursing Home Care Without Going Broke

My Comments: Politicians apparently have no earthly idea what getting old does to your finances. Of the 50 state Medicaid directors, red states and blue states, all 50 came out in opposition to the most recent attempt by Congress to repeal the ACA or ObamaCare.

None of us are willing to allow the elderly to die in the streets for lack of care. That means programs like Medicaid must be properly funded.

We can argue till the cows come home about the need for rules to prohibit unfair advantages and you’ll get my approval for such rules. There will be competing agendas but does that mean we should give up?

And somehow, these rules must be written to allow intelligent financial planning. Rules that include how to be cared for without losing your financial sanity. Gabriel Heiser’s ideas have value for all of us.

Gabriel Heiser 9/21/2017

Well-off people can easily go broke paying for sky-high nursing home care: First they deplete their own funds and then, eventually needing Medicaid, spend down nearly all the rest of their assets to qualify for that government program designed for low-income individuals.

The way to avoid this terrible situation is to put in place a Medicaid asset-protection plan early on. One powerful solution is to buy a single-premium immediate annuity, says attorney K. Gabriel Heiser, an elder care Medicaid expert, in an interview with ThinkAdvisor.

For 25 years, Heiser focused exclusively on elder law, and estate and Medicaid planning. He is author of “How to Protect Your Family’s Assets from Devastating Nursing Home Costs: Medicaid Secrets” (Phylius Press 2017-11th updated edition).

Sixty percent to 70% of nursing home patients are on Medicaid, says Heiser.

In determining eligibility, Medicaid differentiates sharply between “assets” and “income.” The potential Medicaid recipient is permitted to have only $2,000 in assets, though they can still receive certain income under certain circumstances.

In the interview, Heiser discusses a number of techniques — all of them legal — to shelter or reduce assets to qualify for nursing-home Medicaid.

One of the best, he says, is a so-called Medicaid-Friendly annuity, which essentially converts “countable” assets into income, which is exempt.

The average cost of nursing home care is $92,000 a year and much higher in New York and Hawaii, among other states. The average stay is two-and-a-half to three years. Care for a person with Alzheimer’s disease in a locked unit can come to more than $450,000 annually and is typically for a period of at least five years, Heiser says.

Though Medicaid wasn’t created for middle-class people “to pass their money on to their children at taxpayers’ expense,” Heiser writes, he reasons that it makes sense and isn’t unethical to “avail yourself of the laws” in order to minimize expenditures on nursing home care and indeed “pass those savings on to your children.”

Most folks make the mistake of waiting too long to plan for asset protection, says Heiser. They should begin at the first sign that their spouse, parent or sibling likely will need nursing home care.

Heiser was formerly chair of the estate planning committee of the Massachusetts Bar Association and an adjunct professor of the College for Financial Planning at David Lipscomb University. A professional version of his book, “Medicaid Planning: From A to Z,” is directed at attorneys, financial advisors and CPAs.

ThinkAdvisor recently spoke with the semi-retired Heiser, 68, on the phone from home in San Miguel Allende, Mexico. He revealed some of his Medicaid secrets and how they can help clients shelter their assets. Here are highlights:

THINKADVISOR: What’s critical to know about Medicaid?

GABRIEL HEISER: To qualify, you can’t have more than $2,000 in Medicaid-countable assets. So if you have cash in the bank or any other assets that aren’t on the exempt list, they’ll count toward the $2,000. That’s not a very high amount — but the point of Medicaid is that it’s supposed to cover the poor.

You write that hiding money and not reporting an asset on a Medicaid application is fraud.

Yes, fraud against the government. You’ll be disqualified for Medicaid, and there are also criminal penalties.

What about having income?

You can still qualify if you have, say, pension income. But there’s a cap of $2,205 a month for Medicaid recipients. However, some states have a rule that if your income is over that figure, you can direct your Social Security or pension into a trust — a Miller Trust, also known as a Qualified Income Trust.

The trustee pays the money to the nursing home, and Medicaid pays the difference. Typically, the bills are going to be more than $2,000 a month. So even though you have income over the cap, you can still qualify by setting up that trust.

Note: there are three more pages of Gabriel Heiser’s words of wisdom on this topic. To read the rest, click HERE.

X Marks the Spot Where Inequality Took Root: Dig Here

My Comments: You’ve heard me say that income inequality is the greatest existential threat to our society going forward. If we allow the disparity between the haves and the have nots to become wider and wider, it’s only a matter of time before chaos will reign.

People want what money will buy. Companies will manufacture and produce what people want to buy. But if you allow the want to overwhelm the ability to pay for it, it’s only a matter of time before chaos will reign.

In order to survive, companies will find ways to cut costs, not just to increase profits, but to assure they remain competitive in a shrinking market place.

But the trajectory is not infinite; sooner or later they will stop manufacturing and producing stuff if there aren’t enough buyers to justify the fixed costs.

How many hat makers are there these days compared with 100 years ago? I grew up in a time when every male owned a hat. I had one when I was in high school. When was the last time you saw a male person wearing a dress hat when entering a restaurant or going to church?

We need to identify who, among our future political leaders, those who understand economics. It’s not about empowering the existing poor; it’s about making sure there are enough of us with money left to spend.

by Stan Sorscher \ August 5, 2015

In 2002, I heard an economist characterizing this figure as containing a valuable economic insight. He wasn’t sure what the insight was. I have my own answer.

The economist talked of the figure as a sort of treasure map, which would lead us to the insight. “X” marks the spot. Dig here.

The graphic below tells three stories.

First, we see two distinct historic periods since World War II. In the first period, workers shared the gains from productivity. In the later period, a generation of workers gained little, even as productivity continued to rise.

The second message is the very abrupt transition from the post-war historic period to the current one. Something happened in the mid-70’s to de-couple wages from productivity gains.

The third message is that workers’ wages – accounting for inflation and all the lower prices from cheap imported goods – would be double what they are now, if workers still took their share of gains in productivity.

A second version of the figure is equally provocative.

This graphic shows the same distinct historic periods, and the same sharp break around 1975. Each colored line represents the growth in family income, relative to 1975, for different income percentiles. Pre-1975, families at all levels of income benefited proportionately. Post-1975, The top 5% did well, and we know the top 1% did very well. Gains from productivity were redistributed upward to the top income percentiles.

This de-coupling of wages from productivity has drawn a trillion dollars out of the labor share of GDP.

Economics does not explain what happened in the mid-70s.

It was not the oil shock. Not interest rates. Not the Fed, or monetary policy. Not robots, or the decline of the Soviet Union, or globalization, or the internet.

The sharp break in the mid-70’s marks a shift in our country’s values. Our moral, social, political and economic values changed in the mid-70’s.

Let’s go back before World War II to the Great Depression. Speculative unregulated policies ruined the economy. Capitalism was discredited. Powerful and wealthy elites feared the legitimate threat of Communism. The public demanded that government solve our problems.

The Depression and World War II defined that generation’s collective identity. Our national heroes were the millions of workers, soldiers, families and communities who sacrificed. We owed a national debt to those who had saved Democracy and restored prosperity. The New Deal policies reflected that national purpose, honoring a social safety net, increasing bargaining power for workers and bringing public interest into balance with corporate power.

In that period, the prevailing social contract said, “We all do better when we all do better.” My prosperity depends on your well-being. In that period of history, you were my co-worker, neighbor or customer.

Opportunity and fairness drove the upward spiral (with some glaring exceptions). Work had dignity. Workers earned a share of the wealth they created. We built Detroit (for instance) by hard work and productivity.

Our popular media father-figures were Walter Cronkite, Chet Huntley, David Brinkley, and others, liberal and conservative, who were devoted to an America of opportunity and fair play.

The sudden change in the mid-70’s was not economic. First it was moral, then social, then political, ….. then economic.

In the mid-70’s, we traded in our post-World War II social contract for a new one, where “greed is good.” In the new moral narrative I can succeed at your expense. I will take a bigger piece of a smaller pie. Our new heroes are billionaires, hedge fund managers, and CEO’s.

In this narrative, they deserve more wealth so they can create more jobs, even as they lay off workers, close factories and invest new capital in low-wage countries. Their values and their interests come first in education, retirement security, and certainly in labor law.

We express these same distorted moral, social and political priorities in our trade policies. As bad as these priorities are for our domestic policies, they are worse if they define the way we manage globalization.

The key to the treasure buried in Figure 1 is power relationships. To understand what happened, ask, “Who has the power to take 93% of all new wealth and how did they get that power? The new moral and social values give legitimacy to policies that favor those at the top of our economy.

We give more bargaining power and influence to the wealthy, who already have plenty of both, while reducing bargaining power for workers. In this new narrative, workers and unions destroyed Detroit (for instance) by not lowering our living standards fast enough.

In the new moral view, anyone making “poor choices” is responsible for his or her own ruin. The unfortunate are seen as unworthy moochers and parasites. We disparage teachers, government workers, the long-term unemployed, and immigrants.

In this era, popular media figures are spiteful and divisive.

Our policies have made all workers feel contingent, at risk, and powerless. Millions of part-time workers must please their employer to get hours. Millions more in the gig economy work without benefits and have no job security at all. Recent college graduates carry so much debt that they cannot invest, take risk on a new career, or rock the boat. Millions of undocumented workers are completely powerless in the labor market, and subject to wage theft. They have negative power in the labor market!

We are creating a new American aristocracy, with less opportunity – less social mobility and weaker social cohesion than any other advanced country. We are falling behind in many measures of well-being.

The dysfunctions of our post-1970 moral, social, political and economic system make it incapable of dealing with climate change or inequality, arguably the two greatest challenges of our time. We are failing our children and the next generations.

X marks the spot. In this case, “X” is our choice of national values. We abandoned traditional American values that built a great and prosperous nation. Our power relationships are sour.

We can start rebuilding our social cohesion when we say all work has dignity. Workers earn a share of the wealth we create. We all do better, when we all do better. My prosperity depends on a prosperous community with opportunity and fairness.

Dig there.

Neoliberalism: the idea that swallowed the world

Wednesday = Global Economics

If you are anything like me, you’re uncomfortable with the forces at work across society that are creating tension, fear and animosity everywhere you look. When you add the ever present slurs and crude expletives, the message often gets lost. My definition of civility is way out of date. Instead of trying to understand what’s being said, I get caught up in the way the message is told, and ignore the message itself. Everything becomes a pain in the ass.

Do you know what the term ‘neoliberalism’ means? Before I read these comments by Stephen Metcalf, I thought it might be a good thing. Mindful that I’m essentially a liberal, left of center person, he says the term describes a right-wing wish list.

Metcalf suggests that for neoliberals, the the only legitimate organizing principal for humanity is competition. If mom delivers triplets, one baby is going to ultimately get pushed aside. There can only be winners and losers. By extension, if you were born in poverty, or your skin was the wrong color, or your parents were assholes, that’s too bad. If you turned out to be tall and athletic, you might make it to the NBA. It’s everyman for himself and if you come out with the short stick along the way, that’s too f***ing bad. Think Haiti, as an example.

While I personally acknowledge the presence of competition in the grand scheme of things, it’s never a guiding principal behind every outcome. This is a long article, so if you want all of it, you’ll have to click on the ‘read it here’ image.

By Stephen Metcalf August 18, 2017

Last summer, researchers at the International Monetary Fund settled a long and bitter debate over “neoliberalism”: they admitted it exists. Three senior economists at the IMF, an organisation not known for its incaution, published a paper questioning the benefits of neoliberalism. In so doing, they helped put to rest the idea that the word is nothing more than a political slur, or a term without any analytic power. The paper gently called out a “neoliberal agenda” for pushing deregulation on economies around the world, for forcing open national markets to trade and capital, and for demanding that governments shrink themselves via austerity or privatisation. The authors cited statistical evidence for the spread of neoliberal policies since 1980, and their correlation with anaemic growth, boom-and-bust cycles and inequality.

Neoliberalism is an old term, dating back to the 1930s, but it has been revived as a way of describing our current politics – or more precisely, the range of thought allowed by our politics. In the aftermath of the 2008 financial crisis, it was a way of assigning responsibility for the debacle, not to a political party per se, but to an establishment that had conceded its authority to the market. For the Democrats in the US and Labour in the UK, this concession was depicted as a grotesque betrayal of principle. Bill Clinton and Tony Blair, it was said, had abandoned the left’s traditional commitments, especially to workers, in favour of a global financial elite and the self-serving policies that enriched them; and in doing so, had enabled a sickening rise in inequality.

Over the past few years, as debates have turned uglier, the word has become a rhetorical weapon, a way for anyone left of centre to incriminate those even an inch to their right. (No wonder centrists say it’s a meaningless insult: they’re the ones most meaningfully insulted by it.) But “neoliberalism” is more than a gratifyingly righteous jibe. It is also, in its way, a pair of eyeglasses.

Peer through the lens of neoliberalism and you see more clearly how the political thinkers most admired by Thatcher and Reagan helped shape the ideal of society as a kind of universal market (and not, for example, a polis, a civil sphere or a kind of family) and of human beings as profit-and-loss calculators (and not bearers of grace, or of inalienable rights and duties). Of course the goal was to weaken the welfare state and any commitment to full employment, and – always – to cut taxes and deregulate. But “neoliberalism” indicates something more than a standard rightwing wish list. It was a way of reordering social reality, and of rethinking our status as individuals.

Still peering through the lens, you see how, no less than the welfare state, the free market is a human invention. You see how pervasively we are now urged to think of ourselves as proprietors of our own talents and initiative, how glibly we are told to compete and adapt. You see the extent to which a language formerly confined to chalkboard simplifications describing commodity markets (competition, perfect information, rational behaviour) has been applied to all of society, until it has invaded the grit of our personal lives, and how the attitude of the salesman has become enmeshed in all modes of self-expression.

In short, “neoliberalism” is not simply a name for pro-market policies, or for the compromises with finance capitalism made by failing social democratic parties. It is a name for a premise that, quietly, has come to regulate all we practise and believe: that competition is the only legitimate organising principle for human activity.

No sooner had neoliberalism been certified as real, and no sooner had it made clear the universal hypocrisy of the market, than the populists and authoritarians came to power. In the US, Hillary Clinton, the neoliberal arch-villain, lost – and to a man who knew just enough to pretend he hated free trade. So are the eyeglasses now useless? Can they do anything to help us understand what is broken about British and American politics? Against the forces of global integration, national identity is being reasserted, and in the crudest possible terms. What could the militant parochialism of Brexit Britain and Trumpist America have to do with neoliberal rationality? What possible connection is there between the president – a freewheeling boob – and the bloodless paragon of efficiency known as the free market?

It isn’t only that the free market produces a tiny cadre of winners and an enormous army of losers – and the losers, looking for revenge, have turned to Brexit and Trump. There was, from the beginning, an inevitable relationship between the utopian ideal of the free market and the dystopian present in which we find ourselves; between the market as unique discloser of value and guardian of liberty, and our current descent into post-truth and illiberalism.

Moving the stale debate about neoliberalism forward begins, I think, with taking seriously the measure of its cumulative effect on all of us, regardless of affiliation. And this requires returning to its origins, which have nothing to do with Bill or Hillary Clinton. There once was a group of people who did call themselves neoliberals, and did so proudly, and their ambition was a total revolution in thought. The most prominent among them, Friedrich Hayek, did not think he was staking out a position on the political spectrum, or making excuses for the fatuous rich, or tinkering along the edges of microeconomics.

He thought he was solving the problem of modernity: the problem of objective knowledge. For Hayek, the market didn’t just facilitate trade in goods and services; it revealed truth. How did his ambition collapse into its opposite – the mind-bending possibility that, thanks to our thoughtless veneration of the free market, truth might be driven from public life altogether?

Will This Happen to Social Security?

Tuesday = Social Security comments

Concern about the continued viability of our Social Security system if very justified and real. The solutions to the problem are reltively simple and if started soon, will be absorbed by the economy with relative ease.

But Capitol Hill is the wildcard here. The crisis is far from dramatic. Yet. Elected representatives in both houses of Congress operate on an election cycle timeframe. If the crisis isn’t within the current cycle, the response is essentially “Not my problem!”.

But the issues does give each and everyone of us the opportunity to explore the current thinking of every single candidate as they go through the election process. Without that kind of pressure, they won’t act until the ball is about to drop.

Sean Williams \ Aug 7, 2017

According to the June 2017 snapshot from the Social Security Administration, nearly 61.5 million people were receiving a monthly benefit check, of which 68.2% were retired workers. Of these 41.9 million retirees, more than 60% count on their Social Security to be a primary source of income. That’s huge, and it demonstrates just how important Social Security is for current and future generations of seniors.

Is Social Security doomed?
Of course, as you’re also probably aware, the program isn’t on the best footing. A number of demographic changes are expected to wreak havoc on Social Security and throw its future into limbo. These include the retirement of, on average, more than 10,000 baby boomers per day, which is pushing the worker-to-beneficiary ratio lower, and the lengthening of life expectancies, which has allowed seniors to pull a benefit from the program for an extended period of time.

The result, according to the latest Social Security Board of Trustees report issued last month, is that benefits could be slashed for current and future retirees by up to 23% in 2034 should Congress fail to act. It’s not exactly the best outlook for a program that means so much to our nation’s retirees.

But there’s an even more glaring figure to most Americans: Social Security asset reserves. The Trustees report predicts that asset reserves could touch $3 trillion by 2022, implying the program is expected to remain cash flow positive through 2021. However, beginning in 2022, and each year thereafter through 2091, Social Security will be paying out more in benefits than it’s generating in revenue, resulting in a $12.5 trillion cash shortfall between 2034 and 2091.

Social Security’s bankruptcy is almost certainly a myth
Some Americans view this imminent cash shortfall as the end for Social Security — especially millennials. When surveyed in 2014 by Pew Research, 51% of millennials believed that Social Security wouldn’t be there for them when they retired. Thankfully, though, this worry turns out to be nothing more than the program’s most pervasive myth.

Social Security will almost certainly be there for many future generations of retirees for one key reason: the payroll tax.

The payroll tax is a 12.4% tax on earned income between $0.01 and $127,200, as of 2017. This maximum taxable earnings figure often increases on par with the Wage Index. Also, it’s worth noting that most workers only pay 6.2% of their earned income into Social Security, with employers picking up the tab on the remaining 6.2%. In other words, as long as people keep working, the payroll tax will keep getting collected, generating income for Social Security to disburse to eligible retirees. Since the payroll tax comprised a whopping 86.4% of income collected in 2015, there should still be plenty for the Social Security Administration to disburse. Unfortunately, this doesn’t mean that current payment levels are sustainable, which is why the Trustees are suggesting cuts could be imminent within two decades.

This is the only way Social Security could possibly go bankrupt
Of course, when we’re talking politics, we can never say anything with 100% certainty. While Social Security currently can’t go bankrupt thanks to the payroll tax, legislation on Capitol Hill could always change that.

Earlier this year, a Republican lobbyist had tinkered with the idea of reducing or eliminating the payroll tax in its entirety, according to Fox News. Assuming the average household generates about $50,000 in income annually, and that most people work for an employer, we’re talking about an average of $3,100 in extra income in the pockets of households each year. Since we’re a consumption-driven economy, this extra cash could fuel spending or bolster personal saving and investment. At least that’s the idea on paper.

The reality of the plan is that it would potentially end the primary source of funding for Social Security. Interest income only provided 10.1% of revenue in 2015, with the taxation of benefits kicking in another 3.4%. If payroll taxes are eliminated, Congress would need to find a way to generate at least $800 billion in annual income. One idea floated around was a value-added tax (VAT) on consumption, which is purportedly capable of generating $12 trillion in revenue over the next decade. However, a VAT could also reduce consumption, and it makes revenue generation very lumpy given natural economic cycles and the regular occurrence of recessions and economic slowdowns.

In short, it’s not a very good idea, in my opinion. However, if Congress were to move forward with a plan to reduce or eliminate the payroll tax, then, and only then, would it be possible for Social Security to go bankrupt.

A silver lining, but you need to remain proactive

Breathe a sigh of relief, folks, because Social Security isn’t going anywhere. If there is a silver lining, it’s that you will receive income during retirement, as long as you’re eligible.

Nevertheless, the Trustees report serves as a genuine wake-up call that working Americans need to turn their attention to saving and investing in order to reduce their reliance on Social Security. After all, Social Security is only designed to replace about 40% of your working wages, but quite a few seniors are leaning on the program for much more.

This all starts with formulating a budget and saving more. The May personal savings rate was a paltry 5.5%, per the St. Louis Federal Reserve. Financial advisors suggest saving 10% to 15% of your paychecks if you want to retire comfortably, and the only way to do so is to better understand your cash flow. Formulating and reviewing a budget can often be done in around 30 minutes each month, and it can be done online, making it easier than ever to save money.

Likewise, even though the stock market goes through bouts of volatility, it’s shown time and again that it’s among the best wealth creators over the long term. Historically, the stock market has appreciated at a pace of roughly 7% per year, inclusive of dividend reinvestment. Proactively saving more and investing wisely is a good, but simple, formula to reduce your reliance on Social Security once you retire.

I Inherited a Roth IRA. Now what?

My Comments: More and more people have Roth IRA accounts. A common question about retirement is whether to draw money from their Roth IRA first or take money from their non-Roth retirement accounts first.

It depends. Any money not yet taxed is going to get taxed. Period. The Roth IRA money comes out tax free; the taxes have already been paid. If your non-spouse beneficiary is in a high tax bracket, it may be better for them to get it in the form of Roth money.

Most beneficiaries are simply happy to get unexpected money. If they have to pay tax, it’s not an issue. You can run a million scenarios and when all is said and done, it makes little difference in the grand scheme of things.

June 28, 2013 by Dan Moisand at MarketWatch.com

When you inherit retirement plans, the rules for how those funds are taxed and the options available to the beneficiary vary based on the type of account and whether the beneficiary is a spouse or not.

Today I explain to a non-spouse beneficiary some of the rules that apply to inheriting a Roth IRA. I also answer a reader question about one way to increase her Social Security payments even though she started taking benefits early at a reduced rate.

Q. My Dad is 74, and he has a ROTH IRA as well as a 401(k). When he passes away, my mom will inherit the retirement accounts, and then we his sons will. My question is can I, as a non spouse beneficiary, rollover the ROTH IRA into my personal ROTH IRA? — C.B.

A. No you cannot roll the Roth IRA money into your personal Roth IRA. Only spouses may do that. If your mother rolls the Roth IRA into her own Roth IRA, it is treated as though she had always been the owner of those funds, so those funds will continue to be exempt from Required Minimum Distributions (RMD), an attractive feature of Roth IRA’s. Also, she would name the beneficiaries. It is important to check that the beneficiary designations on all accounts match the wishes of the current account owners.

The beneficiary designation trumps anything written in one’s will or trust agreements. I saw a case in which the wife had a small IRA that named her church as primary beneficiary. When her husband died, she rolled his account into her IRA but did not change her beneficiary designation. When she passed away, the church was entitled to all of the funds. This was an unpleasant surprise to the beneficiaries.

You have two basic options as a non-spouse inheritor; take a lump sum or, transfer the funds into an account titled as an “inherited Roth IRA.” Taking the lump sum is pretty simple. The lump sum you receive is not subject to tax. Once you get your check, if you wish to invest any part of it, it will be taxed just like funds in any other non-retirement account.

Most inheritors with an eye on the long term prefer to rollover the money to an inherited Roth IRA. The assets continue to grow untaxed, you can choose your own beneficiaries and withdrawals are tax free.

You cannot, however, let all the account just sit in the inherited Roth IRA. By Dec. 31 of the year after the year in which the owner died, you must have begun taking required minimum distributions (RMD) annually. If you don’t make the RMD by that deadline, you will need to have withdrawn all the assets by the end of the fifth year after the year of death.

The RMD you will be subject to is based upon the IRS’s single life expectancy table. The value of the account on Dec. 31 of the year death is divided by the beneficiary’s life expectancy listed on that table to obtain the first RMD amount. For example, if you are 55 at the time, the table says your life expectancy is 29.6, you would divide the Dec. 31 value by 29.6. In the following year, you use the following Dec. 31 value and divide by one less year (28.6). The next year, use the value as of the next Dec. 31 and 27.6.

You mentioned you had brothers. There is one more step to consider. If your mom lists more than one person as beneficiary, you should have the shares of the account separated into individual inherited Roth IRAs by Dec. 31 of the year following the year of death. This enables each beneficiary to use their own life expectancy. Otherwise, distributions are calculated based upon the oldest beneficiary’s age causing distributions to occur faster than necessary.

This can be particularly important with non-Roth retirement money like a 401(k) in which distributions are taxable. Generally, beneficiaries wish to have the smallest RMD’s possible in order to control taxation better. A beneficiary can always take more than the RMD but the lower the minimum, the more flexibility in tax planning.

Again, make sure all the beneficiary designations on all accounts reflect the owner’s wishes. It should be noted that the rules are different if any of the beneficiaries are beneficiaries through a trust that is named as beneficiary of a retirement account. Naming a trust can be helpful but if not done correctly, can result in an acceleration of taxation.

Also, to accommodate an account holder’s specific wishes, many attorneys prepare customized beneficiary designations. Not all 401(k) plans will accept customized beneficiary designations so many will roll those funds into a traditional IRA.

Retirement: Get Help or Not?

My Comments: Some people have an innate ability to look after money. Others, not so much.

This is especially critical as you transition from working FOR money to when money is working FOR YOU. We call this retirement.

It’s further complicated because the financial advice industry is now undergoing a massive shift in how you receive that “advice” and how much you pay for it. How do you you choose that person or company and are they worth the effort? Are the fees they charge justified?

The article that follows is an attempt to help you work through this question. Know that the conclusions reached by the author may no longer be valid.

By Nick Thornton October 26, 2015

New analysis of investment returns from managed accounts shows participants who are using the option (to get help) often have a substantial advantage over those who don’t, according to a study published by Empower Retirement.

In “The Haves and the Have-Nots: What is the Potential Value of Managed Accounts,” the industry’s second largest record keeper examined the account performance of more than 315,000 participants in almost 1,800 plans, from 2010 to 2015.

The average annualized return from managed accounts was 9.77 percent, net of fees, compared to 7.85 percent for participants who don’t use a managed account option.

Moreover, participant accounts without managed options experienced a wide discrepancy in rates of returns.

The data shows a spread of nearly 11.5% between the best- and worst-performing non-managed accounts.

But managed accounts experienced substantially less volatility in their performance — only about a 4 percent spread between the best and worst performing accounts.

Empower’s study, which was conducted with its subsidiary RIA, Advised Assets Group, suggests the difference in both the extra returns seen in managed accounts, and the wide variance in returns with non-managed accounts, is largely explained by behavioral finance.

Ed Murphy, president of Empower, says managed accounts can neutralize participants’ natural instinct for loss aversion, which can influence the stasis so often experienced in non-managed accounts.

That fear can keep savers in a poorly balanced strategy.

“Managed accounts can take the emotion out of investing,” said Murphy in an interview. “More and more, participants are showing they want help designing and managing a strategy. A managed approach can give participants the confidence they need that investments in their plan are properly allocated.”

Murphy said Empower is seeing growth in terms of the number of plans adopting a managed option and the number of participants actually enrolling in them. Because of their relative novelty in the market, previous comparisons have been hampered by limited data.

But this year’s study incorporated data from 64 percent more plans and 159 percent more participants than last year’s study, as more savers have been enrolled in managed accounts long enough to be eligible for review.

That suggests a more accurate accounting of how well managed accounts are faring, said Murphy.

“The results are convincing,” he added. “Look at the compounding effect of an annual difference in 200 basis points. Over a participant’s lifetime, it can mean an astronomical increase in retirement savings.”

Fees are important, underscored Murphy, because he thinks an excessive preoccupation with cost can have the adverse affect of participants overlooking the need to understand their risk profile. That can result in volatile, and often lack-luster, returns.

Earlier this year, Cogent Reports, the financial services research arm of Market Strategies International, released research showing one-fifth of plans with at least $500 million in assets are defaulting participants into managed accounts.

That’s a notable increase from just last year, when only 5 percent of such plans were doing so.

As adoption has grown, and as more record keepers and advisors create managed products for the market, some have suggested they are poised to replace target-date funds as the next evolution in plan design.

Murphy is skeptical of that theory, and says both options will have their place for the foreseeable future, as different investors will be attracted to different strategies.

But he does say the conventional target-date strategy is “outmoded.”

“Take two 40-year-old participants. One has saved, the other hasn’t. One has a history of cancer, the other is healthy. Both are put in the same TDF with the same glide path. There’s not enough personalization,” said Murphy.

“And there is a substantial difference in the risk different funds with the same glide path take on. I think people purchase them without a full appreciation of the risk involved,” he said.

That said, he doesn’t see target-date funds going away. He does, however, see them evolving.

Anecdotally, Murphy says interest in managed accounts is growing with all types of sponsors, but that their popularity is particularly notable among sponsors of public plans, such as state and local governments.

Still, challenges remain. Education on managed accounts, and their value proposition, remains essential.

“We believe this new paper presents a strong empirical case for considering managed accounts as part of a plan sponsor’s offering to its plan participants. We will be sharing it with both advisors and clients as a way to drive the discussion further,” he said.