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The SECURE Act?

Maybe Not!

By Rick Kahler CFP

The Grinch who stole Christmas is alive and well this year—in the US Congress. Our Representatives and Senators passed a bill that negatively affects the middle and working class by changing the rules of passing on an IRA. Now adult children who inherit IRAs will be required to drain them within 10 years and pay all the taxes on the distributions and future earnings.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act, which changes many of the rules of US retirement laws, was approved almost unanimously (417-3) by the House of Representatives and the Senate (81-11). South Dakota’s Representatives Dusty Johnson and Senators John Thune and Mike Rounds all voted for the bill. Despite its name, many of the new law’s provisions are anything but retirement “enhancements.”

I wrote about the SECURE Act in June, as did other financial journalists, but it hasn’t received widespread attention. Despite its heavy bipartisan support, it isn’t necessarily a retirement boost for middle and working class savers.

This revision of long-standing IRA rules is especially unfair to parents who banked on the reliability of those rules. Many of them did Roth conversions and paid the tax due on a traditional IRA, with the intention of leaving the portion of the IRA they did not use themselves as a tax-free gift that could grow over the years and support their children’s retirement.

The amount of taxes raised by forcing inheritors to liquidate IRAs early is estimated at $15.7 billion over 10 years. The main trade-offs for this tax grab were (drum roll) extending by 18 months the age at which an IRA owner must begin taking distributions, increasing incentives to employers who set up 401(k)s, and allowing people over age 70 ½ who are working to contribute to an IRA (mic drop).

New strategies will need to address how an inheritor distributes the IRA to minimize the tax hit. Taking all of an IRA in one year could result in an heir in the peak of their earning years paying 50% of it in taxes.

If you counted on passing on an IRA to your children, you need to reexamine your estate planning. It may be better to name a spouse as a beneficiary rather than children, as a spouse still can inherit the IRA without being forced to liquidate it over 10 years.

The strategy of letting IRA assets accumulate and spending down taxable accounts may change completely. You now may want to spend down IRA accounts, with any balance going to charities, and pass on the accumulated taxable assets to children who will get a step-up in basis (tax free).

If you have made the beneficiary of your IRAs a trust, often created at death in your will, that whole strategy needs reconsidering. “Some types of IRA trusts make no sense under the new law,” says Natalie Choate in a December 21, 2019, Wall Street Journal article, “Inheriting IRAs Just Got Complicated.”

The new law gives a great boost to favoring life insurance over IRAs as a tax-efficient way to move assets to heirs. It also paves the way for high fee and commission annuities to be sold to sponsors of 401(k) plans.

Why did Congress vote so overwhelmingly to penalize IRA inheritors and open up investors’ 401(k) plans to insurance products?

Perhaps many of them didn’t fully understand what they were voting on. Or perhaps the insurance lobby did their normal amazing job of selling the alleged benefits of insurance and annuities.

Assessment

In any case, don’t assume the SECURE Act is a gift that will enhance your retirement security.

Your thoughts are appreciated.

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On Retirement Gaps Since the Recession

The “Have and Have Nots”

[By staff reporters]

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When Will You Retire?

Where Will Your Money Come From?

By Rick Kahler CFP®

The list is fairly short: Social Security, a pension, working, your assets, children, or public assistance.

According to an April 22, 2019 Bloomberg article by Suzanne Woolley, entitled “America’s Elderly Are Twice as Likely to Work Now Than in 1985“, only twenty percent of those age 65 or older are working. The rest either can’t work physically, can’t find work, or don’t want to work. According to the ADA National Network, over 30 percent of people over 65 are disabled in some manner.

According to the Center on Budget and Policy Priorities, Social Security provides the majority of income for most elderly Americans. It provides at least 50% of income for about half of seniors and at least 90% of income for about one-fourth of seniors. The average Social Security retirement benefit isn’t as high as many people think. In June 2019 it was about $1,470 a month, or about $17,640 a year.

And, as per the Pension Rights Center, around 35% of Americans receive a pension or VA benefits. The greatest percentage of pensions are government. This would include retired state and federal workers like teachers, police, firefighters, military, and civil service workers. In 2017 the median state or local government pension benefit was $17,894 a year, the median federal pension was $28,868, and the median military pension was $21,441.

Working provides the highest source of retirement income for the 20 percent of those who are over 65 and are still working. According to SmartAsset.com, Americans aged 65 and older earn an average of $48,685 per year. However, in a NewRetirement.com article dated February 26, 2019, “Average Retirement Income 2019, How Do You Compare“, Kathleen Coxwell cites a figure from AARP that the median retirement income earned from employment is $25,000 a year.

About 3% of retirees receive public assistance.

This leaves around 20% of those over 65 who depend partially or fully for their retirement income on money they set aside during their working years. According to TheStreet.com, “What Is the Average Retirement Savings in 2019“, by Eric Reed, updated on Mar 3, 2019, the average retirement account for those age 65 to 74 totals $358,000. That amount will safely provide around $15,000 a year for most retirees’ lifetime. The median savings is $120,000, which will produce only about $5,000 a year. In order to retire at age 65 with an annual investment income of $30,000 to $40,000, someone would need a retirement nest egg of over $1 million.

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My conclusion from this data is that most Americans are woefully underprepared to live a comfortable lifestyle when they can no longer work. Between Social Security, pensions, and retirement savings, a retiree can expect a median income of $18,000 to a maximum of $52,000 a year. According to data I compiled from NewRetirement.com, the average median retirement income of those over age 65 is around $40,000.

What are some things you can do to increase your chances of enjoying a comfortable retirement income?

If you are under age 50, begin setting aside 15% to 25% of your income for retirement.

If you are over 60, keep working as long as you can. If you retire early, your monthly Social Security benefit is lower for the rest of your life.

Consider ways to stretch your retirement income by downsizing, sharing housing, or relocating to an area of the US or even outside the country with a lower cost of living.

Research what you can reasonably expect from Social Security and other sources of retirement income. Base your retirement expectations on informed planning, not on vaguely optimistic expectations.

Assessment: Your thoughts are appreciated.

Conclusion

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***

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***

Are Under Spending Doctors Now Extinct?

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The Last Generation of Extreme Frugality … or Another Re-Start?

By Rick Kahler MS CFP® ChFC CCIM www.KahlerFinancial.com

“Be frugal.” “Save for the future.” “Live on less than you make.”

That’s my usual financial advice, and it’s well worth repeating even though most medical professionals aren’t following it.

[Very] occasionally however, I find it necessary to work with clients to overcome a different problem—underspending.

A Problem?

Huh? How can underspending possibly be a problem? Isn’t it a virtue to save and accumulate?  Of course it is. Accumulating wealth typically requires people to live on much less than they earn. Being frugal is the common denominator of almost every first-generation wealth builder. But, don’t confuse living on less than you make with underspending.

To Every Season

Like almost everything, saving is but for a season. Once people retire and stop earning money from a medical practice, business or a job, a new era begins where it’s time to consume the fruits of their frugality. The problems start when the wise frugality of the earning years continues long past the time that it’s necessary. Frugality then can turn to under-consumption.

Be Thrifty – Not Frugal

What’s wrong with someone living on less than they could? Is it bad to continue to be thrifty? Of course not. The habit of frugality isn’t something people can turn off at a flip of a switch, and maybe that’s part of the problem. Wealth accumulators have lived with the money script of “Don’t consume your investments or savings” for so long, that when the time comes to begin living off of their investments it poses a significant challenge.

Extreme Frugality

The result can be under-spending is frugality taken to extremes. As I define underspending, it is spending significantly less than the amount you could conservatively spend annually and still have a 99% chance of never running out of money.

Under-spending is not the same as continuing to make frugal choices during retirement and economizing when possible. Typically, underspending results in people failing to get adequate medical care, eat a healthy diet, live in a well-maintained and comfortable home, or use help and support that would make life easier.

Example

Take Dr. Martin and his wife Eleanor, for example. They worked hard all their lives and managed to save $2,000,000. Today they are age 72. Based on a very conservative withdrawal rate of 3%, they could easily afford to take $60,000 from their portfolio each year. Instead, they withdraw $10,000. With the $30,000 they get from Social Security, they live on $40,000 a year.

What’s wrong with that?

What’s wrong is what they don’t spend money on. Both of them have neglected their health. They do get annual checkups from their family doctor, which are covered by Medicare. Yet, neither of them has seen a dentist for several years. Eleanor needs hearing aids but won’t get them because they “cost too much.” Even though Martin’s eyesight is beginning to fail and night driving is difficult, they insist on driving thousands of miles to visit their children because airline fares are “so outrageous.”

They sleep on a mattress that is 20 years old. Their house needs painted inside and out. Only two burners work on the kitchen stove, but they get by because it isn’t really a problem except at Thanksgiving when the family comes to visit.

The Cure

The cure to underspending is not running out and spending money frivolously or indulgently on things or experiences that don’t really add value to your life. Instead, it’s using what you have to make your life more comfortable and enjoyable.

Assessment

There is a season to plant for the future, with hard work, frugality, and saving. There is also a season of harvest. That’s the time to use what you have accumulated to support your health and well-being.

How many under-spending doctors are left? Do you know any? Is this the last generation of same? OR, the start of next gen 2.0 frugality.

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

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***

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***

Playing with the FIRE Movement

“What do you think of the FIRE movement?”

[By Rick Kahler CFP]

“What do you think of the FIRE movement?” a reporter asked me recently. I told her I was ambivalent about it.

The FIRE acronym in this context stands for “Financial Independence, Retire Early.” While a Harris poll done in late 2018 found most people over 45 had never heard of the FIRE movement, it apparently has caught fire among millennials.

The focus of FIRE adherents is lifestyle more than finances. Two books are the foundation of the FIRE movement: Your Money or Your Life, written in 1992 by Vicki Robin and Joe Dominguez, and Early Retirement Extreme, written in 2010 by Jacob Lund Fisker. The concept was popularized in 2011 by blogger Peter Adeney (Mr. Money Mustache), who lives in Longmont, CO. At the age of 30, Adeney and his wife retired with a retirement fund of $600,000 and a paid-for home.

According to the reporter who interviewed me, many advisors have strong opinions against the FIRE movement. This may seem odd. After all, financial independence and retiring early is often a goal of those seeking financial planning. That was certainly one of my goals when I was the age of today’s millennials.

I find very little to criticize about adopting a frugal lifestyle and saving as much as possible. For decades I have suggested living on half of what you make, with a goal of reaching financial freedom as soon as possible. Some FIRE proponents do save up to 50% of their income, which is five times more than their peers, according to a January 21, 2019, InvestmentNews article by Greg Iacurci, “Advisors throw cold water on FIRE Movement.”

What makes many financial planners uncomfortable is the definition of “early.” In my day, early was age 50, not 30. In terms of FIRE, Adeney promotes a lifestyle of aggressive frugality with the goal of retiring as soon as possible, using a 4% withdrawal rate as a guideline to determine the nest egg you need to accumulate.

***

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This raises two obvious issues that need clarification.

First, you need to earn enough to be able to live on 50 percent of your income. Relatively few young adults make that much. There is no magic income number, since the cost of living varies so much across the country.

One’s definition of frugality is also important. To some that may mean setting the thermostat at 68 all winter or driving a small fuel-efficient vehicle. For  others it may mean chopping your own wood to heat your living space only with a wood-burning stove or doing without a car altogether. As with many things, the wisdom is knowing when frugality crosses the line to dangerous deprivation.

Finally, the earlier you retires the longer your retirement nest egg must last. With a 4% withdrawal rate, someone retiring at age 70 has a much higher probability of seeing their investment portfolio last for their lifetime than someone retiring at age 30. Also, the rate of return on the portfolio is critical. The higher the rate of return the longer the funds will last. If there is any potential problem with the FIRE formula it’s probably this.

Since the average 30 year old may live another 60 years, and assuming a 4% return net of mutual fund and advisor fees, I would make a strong argument for a 2 percent withdrawal rate. Someone age 50 could reasonably withdraw 3%, while someone age 60 or above could probably be safe at 4%.

Assessment:

As with any conflagration, playing with FIRE irresponsibly can end up burning down the house. But used wisely, it can sustain life and make living much more rewarding.

Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™8Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

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Consider Taxes Before Retiring Abroad

Physicians Considering Retirement in Another Country?

By Rick Kahler CFP®

One way for a retiring doctor to stretch a retirement nest egg is to relocate your retirement nest. Finding a place with a lower cost of living can include considering retirement in another country.

International Living

According to International Living, Panama is one of the best options for Americans looking for affordable living costs, good medical services, and an appealing climate. Costa Rica, Mexico, and Belize are also good possibilities.

Before you pack your sunhat and flip-flops and head for a low-cost retirement haven like Panama, however, take a look at all the factors affecting your retirement income and expenses. One of those is taxes.

Taxes

Moving out of the country does not mean your tax bill to the US government or your current state will decrease. Short of giving up your US passport, there is nothing you can do to escape paying US taxes on your income, even if you don’t live in the US. We are one of two countries worldwide—the other is Eritrea—that taxes our citizens based on both residence and citizenship.

You might assume, however, that moving out of the country would end your liability for state income taxes. That isn’t always the case. Some states still want to tax your income even though you don’t live there. According to Vincenzo Villamena in a December 2018 article for International Living magazine titled “How to Minimize Your State Tax Bill as an Expat,” it’s especially problematic if you end up returning to your old address in the state and start filing an income tax return. Eventually, he says, “the state will see the gap” and may require you to pay taxes on the missing years.

You have nothing to worry about if you live in one of the seven states with no income tax: South Dakota, Wyoming, Nevada, Washington, Texas, Florida, and Alaska. Tennessee and New Hampshire aren’t bad, either, as they don’t tax your earnings but they do tax your investment income. Most other states will let you off the hook if you submit evidence that your residence is in another country and you haven’t lived in the state for a while.

Then there are the states that won’t let go of their former residents easily. Those are California, Virginia, New Mexico, South Carolina, North Carolina, Massachusetts, and Maryland. Assuming that when you leave you will be coming back, they require that you continue to pay state tax on your income.

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Solutions?

The solution to this issue takes a little financial planning and some extra time. The best way to escape paying taxes to a state you no longer live in is to move to a state with no income tax first before relocating abroad. You must prove to your old state that you have left and have no intention of ever coming back.

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This means moving for real—cutting as many ties to your old state as possible and establishing as many as possible in your new state. You will want to sell your home, close bank accounts, cancel any mailing addresses, change healthcare providers and health insurance companies (including Medicare), be sure no dependents remain in the state, and register to vote and get a driver’s license in the new state. As a final good-bye you will want to notify the tax authorities that you are filing a final tax return for your last year that you lived in the state.

Assessment

In case you need a good state from which to launch your leap into expat status, consider South Dakota. Not only would my income tax-free home state let you go easily, it would welcome you back if you should decide to return to the US.

Your thoughts are appreciatedBook of Month

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***

Retirement Medical Costs Not So Scary?

When Seen Yearly

By Rick Kahler CFP®

Have you ever worried yourself into a frenzy over something, only to find out you were worrying about the wrong thing?

For example, researchers say that Baby Boomers are more worried about being financially devastated by unexpected health costs in retirement than they are about outliving their retirement savings.

But isn’t the cost of health care a legitimate worry?

We all have heard the stories of people who lost their homes, savings, and retirement portfolios paying for exorbitant medical expenses due to an unforeseen health problem. Just recently Fidelity reported that the average couple will spend $280,000 on health care in retirement.

What is often overlooked is that medical expenses before retirement are inherently more volatile than those after retirement. Before retirement, the variation in medical insurance premiums plays a huge role in the cost of medical care. Those who suffer the greatest losses from unexpected catastrophic medical expenses are often those who are uninsured.

The PP-ACA

The Affordable Care Act was designed to make it unusual for those with health insurance to suffer a catastrophic loss from unforeseen medical expenses. Still, the cost of paying for adequate health care can be staggering if you don’t qualify for a subsidy. In South Dakota, the monthly cost of providing health care for a family of four runs between $1,800 and $3,000 a month, depending on whether you hit the maximum annual out-of-pocket threshold.

While that cost alone could be considered catastrophic for some, the difference is that the potential cost is known and can be budgeted for. This is where Health Savings Accounts (HSAs) can be so effective, allowing a couple to put aside $7,000 in tax-deductible savings to use toward funding family out-of-pocket expenses. Any unused funds can be carried forward indefinitely to fund future out-of-pocket costs.

In the same way that insurance helps mitigate catastrophic health costs before retirement, so does Medicare almost eliminate unexpected health care costs after retirement. While it is true the average couple will spend $280,000 on health care in retirement, “the reality is that health care costs in retirement aren’t needed as a ‘lump sum’ on the day of retirement,” notes financial researcher Michael Kitces. In an October 2018 article, “Getting Real About (Annual) Health Care Costs In Retirement,” he points out that the Medicare system actually makes retirement health care costs a remarkably stable annual cost that can be planned for.

Example:

For example, a 65-year old couple with an income of under $170,000 will pay $270 a month in Medicare part B premiums. A Medicare Supplement plan to cover costs not paid by Medicare can run another $300 a month. This puts the monthly out-of-pocket expenses at $570 per month. Let’s further assume an additional $135 a month for ancillary expenses like dental and vision, for a total of $705 per month, or $8460 per year.

If we assume both spouses live for 23 more years after age 65, and we factor for inflation, they will spend $280,000 in retirement for medical expenses.

When we view retirement medical costs as ongoing monthly expenses rather than lumping 23 years into one large number, they are not that scary. As Kitces notes, “Of course, individual health care costs may still vary… but it turns out they vary in rather predictable and plannable ways.”

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Assessment

With that bit of knowledge, Baby Boomers can now stop worrying about being financially devastated by catastrophic medical expenses. Those who still need something to worry about can focus instead on what really counts: sufficient retirement income. This means saving enough for retirement and managing their income after retirement so they will have enough money to provide for the rest of their lives.

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

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Two Different Personal IRA Investing Strategies?

Based on Tax Considerations?

 

 

 

 

 

By Dr. David Edward Marcinko MBA

LINK: https://medicalexecutivepost.com/schedule-a-consultation/

One personal investing strategy is to place more conservative investments (those with lower expected returns) in a tax-deferred traditional IRA, 401-k, 403-b or similar, and more aggressive (higher-earning) assets in a taxable brokerage account or Roth IRA.

WHY? Each account is thus working hard but in very different ways.

HOW? The conservative funds in the traditional IRA or retirement accounts would fill any needs for safety as they grow more slowly – and the higher tax rate won’t take out as big of a bite.

Meanwhile, the more aggressive funds in a taxable brokerage accounts would grow more quickly, but be taxed at a lower rate.

Assessment: Any thoughts?

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Dr. Dave Marcinko at YOUR Service in 2020

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By Ann Miller RN MHA

Professor and physician executive David Edward Marcinko MBBS DPM MBA MEd BSc CMP® is originally from Loyola University MD, Temple University in Philadelphia and the Milton S. Hershey Medical Center in PA; Oglethorpe University, and Atlanta Hospital & Medical Center in GA; and the Aachen City University Hospital, Koln-Germany. He is one of the most innovative global thought leaders in health care business and entrepreneurship today.

Dr. Marcinko is a multi-degreed educator, board certified physician, surgical fellow, hospital medical staff President, Chief Education Officer and philanthropist with more than 400 published papers; 5,150 op-ed pieces and over 125+ international presentations to his credit; including the top 10 biggest pharmaceutical companies and financial services firms in the nation. He is also a best-selling Amazon author with 30 published text books in four languages [National Institute of Health, Library of Congress and Library of Medicine].

Dr. Marcinko is past Editor-in-Chief of the prestigious “Journal of Health Care Finance”, and a former Certified Financial Planner®, who was named “Health Economist of the Year” in 2001. He is a Federal and State court approved expert witness featured in hundreds of peer reviewed medical, business, management and trade publications [AMA, ADA, APMA, AAOS, Physicians Practice, Investment Advisor, Physician’s Money Digest and MD News].

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On Lost or Stolen Credit, ATM and Debit Cards

 Why I Dislike Debit Cards –  And You Should Too!

[By Dr. David Edward Marcinko MBA]

If your credit, ATM, or debit card is lost or stolen, federal law limits your liability for unauthorized charges. Your protection against unauthorized charges depends on the type of card — and when you report the loss.

***

https://www.consumer.ftc.gov/articles/0213-lost-or-stolen-credit-atm-and-debit-cards

***

MORE: Pros and Cons

https://clark.com/commoncents/debit-vs-credit-pros-cons-protections-money/

Assessment

Your thoughts are appreciated.

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Want to know when you’re going to die?

TODAY IS “ALL SOULS DAY”

[By staff reporters]

All Souls Day is a holy day set aside for honoring the dead. The day is primarily celebrated in the Catholic Church, but it is also celebrated in the Eastern Orthodox Church and a few other denominations of Christianity. The Anglican church is the largest protestant church to celebrate the holy day.

Most protestant denominations do not recognize the holiday and disagree with the theology behind it.

***

So – When are you going to die?

By MIT TECHNOLOGY REVIEW

Humans have been trying to find ways to calculate exactly how long they’ll live since time immemorial. We’re yet to find a reliable predictive formula, but that is starting to change.

The science: Certain chemical changes to cytosine – one of the four DNA bases or “letters” of genetic code—can help tell whether someone’s body is aging unusually fast or slowly. Steve Horvath, a biostatistician at UCLA, tested this “epigenetic clock” theory on 13,000 blood samples collected decades ago, from people whose subsequent date of death was known. The results found that the clock can be used to predict how long someone will live and how much of that life will be free of age-related disease.

Inheritance: Your genes dictate about 40% of the “ticking rate” of your mortality clock, while the rest comes down to lifestyle and luck, according to Horvath. There are things we can do to delay aging —including getting enough sleep.

Privacy: Insurance companies, hospitals and palliative care teams are already finding this sort of research useful, but there are a lot of issues around privacy yet to be untangled. Your likely life span is information we’d consider very personal, yet existing regulations and privacy policies don’t even consider the possibility of such information. Perhaps it’s time to start thinking about it.

***

“DANCE OF DEATH”

[Copyright 2018. iMBA Inc., all rights reserved. USA]

***

Conclusion

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Term Life Insurance Can Protect Retirement Plan Contributions

Term Life Insurance Can Protect Retirement Plan Contributions

By Rick Kahler CFP®

Some of the typical reasons for life insurance are to replace a breadwinner’s salary, pay off large debts, and pay estate taxes. Another reason to carry life insurance—if it’s the right kind—can be to fund a retirement plan.

Illustration

To illustrate, let’s imagine a couple, both 55, with two grown children, two good jobs, and no debts. They began funding their retirement only recently. Leigh’s entire salary of $124,000 a year goes into company retirement plan options: $64,000 into the 401(k) and profit sharing plan and $60,000 into the Cash Balance plan. The couple lives on Mischa’s salary of $60,000 a year.

Their financial planner has calculated that in 10 years they will have a good chance of having $1,500,000 saved in retirement plans. This amount will allow both of them to retire, continue to live on $60,000 a year for the rest of their lives, and have enough to fund long-term care for one of them or leave a nice inheritance to their kids.

The death, disability, or loss of a job of either of them is not a threat to their current lifestyle. However, it is a threat to their retirement plan. And the loss of Leigh’s job is the biggest threat. While finding a new job that would allow retirement plan contributions to resume is possible, it is not guaranteed.

Nothing can be done to insure against the loss of a job, but there are ways insurance could help protect this couple. They could purchase disability insurance to replace 60% of the income of either partner. This would allow them to still make a reduced contribution to their retirement plan.

Premature Death

But what happens if either of them should die prematurely, especially Leigh? It’s doubtful Mischa could cut expenses enough to put anything significant toward retirement, instead having to work as long as possible and then rely heavily on Social Security.

This a where a 10-year term life insurance policy on Leigh would make a significant difference. If they purchased a $1,000,000 term policy on Leigh now, the premium (for a nonsmoker in good health) would be around $1200 annually. Should Leigh die this year, if Mischa invested the insurance payment it would have a high probability of growing to $1,500,000 in ten years. This would allow Mischa to retire comfortably.

However, the older Leigh and Mischa get, the less they need the insurance. If Leigh died in the fifth year of the policy, the five years of savings plus the insurance proceeds would accrue more than $2,000,000 over the following five years.

One cost-saving strategy would be to buy two $500,000 10-year term policies and drop one after five years. This would still provide for a total of around $1,500,000 in retirement funds for Mischa by age 65 if Leigh should die before that time.

***
 ***

If you proposed this plan to a life insurance agent, they might suggest putting Leigh’s salary into a cash value policy instead of buying term.

Let’s look at that

Contributing $124,000 into the retirement plan saves $24,000 a year in income taxes, so only $100,000 a year would be available to buy insurance. This amount would cover a policy with a $1.9 million death benefit and a cash value guaranteed to grow to $1,036,328 in 10 years. Given the extra tax payments, plus premium costs of $1 million over 10 years, that’s not a good investment for our couple. The commission of $72,500 makes it a great investment for the salesperson, though.

Assessment

Besides, in this circumstance, life insurance is not meant as an investment. It is an affordable way to replace the income that covers Leigh’s retirement contribution. 

Conclusion

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***

 

How the “6 percent rule” can help with a pension plan payout decision

A general guide

[By staff reporters]

As a general guide, according to financial advisor Wes Moss, if your monthly pension check equals 6 percent or more of the lump-sum offer, then you may want to go for the perpetual monthly payment. If the number is below 6 percent, then you could do as well (or better) by taking the lump sum and investing it, and then paying yourself each year (like a personal pension that you control).

Here’s how the math works:

Take your monthly pension offer and multiply it by 12, then divide that number by the lump-sum offer.

Example 1: $1,000 a month for life beginning at age 65 or $160,000 lump sum today?

$1,000 x 12 = $12,000 divided by $160,000 equals 7.5 percent.

Here, you would have to make approximately 7.5 percent per year on the $160,000 to earn the same $12,000 a year. Earning 7.5 percent a year consistently and over many years is a tall order. Taking the monthly amount in this case (7.5 percent is greater than 6 percent) may likely be a better deal over the long haul.

Example 2: $708 a month for life or a $170,000 lump sum today?

$708 x 12 = $8,496 divided by $170,000 equals 5 percent.

In this scenario, the monthly pension amount is offering you a return for life of about 5 percent. Remember, for the first 20 years even earning zero percent, you could do the same before you run out of money. If you made even a modest return (say, 2 percent per year), you would be far ahead of what the monthly pension would pay you. In this case, 5 percent is less than the benchmark of 6 percent, so you might be better off taking the lump sum of $170,000.

When You Should Take the Lump Sum Over the Pension

Assessment

Your thoughts are appreciated.

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Even More IRA Mistakes

Three More Critical Mistakes to Avoid

By Rick Kahler CFP®

Previously, I discussed two critical IRA mistakes, based on information I learned from Jeff Levine of Fully Vested Advice, Inc., at the 2018 spring conference of the National Association of Personal Financial Advisors. This week I will cover three more.

1. Failing to understand beneficiary options on inherited IRAs. You may well be among the millions of Americans, most of them spouses, who will inherit IRAs. Knowing the options you have can save you thousands of dollars in benefits and taxes.

Spouses have the right to remain as a beneficiary of the plan or roll it over into their own IRA. Which to choose depends upon the age of the person who has died, and the age and financial needs of the beneficiary. The “99% rule” says beneficiaries under age 59½ should retain the plan as an inherited IRA; those over 59½ should roll it over. The “1%” scenario is when the deceased spouse was over age 70½ and the beneficiary is more than 11 years younger. A rollover is best if the beneficiary doesn’t need any IRA distributions until after age 59½.

Another option for IRA owners is to name a trust as the beneficiary of the IRA. Levine suggests not doing this if you can accomplish your goals without it. But there are many cases when a trust will accomplish things that giving the IRA outright to a beneficiary won’t do. Estate planning attorney Ilene McCauley, from Scottsdale, AZ, says some of those instances are when you want to protect the IRA from a divorce of a beneficiary or guarantee that the proceeds go to your children when your spouse dies or remarries. McCauley recommends using a living trust as the IRA beneficiary rather than a testamentary trust established through a will.

2. Not understanding the RMD aggregation rules. These are widely misunderstood even by advisors. Levine asked the group of about 50 advisors this question: “If a 72-year-old client had two traditional IRAs, two 401ks, and two 403bs, how many RMD checks would need to be issued?” Only three advisors got the right answer—four. You can aggregate the RMDs from the two traditional IRA accounts and take the combined RMD out of just one account. You can do the same with the two 401k accounts. But with the 403b accounts you must take the RMD separately from each account. You can’t aggregate them or you face penalties and taxes.

3. Not doing periodic reviews of IRA beneficiaries. It’s important to review your IRA beneficiaries regularly. This is especially crucial when a beneficiary dies or you get remarried. For example, assume you want your employer’s retirement plan to go to your children upon your death. You remarry, but don’t have your new spouse sign a disclaimer waiving rights to your retirement plan. If you die after one year of marriage your new spouse, not your children, inherits the employer’s retirement plan funds.

The reverse is true with an IRA or a 403b. Let’s assume you listed your kids as the beneficiaries on either of these accounts. If you remarry and want the proceeds to go to your new spouse but you forget to sign a change of beneficiary form, there is no one-year rule as there is with an employer’s plan. Your kids , not your spouse, will inherit the account.

Assessment

The bottom line is that, to get the most benefit from a retirement plan, you need to do your homework and seek appropriate advice. The money you save by avoiding IRA mistakes can make a big difference in your security and standard of living in retirement. 

Conclusion

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***

Avoid Costly IRA Mistakes

Avoid These 2 Mistakes

By Rick Kahler CFP®

Investing through an IRA is a foundational method of retirement saving. Opening and contributing to an individual retirement account is not hard. That doesn’t mean IRAs are simple and easy to understand.

National Association of Personal Financial Advisors

I was reminded of this at the 2018 spring conference of the National Association of Personal Financial Advisors, where I attended a workshop by Jeff Levine of Fully Vested Advice, Inc., on “10 Critical IRA Mistakes.”

Top on his list of mistakes was failing to make charitable contributions out of your IRA when you are over 70½. These are called Qualified Charitable Distributions (QCDs). Here is why giving to charity directly from your IRA is a good idea.

For traditional IRAs, at age 70½ you must begin to withdraw required minimum distributions (RMDs) whether you want to or not. An RMD is taxable at ordinary income rates. Further, if you make a charitable donation and you are over age 65, you now must have over $13,300 of itemized deductions per person to get any portion of it deductible. By donating out of your IRA, you can reduce your RMD by an amount equal to your charitable gift. This makes your charitable gift 100% deductible and lowers your adjusted gross income, which can also help lower your Medicare premiums.

Here’s an example

Assume you are age 71, give $9,000 a year to charity, your property taxes on your home are $2,500, you are in the 22% tax bracket, and your RMD is $10,000. Without planning you will take your $10,000 RMD and pay $2,200 of income tax on it. Since you only have $11,500 in itemized deductions you will take the standard deduction of $13,300.

If instead you contribute $9,000 to charity out of your IRA, you reduce your taxable RMD from $10,000 to $1,000, slashing your tax liability on it from $2,200 to $220. The savings of $1,980 would cover most of your property tax.

If you make a QCD like this, it’s essential to inform your tax preparer. There is no required written evidence from your IRA custodian that your RMD needs to be offset by the amount of your gift. It’s your responsibility to tell your accountant so they report the correct reduced amount of the RMD on your tax return.

In Bankruptcy

Another significant source of mistakes is the complex asset protection rules for IRAs and retirement plans. Protection differs between bankruptcy and non-bankruptcy creditor actions.

In bankruptcy, all employer plans (ERISA), SEP and SIMPLE IRAs, and rollovers from retirement plans to IRAs are 100% protected from creditors. Amounts you personally contributed to traditional and Roth IRAs are protected up to a total of $1,283,025. However, inherited IRAs are not covered. You can see why it’s important to keep traditional, rollover and inherited IRAs in separate IRA accounts.

To make it even more complicated, different rules apply if creditors sue in non-bankruptcy proceedings. ERISA plans are 100% protected in all states. All IRAs are 100% protected in most states, except California, Georgia, Maine, Mississippi, Nebraska, South Dakota, and Wyoming, where they have limited to no protection.

Solo 401(k), SEP IRA, and SIMPLE IRA plans are fully protected from non-bankruptcy proceedings in about half of the states. The others, including South Dakota, have limited or no protection. If you live in one of these states and have a Solo 401(k), SEP, or SIMPLE, you want to roll it into an IRA as soon as circumstances allow.

Assessment

Mistakes like the two described here can be costly. To avoid them, especially if your circumstances are at all complex, it’s wise to get tax and IRA withdrawal advice from qualified financial advisors.

Conclusion

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***

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More on Retirement Planning

ShouldaCoulda Woulda Retirement Planning

By Rick Kahler CFP®

My hunch is that most people would agree they “should” invest for the future. My second hunch is that many of them don’t know how to start and are afraid of making serious mistakes.

One of our resident planners, Sterling Gray, summed up that fear eloquently in a post on the KFG blog: “I noticed that my friends and colleagues . . . saw retirement planning as a dark, treacherous terrain that they could never safely travel alone. Unsure of where to turn for help, they often chose to ignore saving for retirement completely . . .”

Here are some pointers to help you take the first steps into the unfamiliar terrain of investing.

1. First and foremost, create a habit of living on less than you make. Spend frugally and invest as much as you possibly can. Ideally, while you are young, start with 20% of your paycheck, but at least start with something. The older you are, the greater the percentage you need to be saving.

2. Choose an investment method that will help reduce the taxes you pay on your contributions and the earnings they produce. This commonly means 401(k) retirement plans and IRAs—Roth IRAs for those in low income tax brackets and traditional IRAs for those in high tax brackets. You typically want to contribute a portion of every paycheck to your retirement plan.

3. Pick an investment. This is the part that scares many people away from investing, so let’s be specific.

3a. The best way for small investors to accumulate wealth is by owning stocks. But you don’t want to fall into the trap of picking individual stocks yourself, or worse yet, trying to buy low and sell high. That is called “playing the stock market,” and according to the research there is a high probability the only thing that will get played is you.

3b. The best way to own stocks is in a mutual fund that owns thousands of stocks of companies from around the globe. My favorite fund for people under age 40 is Vanguard Total World Stock (VT). It owns 7,781 stocks of companies located in 41 countries, including both developed and emerging markets. Over the last 48 years an investment in a globally diversified portfolio of stocks returned 8.9% annually, according to the MSCI World stock index. A $10,000 initial investment turned into about $600,000. If you are over 40, you may want to consider the Vanguard Global Wellington Fund Investor Shares (VGWLX. If you are over 60, the Vanguard Managed Payout Fund (VPGDX) is my favorite.

3c. If your 401(k) doesn’t offer these mutual funds, it probably will offer a number of Target Date Funds. Pick one that is closest to the year you will turn 70. If you are age 30 now, select the 2060 Target Date Fund.

4. This is the most important part of accumulating wealth, and it is absolutely the hardest part. Keep investing out of every paycheck, even when markets are falling or seem sure to fall. Even when the talking heads are sure the world is coming to an end and the financial press is screaming that you need to get out before you lose it all. Never suspend your monthly investment. Never sell out of your stock mutual fund and go to cash. Never sell out even 10% of your stock fund and go to cash. Keep breathing, focus on the long term, and stay the course.

Assessment

Like any trip into new territory, the path to financial independence starts with a single step. Take that first step, and you’re on your way to a successful journey.

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

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MarcinkoAdvisors@msn.com

https://www.crcpress.com/Comprehensive-Financial-Planning-Strategies-for-Doctors-and-Advisors-Best/Marcinko-Hetico/p/book/9781482240283

***

“Getting Old is Better than the Alternative”

More on Retirement Planning

By Rick Kahler CFP®

At the gym where I work out it’s not uncommon to hear us old guys complaining in the locker room about our aches and pains. When the complaining subsides, inevitably someone will remark, “Well, at least getting old is better than the alternative.”

If you are fortunate enough not to die prematurely, you are going to grow old one day. As youth begins to gradually fade and health limitations increase, the reality that you will not be able to earn a living forever will present itself. At some point in time your financial support will need to come from something other than your job or business.

It’s very easy to dismiss this when we are young, because we’ve never known anything but being young. We take our health, vigor, and capabilities for granted. Just like anything that is “normal,” only when it’s gone do we tend to really appreciate it.

Normalacy

I never gave any thought to opening a door, drinking a cup of coffee, or cutting up the food on my plate—until I tore my rotator cuff and my right arm was rendered useless. A few weeks of doing without it taught me a whole new appreciation for the value and ease a functioning right arm brings to my life.

Unfortunately, many of the capabilities we lose with aging do not return after a few weeks of healing. The harsh reality is that eventually most of us will not be able to take care of ourselves in the ways we are used to.

Retirement planning

So when you think about “retirement planning,” here is what that really means: When you can’t earn an income, how will you be provided for? Where is the money for rent and utilities going to come from? How are you going to get to doctor appointments and the store when you can’t drive anymore? Who will help you pay your bills when your eyesight or your mind aren’t as clear as they once were? Who is going to help you with meal preparation or remind you to take your medications?

If you have fully funded your retirement, you can feel secure that, no matter what care and assistance you may need, you will have the means to pay for it. If you haven’t saved adequately, you will need to rely on others to take care of you financially as well as physically.

The “others”

For many people, “others” mean first spouses, then children, and finally governmental or charitable organizations. These all have limitations.

Spouses. What happens if you don’t have a partner? Or when they can no longer care for you? Or when both of you need care?

Children. Unlike many other countries and cultures, “living with the kids” is not necessarily expected or accepted in the U.S. Most children are not equipped emotionally or especially financially to become caretakers for aging parents.

According to studies I’ve read, the cost of caring for a parent who has not provided for themselves ranges from $250,000 to $700,000 in lost wages, opportunities, and out-of-pocket expenses. People may have to quit jobs to care for a parent or hire care at a cost of up to $100,000 a year. Few in American can afford that.

Government and charities. Social Security provides only a minimal income. Medicaid pays for only basic care such as shared living space. Services like public transportation, subsidized elder housing, and reliable in-home services are not available everywhere, especially in rural areas.

***

https://www.amazon.com/Comprehensive-Financial-Planning-Strategies-Advisors/dp/1482240289/ref=sr_1_1?ie=UTF8&qid=1418580820&sr=8-1&keywords=david+marcinko

***

Assessment

This is not a pretty picture of retirement. Unfortunately, it is reality for millions of Americans. The consequences of neglecting to prepare financially for old age are all too real.

Conclusion

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On “Forced” Required Minimum Distributions

Mandatory RMDs

By Rick Kahler CFP®

Planning is important for all things financial, including retirement, which is inevitable no matter how far into the future it may seem. The financial decisions you make in your 20s through your 60s will greatly impact the quality of your lifestyle during retirement. Social Security and family won’t be enough to get you through 30 years of retirement. If you haven’t worked for a branch of government, you will rely heavily on income you’ve stashed in 401(k)s and IRAs.

Traditional IRAs

One of the big advantages of a traditional IRA or 401(k) is being able to save pre-tax dollars and let them grow tax deferred until you need them. Hopefully, when you take the distributions in retirement, you will be in a lower tax bracket than when you made the contribution. The downside is that traditional IRA funds become 100% taxable when you withdraw them.

Deferrals

Deferring distributions from your IRA only works until age 70½, when you’ll be forced to take money out whether you want to or not. This is called a Required Minimum Distribution, or RMD. If, at age 70½, you don’t need to withdraw funds to live on but are faced with an annual RMD, there are several things you can do to minimize your tax hit.

The easiest is don’t stop earning an income if you have a substantial 401(k). Employees are not required to take RMDs when they are still working, even part-time. This only applies to your employer’s 401(k). You will need to take RMDs from personal IRAs or 401(k)s and IRAs from previous employer plans.

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However, if you plan ahead you may be able to bypass this. If you have IRAs that are rollovers from previous 401(k)s, your employer may allow you to roll them into your current plan. By consolidating previous qualified employer plans into your current plan, you can defer taking an RMD until you quit working.

If you give to charities, you can give any portion or all of your RMD to a charity and not pay any taxes on the distribution. This can really save you a lot of money if you are currently giving to charities out of taxable accounts. When you turn 70½, simply redirect your charitable giving from taxable accounts to your IRA. You can give up to $100,000 annually without paying taxes on those distributions.

Another strategy we use commonly with clients is converting traditional IRA funds to Roth IRAs. Money in a Roth is not subject to RMDs. Of course, the downside is that you must pay taxes on the funds converted from your traditional IRA to a Roth.

For a conversion to make financial sense, two important factors must apply. You generally want to do a Roth conversion when your current tax bracket is lower than you anticipate it will be in the future. The most obvious scenario here is when you delay Social Security until age 70 and you are currently in a 10% or 15% tax bracket. It’s highly possible that Social Security and RMDs all kicking in at the same time may put you into the 25% tax bracket. Moving as much money at the 15% bracket prior to age 70 can make a lot of sense. It’s also important that the money to pay the taxes needs to come from a taxable account.

Assessment

As with all financial strategies that are crammed into a 600-word article, there are variations and nuances I am not able to go into. If you think one of these strategies may apply to you, don’t try it on your own. First get advice from a competent tax advisor or financial professional.

Conclusion

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On Retirement Planning Risks

How Much Risk?

By Rick Kahler CFP®

If I asked you how much risk you are taking with the investments in your retirement plan, what would you say? My guess is nine out of ten people couldn’t answer that question in a meaningful way. Answers like “A lot,” “Just right,” or “not much,” may as well be “I have no clue.”

Risk tolerance

We typically think of risk levels in terms of “risk tolerance.” This is the appropriate portfolio risk that a person would be most comfortable taking with their investments. While investment advisors are required to assess your risk tolerance and you can measure it yourself on various internet sites, determining what risk you are comfortable with is more of an art than a science. It depends on the investment return you need to produce an acceptable retirement income and the asset allocation that will give you that return, and it is a delicate balance between emotions and financial reality.

When markets are rising, everyone is comfortable with their risk tolerance. I have known retirees who had their entire retirement portfolio in a handful of small company growth stocks—a powder keg of investment risk by any definition of risk.

Yet they were entirely comfortable with that risk, because the stocks they were in “always went up.” Anyone with a stock that “always goes up” either hasn’t held the stock during a bear market or only looks at their brokerage statements once every five years.

Uncomfortable!

To find out what comfort really means when it comes to risk tolerance, it helps to define “uncomfortable.” While risk tolerance tests will ask you how far must your portfolio drop before you freak out and sell, the best way to find this out is when markets are in a free fall.

If you stay in the markets long enough to see them turn around and rise again, your risk tolerance was probably comfortable. If you sell out, it’s a pretty good indication your risk tolerance was not as great as you or your advisor thought. Unfortunately, selling out at a market bottom is a very costly way to find out the risk you had in your portfolio was “uncomfortable.”

A decade 

If you have been investing for over 10 years, finding your risk tolerance may be simple.

1. Think back to 2008-2009. Did you stay in the markets or get out?
2. Look at old statements and find out what percentage of your investments was in equities (owning things) and what percentage was in fixed income investments (loaning money through CD’s, money markets, and bonds).
3. Express this as a fraction with your equity percentage first and your bond percentage last. If you were 66% in equities and 34% in fixed income your asset allocation was 66/34.
4. If you stayed in the markets, your allocation was probably “comfortable.” If you got out, it was certainly “uncomfortable.”

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If your allocation was 70/30 and you stayed in the market, maintaining that allocation should serve you well. Maybe you could even increase the equity portion to 75/25 or 80/20 and still be comfortable.

Conversely, if your allocation was 70/30 and you sold out or reduced the percentage you held in equities, your allocation clearly offered an uncomfortably high level of risk. You will need to reduce the equities in your portfolio. This is especially true if you got back into your old allocation, or something even riskier, to “make up time.” You may well be taking too much risk and setting yourself up for failure all over again. You will need to reassess

Conclusion

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Bitcoins for Retirement?

 In a Balanced Portfolio?

By Rick Kahler CFP®

A reader recently sent me the following email: “As you know, there are ‘market experts’ pitching bitcoins as an ‘investment’. Has a Huge YTD gain. I’d bet a lot of your readers would like to know if a bitcoin position has a place in a balanced financial portfolio.”

I always appreciate hearing from readers, especially when they challenge me with topics I would normally not have considered. Bitcoins are not something to which I’ve paid serious attention.

How they Work

First, let me explain that a Bitcoin is a type of digital currency which is traded person to person. It is not backed by a government or considered legal tender. While Bitcoin is one of the earliest and most widely known digital currency systems, it is not the only one that is available. These are sometimes called “altcoin,” “virtual currency,” or crypto-currency.”

Unlike government-created currencies where a central bank controls the creation of the currency, Bitcoins are uncontrolled or tracked by any government. This allows people to send or receive money across borders freely, with none of the restrictions, tracking, or caps that are normally placed on transactions by governments.

A digital money system has an inherent problem common to all money systems. How do you keep the currency, especially one that is entirely digital, from being counterfeited? What stops someone from creating Bitcoins or selling the same Bitcoin multiple times?

The solution is a type of open source, public ledger that tracks every Bitcoin transaction from the beginning of Bitcoin time. It makes it virtually impossible to cheat. The creation of new Bitcoins is controlled via a process called mining. Only a limited number of new Bitcoins are allowed into the system annually, similar to how the precious metal supply gradually expands annually based on the mining of new metal.

The market in trading Bitcoins is probably as “free” as a currency market can get. The price of Bitcoins is based on supply and demand. Since Bitcoin was only created in 2009, it has less than a decade of performance to evaluate, but throughout its short history the price has fluctuated wildly. For example, it reached $31 in July of 2011, then dropped back to $2 by that December. In November of 2013 it hit a high of $1,242. The following month, the price dropped to $600, rebounded, crashed, and eventually stabilized to a range of $650 to $800.

The reader who asked me about Bitcoin was certainly right about its impressive 2017 year-to-date performance. On January 1, 2017, a Bitcoin sold for $496.90. As of August 19 it closed at $4,109.10, nearly a ten-fold increase in just eight months.

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Operating History

An article on Investopedia offers a good overview of Bitcoin‘s operation and history.

It also describes some of the risks to evaluate before considering it as an investment. These include the relative novelty and lack of track record of digital currency, the possibilities for hacking and fraud, the uncertainties of future regulation, and the competition of other developing virtual currency systems. It also points out that Bitcoin transactions are similar to dealing with cash. They are “permanent and irreversible,” with “no third party or a payment processor, as in the case of a debit or credit card – hence, no source of protection or appeal if there is a problem.”

Assessment

While I like the libertarian freedom of the idea of a currency uncontrolled by government intervention, I don’t consider owning such a currency an investment. I do consider buying or selling digital currencies like Bitcoin a speculation. Like other speculative investments, these do not belong in any retirement portfolio. 

Conclusion

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On the Department of Labor “Fiduciary Rule”

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Rick Kahler MS CFP

By Rick Kahler MSFS CFP®

Both fee-only financial planning firms and companies that sell financial products are beginning to see some unintended consequences from the recent Department of Labor fiduciary rule.

The rule requires that all financial advisors who deal with an investor’s retirement accounts, including those who sell products, be held to a fiduciary standard. In the past, only RIA’s who are regulated by the SEC were held to such a standard.

The DoL intended the rule to discourage financial salespeople from placing high fee and commission products in retirement accounts. For fee-only advisers, one unintended consequence is an increase in documentation and paperwork, which increases the cost of doing business.

Another unintended consequence that could actually end up hurting consumers may be on the issue of churning.

Churning

Churning describes a broker excessively and needlessly making a lot of trades in a client’s account to generate extra commissions. FINRA, the agency that oversees the sale of financial products, has long discouraged churning, though often the practice only comes to light when a consumer files a complaint.

Still, regulators’ success in discouraging churning has given rise to fee-based brokerage and wrap accounts. These accounts do not compensate brokers on the number and frequency of transactions, but on an ongoing management or advisory fee. It can be a flat fee or one that is determined by a percentage of the assets in the account. This mode of compensation takes away a broker’s incentive to churn accounts. That has to be a good thing, right? Well, not necessarily, if you are a regulator.

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Now, according to financial planner and writer Michael Kitces, the regulators are concerned they have been “too successful” in motivating brokers to charge management fees. Kitces notes the new DoL fiduciary rule will continue to spur a massive shift towards various forms of fee-based brokerage and advisory accounts, giving rise to an emerging new problem: reverse churning.

Reverse Churning

He says reverse churning “is where an advisor charges an ongoing investment management fee … but fails to provide any substantive ongoing investment services.” The broker places a consumer in an investment, collects the annual fee, and never touches the account again. Regulators are worried that brokers have gone from too much activity (churning) to not enough (reverse churning).

With the rise in popularity of passive investing, there is growing interest in the use of ETFs, index funds, and other passive investment vehicles. Passive investing is often framed as a “leave it and forget it” strategy that needs little attention. A lot of research validates that a passive investment strategy is usually superior to an active strategy with more buying and selling of securities.

Kitces notes that while the regulatory concern about reverse churning is appropriate, it “raises troubling concerns when paired with the growing popularity of using index funds, ETFs, and passive investment approaches. How is an advisor supposed to justify an ongoing advisory fee when the right thing for the client to do might really be to do nothing? And what if the bulk of the advisor’s AUM fee is actually for other non-investment (i.e., financial planning) services, paired together with an otherwise passive investment portfolio?”

Assessment

Regulators will probably need to address the difference between reverse churning and implementing a prudent passive investment strategy. That won’t happen before there is a lot of confusion that demands clarification. In the meanwhile, fee-only advisors who embrace a passive investment strategy will have to add another layer of busywork by documenting what they actively do for clients on an ongoing basis. Clearly, this will be easier for fiduciary advisors who also provide financial planning than for those who only provide investment advice. 

Conclusion

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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

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How Fees Impact Your Retirement Savings [video]

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How 1% Fees Can Eat Up 30% of Your Nest Egg

By Sally Brandon

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In this brief video, Rebalance IRA‘s Vice President of Client Services, Sally Brandon, details the direct impact that hidden and unfair fees can have on your retirement nest egg.

The firm works to make sure you retire with as much of your hard-earned savings as possible.

How 1% Fees Can Eat Up 30% of Your Nest Egg

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

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Backward Market Business Research

Experimenting in Business

By Dan Ariely PhD

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 Part of the CAH Startup Lab Experimenting in Business Series

By Rachael Meleney and Aline Holzwarth

Missteps in business are costly—they drain time, energy, and money.

Of course, business leaders never start a project with the intention to fail—whether it’s implementing a new program, launching a new technology, or trying a new marketing campaign.

Yet, new…

Beginning at the End — Dan Ariely

Product DetailsProduct Details

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Seniors – Arranging to Entrust Financial Affairs

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Rick Kahler MS CFPBy Rick Kahler CFP®

For seniors, arranging to entrust financial affairs to someone else is an important part of preparing for old age. Once you have chosen a surrogate and dealt with some of the details; one question remains.

How will the transition occur?

Here are some suggestions, based on the work of Carolyn McClanahan MD CFP®.

Simplify

A good first step is to simplify your finances. For example, consolidate checking, savings, and retirement accounts. Reduce check-writing by using credit cards wherever possible and paying off the balances every month. Reduce credit cards to three: one to use in public, one only for automatic bill paying, and one for other online purchases. Not only does this simplify record-keeping, but it minimizes the disruption when one is stolen. (Believe me, it happens. It’s happened to me several times.) As McClanahan points out,

“The easier it is, the longer independence can be maintained.”

Inform

Your surrogate needs to know about all your assets. Not only does this include common liquid assets like bank accounts and securities held in taxable and retirement accounts, it also means more obscure liquid assets. Some examples include variable and fixed annuities, structured notes, collectibles, mineral rights, and cash value life insurance.

Provide access

It’s helpful to have the person who will take control of your finances begin by periodically monitoring your accounts. This will require them to have access to your financial records. If your affairs are relatively simple and your surrogate is local, you can authorize them to access your accounts and receive statements. Another good way to share information, especially if your surrogate lives at a distance, is through a secure online access site where you can share relevant and up-to-date information. Almost every financial planner offers a “client portal,” and so do popular sites like Dropbox and Sharefile.

Observe

McClanahan recommends that your surrogate start with just observing the monthly financial activities. This can mean receiving duplicates of the bills or periodically logging into investment sites. Alerts could be set on various accounts if spending exceeds a certain limit. There are several money management sites, like quicken.com and mint.com, that can also give a surrogate online access to monthly statements and spending alerts.

Participate

The activity of the surrogate can eventually be increased to attending annual meetings with your insurance agent, investment adviser, attorney, and accountant. If you have a financial advisor, it would be helpful to bring your surrogate into your quarterly or annual updates. This way the surrogate can begin to build a relationship with the advisor, which will greatly smooth the transition to the surrogate working conjointly with the advisor in making all your investment decisions.

The surrogate can gradually begin to assist with the monthly bill paying. Eventually, this would culminate in the person taking over all financial decision-making and responsibilities like purchases, bill paying, taxes, and investment decisions.

Monitor the surrogate

Having a system of checks and balances by appointing someone to monitor the surrogate may help you be more comfortable allowing a surrogate to take over your finances. The monitor might be another family member. It might also be your attorney, accountant, or financial planner, whose fiduciary responsibility would be to you.

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Assessment

Planning for the transition of our financial caretaking is one more aspect of preparing for old age that we are reluctant to even think about. Yet without it, we must eventually accept options imposed on us by family or the court. This planning is crucial in order to take care of yourself and your finances in the ways you choose. 

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

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The Retail Retirement Wars

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The Retail Retirement Wars

Although no one is paying much attention to it just yet, there is a battle brewing in financial services to create a next-generation retirement vehicle.

And because the winner stands to inherit the power to redirect $14 trillion dollars of mutual fund assets and disrupt long-standing retirement asset monopolies, this battle is likely to go down as the largest industry duel in the history of commerce – dwarfing the cola and software wars by trillions.

Read the two articles below on order to gain a firm understanding of who will prevail and what it will mean for both conventional financial services as well as FinTech.

Part 1:

The Battle to Launch a Next-Generation Retirement Product & Control $14 Trillion in Investment Direction

Click Here to Read Article

Part 2:

DOL Fiduciary Rule or Not – Why Brokerages will be Distancing Themselves from the Retail Retirement Market

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

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On the “Care-Taking” of Your Financial Affairs

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Rick Kahler MS CFP

By Rick Kahler MS CFP®

One area that few seniors prepare for is arranging for someone else to handle their financial affairs when they can no longer fully care for themselves.

This is easy to put off, for three primary reasons.

First, there are a lot of difficult emotions involved with the thought of losing our cognitive ability and the inherent freedom to financially care for ourselves. This is something we have done for ourselves all our lives, so it’s very hard to imagine not being able to do so.

Second, for many of us the loss of cognitive ability is slow and almost unrecognizable. There isn’t an urgency that suggests we need to do anything soon. Often by the time we do realize we need help, it’s too late for us to arrange for it.

Finally, while we’re in good health we tend not to consider the possibility of a sudden catastrophic health event. Yet such a crisis can leave us without a plan and no way in which to have any say in what happens.

National Association of Personal Financial Advisors

Fortunately, if you are reading this you have time to prepare. The following information is based on the work of Carolyn McClanahan, MD CFP®, particularly a presentation given to the National Association of Personal Financial Advisors in May of 2016.

She suggests the major questions to answer are:

  1. Who will be in charge?
  2. Are the right documents in place?
  3. How will you monitor your decline?
  4. Do you have a written investment policy?
  5. How will the transition occur?

Who will be in charge?

Choosing a trusted third party to take over bill paying, investment management, and financial caretaking is essential. Options include a spouse, a child or other relative, a friend, a professional bookkeeper, or a financial planner. For couples, the odds are that both partners won’t lose their ability to handle financial affairs at the same time. If one spouse handles most of the money matters, it’s important that the noninvolved spouse becomes involved in the bill paying routine and understands the basics of the couple’s finances. If you are the caretaking or surviving spouse, or if you are single, designating a financial caretaker is crucial.

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Are the right documents in place?

The most important document is your power of attorney that names the person or organization who will be in charge of your finances. If the bulk of your net worth is in retirement accounts, annuities, and jointly owned, another option is to create a living trust, place everything you own individually in it, and identify the successor trustee who is in charge when you can no longer make decisions.

How will you monitor your decline?

It’s important to have some written agreement in place—even if for no one but yourself—that lists the triggering events which will indicate to you the time has come to transfer the control to someone else. It’s up to you to determine what these triggers are and to self-assess every few years.

Do you have a written investment policy?

And is it current? This is a good time to review your investment policy, making sure it’s been updated to reflect your changing cash flow needs and asset allocation. You might also evaluate your ownership of any complicated and illiquid assets like real estate or closely held business interests. It may be wise to simplify and liquidate them while you’re still capable of managing them, before it’s time to pass responsibility to a surrogate.

Assessment

Once you’ve answered these four questions, it’s time to consider the last step that will be addressed in a future ME-P: how the transition should take place?

Five Reasons Families Fight Over Estates

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

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On Pre-Retirement Planning

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By Charles Schwab

A 12-Month Playbook

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More:

Conclusion

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Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

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Money and Millennials?

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By TD Waterhouse

Savings Goals

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Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

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On Retirement Abroad

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On the new impetus to leave the USA

Rick Kahler MS CFP

By Rick Kahler MSFS CFP®

The recent presidential election was the most contentious and polarizing in modern history.

In the past it hasn’t been unusual to hear people say, “If _________ is elected I am leaving the country,” but I’ve rarely seen anyone actually act on that threat. I have a hunch that since this election more people than ever will seriously consider the option of leaving the US.

In fact, according to InternationalLiving.com, there was a 160% surge in searches for terms like “move overseas” and “expats overseas” the day after the election. Canada’s immigration website reportedly crashed on election night.

This new impetus to leave the US aside, the trend to retire overseas was already underway. The Social Security Administration already sends over 660,000 checks to US citizens living outside our borders. Retirees are looking to foreign locales for lower cost of living, especially more affordable health care, and warmer weather.

International Living

If living abroad appeals to you, the editors at International Living recommend five retirement havens that you may want to seriously consider.

Mexico is a great place to live when it comes to stretching your dollar, as the exchange rate today is 20.07 pesos to $1. Combine that with already low costs for real estate, food, restaurants, entertainment, and transportation, and a retired couple has the spending power to live very well on around $1,800 a month. Many expats choose to live in Mexico’s Colonial Highlands. Three popular towns in the region are San Miguel de Allende, Querétaro, and Guanajuato.

Costa Rica offers a choice of climates from beaches to rainforests to cool mountains. It also provides a low cost of living, excellent healthcare, modern telecommunications, arts, and fine dining. More than 50,000 expats already live here in a variety of established expat communities.

Panama offers a comfortable lifestyle, in part because the nation is much more modern and developed than most visitors expect. In Panama City, all of the amenities of a world-class city are readily available. Yet expats can still find haircuts or taxi rides for only a couple of dollars, and dinner and a bottle of wine for two at one of the finest restaurants in Panama City is only about $40.

Belize offers some big advantages—affordable living, economic stability, a strong retiree program, and a wonderful climate if you like the tropics. Fans of fishing, sailing, swimming, and snorkeling will appreciate its beautiful beaches and coastline. Moreover, it is an English-speaking country. For expats who are ready to move abroad but are daunted by the idea of learning a new language, Belize could be the ideal place.

In considering retirement destinations, Peru probably isn’t the first county to come to mind. We associate it mostly with llamas, mountains, and the amazing Machu Picchu. But after a recent visit, InternationalLiving.com editor Jason Holland described it as “one of the world’s best kept secrets.” He wrote: “Food is cheap—and very tasty. Rents are affordable even for those on super-low budgets—$200 to $400 gets you a nice place in a great neighborhood. The climate is comfortable…the people friendly…there are modern services…and the vibrant mix of music, festivals, indigenous culture, and colonial history is evident everywhere you turn.”

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Assessment

Before you decide to move outside of the US, do thorough research. Find out about tax laws and residency requirements in both the US and your possible destinations. Live in your chosen country for a several-month trial period. Most importantly, consider carefully the emotional and practical ramifications of moving away from family and your familiar surroundings. Retiring abroad may be the right choice for you, but it is not a decision to make lightly.

Conclusion

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The Stock Market Doesn’t Care About Clinton or Trump

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Yep! 

We have only a month to go before voters settle on either Hillary Clinton or Donald Trump.

Guess what?

The stock market doesn’t care a whit.

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The Stock Market Doesn’t Care About Clinton or Trump | Rebalance-IRA.com

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Determining Your Retirement Vision?

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Determining Your Retirement Vision

Dr David E Marcinko MBABy Dr. David Edward Marcinko MBA CMP®

http://www.CertifiedMedicalPlanner.org

There’s an aspect to retirement that many physicians do not plan for … the transition from work and practice to retirement. Your work has been an important part of your life.  That’s why the emotional adjustments of retirement may be some of the most difficult ones.

Examples:

For example, what would you like to do in retirement? Your retirement vision will be unique to you. You are retiring to something not from something that you envisioned. When you have more time, you would like to do more travelling, play golf or visit more often, family and friends. Would you relocate closer to your kids? Learn a new art or take a new class? Fund your grandchildren’s education? Do you have philanthropic goals? Perhaps you would like to help your church, school or favorite charity? If your net worth is above certain limits, it would be wise to take a serious look at these goals. With proper planning, there might be some tax benefits too. Then you have to figure how much each goal is going to cost you.

Lists

If have a list of retirement goals, you need to prioritize which goal is most important. You can rate them on a scale of 1 to 10; 10 being the most important. Then, you can differentiate between wants and needs. Needs are things that are absolutely necessary for you to retire; while wants are things that still allow retirement but would just be nice to have.

Recent studies indicate there are three phases in retirement, each with a different spending pattern [Richard Greenberg CFP®, Gardena CA, personal communication].

The three phases are:

  1. The Early Retirement Years. There is a pent-up demand to take advantage of all the free time retirement affords. You can travel to exotic places, buy an RV and explore forty-nine states, go on month-long sailing vacations. It’s possible during these years that after-tax expenses increase during these initial years, especially if the mortgage hasn’t been paid off yet. Usually the early years last about ten years until most retirees are in their 70’s.
  2. Middle Years. People decide to slow down on the exploration. This is when people start simplifying their life. They may sell their house and downsize to a condo or townhouse. They may relocate to an area they discovered during their travels, or to an area close to family and friends, to an area with a warm climate or to an area with low or no state taxes. People also do their most important estate planning during these years. They are concerned about leaving a legacy, taking care of their children and grandchildren and fulfilling charitable intent. This a time when people spend more time in the local area. They may start taking extension or college classes. They spend more time volunteering at various non-profits and helping out older and less healthy retirees. People often spend less during these years. This period starts when a retiree is in his or her mid to late 70’s and can last up to 20 years, usually to mid to late-80’s.
  3. Late Years. This is when you may need assistance in our daily activities. You may receive care at home, in a nursing home or an assisted care facility. Most of the care options are very expensive. It’s possible that these years might be more expensive than your pre-retirement expenses. This is especially true if both spouses need some sort of assisted care. This period usually starts when the retiree is their 80’s; however they can sometimes start in the middle to the late 70’s.

[A] Planning issues – early career

Most retirement lifestyle issues do not have to be addressed at this point. Keeping a healthy, balanced lifestyle will help to ensure a more productive retirement.  This is the time to focus on the financial aspects of retirement planning.

[B] Planning issues – mid career

If early retirement is a major objective, start thinking about activities that will fill up your time during retirement. Maintaining your health is more critical, since your health habits at this time will often dictate how healthy you will be in retirement. 

[C] Planning issues – late career

Three to five years before you retire, start making the transition from work to retirement.

  1. Try out different hobbies;
  2. Find activities that will give you a purpose in retirement;
  3. Establish friendships outside of the office or hospital;
  4. Discuss retirement plans with your spouse.
  5. If you plan to relocate to a new place, it is important to rent a place in that area and stay for few months and see if you like it. Making a drastic change like relocating and then finding you don’t like the new town or state might be very costly mistake. The key is to gradually make the transition. 

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More on Childhood Obesity Trends

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Retirement Investing with Vanguard Founder John Bogle [video]

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Campaigning for Safer Retirement Investing with Vanguard Founder John Bogle

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When it comes to making retirement investing safer, Rebalance IRA strives to be on the right side of history. Our latest efforts saw Managing Director Scott Puritz joining legendary investing innovator John Bogle, and other industry leaders, in a landmark pro-consumer initiative.

Watch Rebalance IRA Join John Bogle In The ‘Campaign for Investors’

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Fixing Social Security

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Brian J. Knabe MD

By Brian J. Knabe; MD CMP© CFP®

http://www.SavantCapital.com

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http://www.CertifiedMedicalPlanner.org

These days, as Congress debates the debt ceiling issue in our current political atmosphere, Social Security is suddenly front page news again.

Social Security

The first thing to understand is that there IS a solvency problem with Social Security.

Alice Munnell, Director for the Center for Retirement Research at Boston College University points out that, according to the Congressional Budget Office, the Office of Management and the Budget and the Government Accountability Office, the benefits promised to future retirees exceed the scheduled taxes that are projected to be taken in.

In fact, last year, Social Security began paying out more in benefits than it received in payroll taxes–years earlier than projected, due to the 2008 Great Recession.

The second thing to understand is that Social Security is not going away; too many people today and in the future depend on it for a crucial part of their retirement income.  Munnell notes that Social Security accounts for 87% of non-earned income for the poorest third of households over age 65, 70% for the middle third and 37% for the highest third.

The Question

So the question becomes: how can Congress bring Social Security back into revenue balance.

To help illustrate some of the trade-offs, the American Academy of Actuaries web site includes a game that allows all of us to fix Social Security–you can make your own adjustments here: http://www.actuary.org/content/try-your-hand-social-security-reform and discover a variety of ways to balance the books, some more painful than others.

Options:

You could, for example, move up by one year the day when people have to wait until age 67 to claim maximum benefits, and after that index the retirement age to maintain today’s ratio between expected retirement years and work years.  This, alone, would solve 20% of the funding problem, and some would argue that it should have been done years ago.

As an alternative, you could reduce the annual cost of living adjustments in Social Security payments by half a percentage point.  This would reduce the projected deficiency by 40%.  Of course, it would also erode the purchasing power of elderly people who count on Social Security for a significant part of their income.

We could reduce benefits by 5% for future retirees, which would solve 31% of the problem.

Or we could reduce the benefit formula for the top half of earners, who theoretically are less dependent on Social Security in retirement.  That would solve 43% of the projected Social Security deficit.  It would also mean that people who are able to fund a comfortable retirement will get much less out of the system than they put into it.

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On the other side of the ledger, we could incrementally increase the revenues going into the Social Security system.  For instance, if we raised the payroll tax rate from the current 6.2% to 6.7% for employees and employers, 48% of the shortfall would go away.  As an alternative, we could tax Social Security benefits like we do IRA and pension benefits, which would make up 14% of the projected shortfall.

Sans Fiscal Health 

As you can see, none of these proposals, by itself, will bring Social Security back to fiscal health.  If you’re looking for an out-of-the-box solution to add to the mix, consider an article in the Christian Science Monitor, where former U.S. Secretary of Labor Robert Reich notes that a big (and largely undiscussed) problem with Social Security is the shifting balance of workers paying into the system to retirees collecting from it.

Forty years ago, he says, there were five workers for every retiree; today, there are three.  In 20 years, perhaps less, the ratio will be 2:1–that is, every two workers in America will have to pay whatever is required to support one retiree’s Social Security benefits.

How would you fix this problem? 

Reich proposes that we allow more immigrants into the U.S.–that immigration reform and entitlement reform are linked. As the deficit debate goes forward, you’ll hear a lot more about how to “fix” Social Security.

Assessment

Consider this a cheat sheet on the options that various parties will eventually put on the table.

Sources: Alice Munnell:  http://blogs.smartmoney.com/encore/2011/07/11/saving-social-security-raising-taxes-vs-cutting-benefits/?mod=wsj_share_twitter

Robert Reich: http://www.csmonitor.com/Business/Robert-Reich/2010/0411/Immigration-Could-it-solve-Social-Security-Medicare-woes

Conclusion

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Retiree Health Insurance Trends

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By http://www.MCOL.com

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Conclusion

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Managing Your 401(k)

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MANAGING YOUR 401(k)

By Dan Timotic CFA

More than 73 million Americans actively participate in employer-sponsored defined-contribution plans such as 401(k), 403(b), and 457 plans.

If you are among this group, you’ve taken a big step on the road to retirement, but as with all investing, it’s important to understand your plan and what it can do for you.

Here are a few ways to make the most of this workplace benefit.

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Proposed IRA Changes in the Obama Federal Budget

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Reviewing Potential IRA Changes 

Rick Kahler MS CFP

By Rick Kahler CFP® http://www.KahlerFinancial.com

The President has fired the first warning shot indicating that politicians are eying the tax advantages of the Roth IRA. For years I’ve strongly encouraged maximum funding of Roth IRAs & 401(k)s.

Physician-Clients have sometimes expressed concern that politicians would someday retroactively change the rules and strip the plans of their tax advantages. I’ve seen that concern as a possibility (for example, in 2008 Argentina confiscated the assets in IRAs and 401(k)s and replaced them with less than desirable Argentinian Government Bonds), but not much of a probability. 

With the introduction of the President’s 2016 budget, the probability of losing some Roth IRA tax benefits has increased.  

Each February the President submits a budget to Congress which is about far more than spending requests. It also contains scores of proposed changes to existing tax laws. One such proposal in the current budget would eliminate two tax advantages of the Roth IRA.  

The first change would require required minimum distributions (RMDs) for Roth IRAs as well as traditional IRAs.  

Currently, one of the benefits of a Roth IRA is not having to take RMDs. At age 70 1/2, owners of traditional IRAs are required withdraw a certain percentage annually, often around 4%. They must pay the tax due and, if they don’t need the funds for living expenses, must invest the remainder in a taxable account. The RMD denies them the option of leaving the money in the tax-deferred environment of the IRA and further compounding.  

Under the President’s proposal, owners of Roth IRAs will need to start withdrawing funds annually at age 70 1/2. While there won’t be any taxes due because contributions to Roths are post-tax, it will remove the funds from the tax-free environment, decreasing future returns by up to 40%. That’s a big deal. 

The second proposed change would eliminate tax-deferred inheritance of IRAs (sometimes called “stretch IRAs) for anyone except spouses. All other inherited IRAs would need to be dissolved and the funds distributed and taxed within five years after death. This will really impact Baby Boomers counting on their parents’ IRAs to assist them with their own retirement needs. 

Other budget proposals would also end Roth conversions to any after-tax IRAs, limiting them to IRAs where the contributions were before taxes. This would prohibit taxpayers with earnings above the traditional and Roth IRA threshold from making non-deductible contributions to a traditional IRA and then doing a Roth conversion. 

The final proposal would limit new IRA contributions for total retirement savings totaling over $3.4 million. This includes the aggregate total of IRAs, 401(k)s, and any other pension plan balances. Once the total reaches $3.4 million at the end of the tax year, no new contributions are possible. 

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Capping IRA Growth?

To many Americans, especially the youth, this looks like a cap they will never see in their lifetime. Yet consider what $3.4 million will be worth in purchasing power 40 years from now, when today’s 30-year-olds will have to start RMDs. If inflation maintains its historical average of 3%, in 40 years $3.4 million will have the purchasing power of just over $1 million today. If someone wants to be assured they will never run out of money in retirement, $1 million only provides $30,000 a year of retirement income.

Capping IRA growth is another big deal.

Assessment 

These are a few of the tax changes proposed by the President’s budget. The chances for any to become law in 2016 are remote, given that Congress is currently controlled by Republicans. However, the proposals do signal the current thinking of lawmakers. In considering their retirement planning, taxpayers would be advised to pay attention to such signals.

Conclusion

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The “Perfect” Holiday Gift for your Favorite Doctor – YES REALLY!

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Now, is the perfect time of year to consider one, or all, of these texts as the perfect holiday gift for your favorite doctor, or allied health care professional.

Also, may be used as a client-prospecting tool for Financial Advisors, Wealth and Practice Managers, and CPAs, etc.

Smile, learn and prosper with iMBA in 2016.

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Last Generation Holiday Gift for MDs

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Newer Thoughts on Long Term Care Insurance

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Most LTCI policies are SOLD… not Bought!

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By Dr. David Edward Marcinko MBA CMP

To be sure, physicians and Financial Advisors are aware that there is a sometime need to recommend a LTCI policy to clients. Of course, in such cases, it is a good idea to work with a low load provider (or the physician or client’s agent).

The Need?

Yet, most LTCI policies are sold by insurance agents for big commissions; not bought, and that most statistics used to sell LTCI policies are fear-based and half-truths. I know, as I was a licensed insurance agent for more than a decade.

Even the Department of Health and Human Services [DHHS] gets into the fear mongering on their website quoting that “about 70 percent of people over age 65 require some type of long-term care services during their lifetime”

Source: http://www.longtermcare.gov/LTC/Main_Site/Planning/Index.aspx

Department of Health and Human Services

This may be a deceptive statistic as it omits the length of long-term care needed in these 70% of cases. And, it is not 3+ years in all these cases [our estimate is closer to 2.5]. With the stamp of approval by the Supreme Court of the United States SCOTUS on the PP-ACA, we may be looking at social LTCI in the US like other social medicine countries and give up on private LTCI insurance altogether.

Other Countries

Germany introduced mandatory long-term care insurance in 1995. Japan and France also have a LTCI tax funded insurance plan. And, the poor utilization and growing risks associated with long-term care insurance, are leading a growing number of insurance agents, financial advisors and Certified Medical Planners™ to recommend alternatives to their clients.

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Assessment

To be a thought-leader ahead of the curve, the newest aging trend is away from LTCI and toward sheltering at home – living at home and dying at home. Perhaps, this is the way it should be.

Dying should not be a for-profit industry.

http://www.CertifiedMedicalPlanner.org

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Dr. David Edward Marcinko, editor-in-chief, is a next-generation apostle of Nobel Laureate Kenneth Joseph Arrow, PhD, as a health-care economist, insurance advisor, financial advisor, risk manager, and board-certified surgeon from Temple University in Philadelphia. In the past, he edited eight practice-management books, three medical textbooks and manuals in four languages, five financial planning yearbooks, dozens of interactive CD-ROMs, and three comprehensive health-care administration dictionaries. Internationally recognized for his clinical work, he is a distinguished visiting professor of surgery and a recipient of an honorary Bachelor of Medicine–Bachelor of Surgery (MBBS) degree from Marien Hospital in Aachen, Germany. He provides litigation support and expert witness testimony in state and federal court, with medical publications archived in the Library of Congress and the Library of Medicine at the National Institutes of Health.

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Social Security Update

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Congress to curtail two useful benefits

Rick Kahler MS CFPBy Rick Kahler MS CFP http://www.KahlerFinancial.com

Congress is about to curtail two little-known, but very useful, benefits of Social Security. These are the ability to file-and-suspend and to file a restricted application. At the time of this writing, Congress had not formally passed the bill but it was expected to pass within days.

Background

Remember when Paul Ryan proposed we extend the full retirement age for Social Security from age 67 to 69 over a 40-year time period? The media went ballistic. Senior citizen groups sponsored TV ads of Paul Ryan dumping grandma over the cliff. His proposal never saw the light of day.

Fast forward to the current Bipartisan Budget Act of 2015, a bill that will cost Social Security recipients far more in benefits in the near future than Ryan’s proposal. Yet there has been nowhere near the outcry from the media, either political party, or the President.

Why?

The benefits that the budget bill strips from the Social Security program are little known by the average American and a bit complex, even though they can add up to tens of thousands of dollars of immediate cash benefits for nearly all Social Security recipients.

What Congress passed, and the President says he will sign, ends a benefit called file-and-suspend. This applies to married couples. It allows the higher-earning spouse to file for Social Security at full retirement age (currently 66), but to suspend taking the benefit so it can increase by 8% a year until age 70. This enables the lower-earning spouse to begin receiving spousal benefits.

The legislation will disallow that benefit and restrict the lower-earning spouse from receiving the spousal benefit until the higher-earning spouse actually starts receiving payments. This means if you wait until 70 to take the highest monthly Social Security benefit possible, your spouse will also have to wait until you turn 70 to receive spousal benefits.

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Example:

As an example, assume Dr. Tyler’s full retirement age benefit is $3,000 per month. Her spouse Dana, the same age, has a full retirement benefit of $500. Under the current program, Dana could receive three times more, or $1,500 a month, at age 66, even though Tyler suspends her right to begin receiving her monthly benefit. By waiting until age 70, she would see her benefit grow to closer to $4,000 a month. Under this legislation, Dana would have to wait until age 70 to take the $1,500 spousal benefit. This costs the couple $1,500 a month for four years, or $72,000.

The second benefit stripped under this act affects everyone covered under the Social Security program, whether married or not. It is known as filing a restricted application. Currently, when you hit full retirement age and decide to suspend taking your benefit, you have the option to change your mind at any time before age 70 and retroactively receive your benefits.

Example:

This benefit is incredibly valuable in certain cases. Suppose, for example, Dr. Edgar has decided to wait until age 70 to begin receiving benefits but, at age 69, he becomes terminally ill. He could file to retroactively claim all three years of lost benefits. If Edgar’s full benefit amount were $3000 a month, the total retroactive benefit would be $108,000. This option is wiped out under the legislation.

Those currently receiving these benefits will become grandfathered under the legislation and continue to receive them. However, anyone currently qualifying for file-and-suspend benefits but not receiving them has until six months after Congress passes the Budget Act to complete the filing process.

More:

Assessment

While not all Social Security recipients will be affected by these changes, for those who are the impact will be significant.

 Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

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    [PHYSICIAN FOCUSED FINANCIAL PLANNING AND RISK MANAGEMENT COMPANION TEXTBOOK SET]

  Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

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EMERGING THOUGHTS ON “AGE-BANDING”

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A Retirement Planning Model for Doctors

[By Staff Reporters]

What it is?

Age Banding is a model for retirement planning developed by Somnath Basu PhD MBA CFP™ that may provide a new approach to retirement needs.

How it works!

The model reduces errors in estimating expenses, provides an algorithm to calculate replacement ratio, allows easier incorporation of long term care insurance benefits and significantly reduces funding needs.

Example:

For example, rather than doing a simple ratio of expected future expenses as compared to current living expenses and lumping 30 to 40 years of retirement into one big event, Dr. Basu breaks down retirement age into various groups or “bands”. It is intuitive that the more active retirement years will be early on, and that more funds allocated to spending and enjoyment should be made for the beginning retirement years.

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Three Reasons Doctors Are Ditching Insurance And Offering Care For Cash

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Assessment

The current investment environment of low interest rates does not favor traditional retirement advice of moving more funds into bonds because they are “safe” money.

So, coupled with Dr. Basu’s age banding approach, physicians might consider more dividend paying equities, in their portfolio, as an alternative [personal communication].

ABOUT

Dr. Basu

Somnath Basu PhD is Professor of Finance at California Lutheran University and Director of its California Institute of Finance.

Basu is involved in the National Endowment for Financial Education (NEFE), the CFP™ Board of Standards, International CFP™ Board of Standards, and the FPA.

More:

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

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Stress Testing your Investment Portfolio

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What is Your Risk Number?

DG

[By David Gratke]

Are your current investments aligned with YOUR investment goals and expectations?

As we all know, the global financial markets have responded tremendously to the past seven years of Global Central Bank monetary polices. i.e. asset prices, stocks, bonds and real estate have all gone up in price as a result. When have you ‘stress-tested’ your portfolio to see how durable it may through various market cycles?

How do you determine if your current investment holdings are right for you. Maybe they are too conservative, or just the opposite, too aggressive?  Maybe they are right where they need to be, but how do you know, how do you measure that?

  • Capture you Risk Tolerance
  • See if your portfolio fits you.
  • Ok, How do I Start?

By simply answering a few questions, and spending 10 minutes of your time, based upon the size of your investment portfolio, you will quickly determine your own tolerance for risk.

Comparing your Risk Number to your Portfolio

Now that you have calculated your Risk Number, how does that number compare to your actual portfolio holdings? Is the portfolio you have today, the one you started with some time ago regarding risk and return? Is it still in alignment with your original expectations?

Does your portfolio have?

  • Too much risk?
  • Is it too conservative?
  • Or, is it just right
  • What if the market drops significantly? Instead, what if the market goes up significantly? See how your current portfolio will fair in any one of these market conditions:
  • Let’s put your portfolio onto the treadmill; just like the doctor’s office.
  • How do you know, how do you measure?

Let’s Stress Test your Portfolio

  1. Bull Market (Prices generally rise)
  2. Bear Market (Prices generally fall)
  3. Financial Crisis
  4. Rising Interest Rates

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ScreenShot2015-06-01at11_34_02AM_113439

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  • Are the results in alignment with your expectations?
  • Any ‘hot spots’ you need to know about?
  • Are there any individual holdings that will cause you loss of sleep over?
  • Maybe investments don’t generate enough income?
  • Maybe investments fluctuate too much in price?
  • Now you can have a look and see if there are any ‘hot spots’ where you may need to re-balance a portion of your holdings based upon these findings.

***

2

Yes! That feels like me

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Congratulations. Once you have determined your Risk Number, and perhaps re-aligned your current portfolio to your Risk Number, then yes, you DO have the portfolio that is right for you, one that ‘feels like you’. What is Your Risk Score?

ABOUT

David Gratke is chief executive officer of Gratke Wealth LLC in Beaverton, Ore. A Registered Investment Advisory Firm.

***

Conclusion

Your thoughts and comments on this ME-P are appreciated. How does the current market tumult affect this ME-P or your own investing strategy? Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

***

Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™8Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

“Physicians who don’t understand modern risk management, insurance, business and asset protection principles are sitting ducks waiting to be taken advantage of by unscrupulous insurance agents and financial advisors; and even their own prospective employers or partners. This comprehensive volume from Dr. David Marcinko, and his co-authors, will go a long way toward educating physicians on these critical subjects that were never taught in medical school or residency training.”

Dr. James M. Dahle MD FACEP [Editor of The White Coat Investor, Salt Lake City, Utah]

***

USA “With time at a premium, and so much vital information packed into one well organized resource, this comprehensive textbook should be on the desk of everyone serving in the healthcare ecosystem. The time you spend reading this frank and compelling book will be richly rewarded.”

Dr. J. Wesley Boyd MD PhD MA [Harvard Medical School, Boston, Massachusetts, USA]

What does “Retirement” mean to You?

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A Mental Exercise … for You!

By Rick Kahler MS CFP® http://www.KahlerFinancial.com

Rick Kahler MS CFPHere’s a brief mental exercise to try: Quickly, without stopping to think, write down what comes to mind when you imagine yourself being retired.

If you’re 40 or younger, your answers might well include terms like “future” and “old age,” which probably don’t seem especially relevant or urgent at this stage in your life.

If you’re older, chances are you’ve had at least passing thoughts about retirement. You might associate it with concepts like these:

  • Freedom from the daily grind
  • Losing my earning power
  • Losing my identity
  • Enjoying financial independence
  • Being useless
  • Dependency and declining health
  • Doing what I’ve always wanted to do
  • I don’t ever plan to retire

Both the positives and negatives in the above list have one thing in common: they don’t tell the whole story. The idea of retirement is surrounded by a host of delusions, assumptions, and fears. Many of our expectations about it do not match the reality.

Examples:

Here are just two examples from “The 2013 Risks and Process of Retirement Survey,” done by the Society of Actuaries.

  • Of the pre-retirees surveyed, 38% expected to work until at least 65. Another 15% expected not to retire at all. Yet 54% of the retirees surveyed had retired before age 60.
  • Many pre-retirees—59%—planned to stop working gradually. Yet only 22% of retirees had done so. While 35% of pre-retirees intended to keep working part-time, only 10% of retirees actually did.

It’s no wonder that many workers plan to stay employed; they’ll need the money. The 2015 Transamerica Retirement Survey of Workers estimates the median amount that workers in their 50s have saved for retirement at only $117,000. For workers in their 60s and older, it is $172,000. Even combined with Social Security, that’s hardly enough to provide an adequate retirement income.

Yet even if you intend to keep working and earning until you’re 80, you may find your plans derailed. If companies downsize, older workers may be among the first to be laid off. Health problems (your own or those of family members you may need to care for) can force you to retire earlier than you expected to.

And, these are only two of the unfortunate realities that can jolt any of us out of our rosy expectations of enjoying a carefree retirement of good health, comfort, and independence.

Just because we can’t count on carrying out our retirement plans, though, doesn’t mean we should give up on retirement planning altogether.

Some Suggestions

Here are a few suggestions to deal with the realities of retirement:

  1. Save as much as you can. Make funding retirement your priority, especially if it’s too late to start early. Cut your spending, downsize, and pay off debt. Having more money in retirement gives you more options when bad things do happen.
  1. Improve your health: lose weight, exercise more, and eat a healthy diet. Improve your odds for staying well by changing what is within your power to change.
  1. Look at the whole retirement picture. Become willing to consider both the negative and positive possibilities in order to plan appropriately. Unreasonable pessimism and fear are no more realistic than unreasonable optimism.

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7 ways retirement income

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Assessment

Finally, the most realistic viewpoint may be accepting that retirement is no more or less predictable than any other stage of life. We can’t know if we’ll develop serious health problems in our 70s or still be able to go dancing when we’re 102. While we can and should prepare for the future, we also serve ourselves well when we remember to enjoy the present.

More:

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners(TM)

Front Matter with Foreword by Jason Dyken MD MBA

I plan to give a copy of this book written by doctors and for doctors’ to all my prospects, physician, and nurse clients. It may be the definitive text on this important topic.

Alexander Naruska CPA [Orlando, Florida]

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“BY DOCTORS – FOR DOCTORS – PEER REVIEWED – FIDUCIARY FOCUSED”

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CMS Home Health Agencies

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Star Ratings

By http://www.MCOL.com

MEDICARE @ 50 [1965-2015]

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Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

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Product DetailsProduct Details

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Well-Being Rankings for Older Americans

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States with the Highest Scores

By http://www.MCOL.com

***

ImageProxy-2

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Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™8Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

“With time at a premium, and so much vital information packed into one well organized resource, this comprehensive textbook should be on the desk of everyone serving in the healthcare ecosystem. The time you spend reading this frank and compelling book will be richly rewarded.”

Dr. J. Wesley Boyd MD PhD MA

[Harvard Medical School, Boston, Massachusetts, USA]

Is Social Security a Rip-Off?

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 “WHERE DID THAT MONEY GO?”

Rick Kahler MS CFP

By Rick Kahler MS CFP http://www.KahlerFinancial.com

A reader recently forwarded me an email that began, “Who died before they collected Social Security?” It asked how many people only collected a small portion of what they paid into Social Security because they, or a spouse, died soon after retiring. Then it screamed in all caps, “WHERE DID THAT MONEY GO?”

Introduction

The rest of the piece, after calculations of how much an average person pays into Social Security, suggested the government is short-changing those who die before they receive back in benefits everything they paid in. It claimed that Social Security premiums were to have been put in a “locked box,” that instead they were loaned to the US Treasury, and that Social Security is therefore running out of money.

The many misstatements and errors in this piece highlight a common misunderstanding about the Social Security insurance program. It is not an income tax. Nor; is it actually insurance – or an investment!

Example:

If you earn a salary, you are familiar with the FICA (Federal Insurance Contributions Act) tax that, like federal income tax, is withheld from your paycheck. Everyone must pay it on their first $118,500 of earned income. The current rate for employees is 7.65% (6.2% for Social Security and 1.45% for Medicare), an amount matched by employers. The self-employed pay 15.3%.

FICA payments are not an income tax, but are insurance premiums used to fund the Social Security program. It is a direct transfer program, meaning the money coming into the plan is immediately paid out to retired or disabled participants. The proceeds are not directly deposited to the general account to be spent however Congress wishes.

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train station

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The Tipping Point?

However, in the past, because more money came into Social Security than was paid out in benefits, the program did loan the excess to the US Treasury Department (receiving bonds in return) to fund the operating expenses of the federal government. The program built up a significant investment in US Treasuries until 2010, when it began paying more out in benefits than it receives from participants. The program is now beginning to redeem the bonds. Officials project that in 2033 the program will have depleted the investment in bonds and will need to either adjust benefits, raise the payroll tax, or borrow from the US Treasury.

What it’s not?

  • Social Security isn’t insurance in the sense that insurance pays only when a person suffers a loss. With Social Security, everyone who has worked for more than 10 years will collect a monthly income upon retirement.
  • SS is also not a savings account or a retirement plan like an IRA or a 401(k). It is not set aside in a segregated account with your name on it. The money you pay in doesn’t accumulate or earn interest. If Social Security were designed as a retirement plan that would refund what participants pay in, plus some type of return, the payroll tax would far surpass 15.3%.

What it is?

So if Social Security isn’t an income tax, an insurance plan, or a retirement plan, what is it? It’s an annuity. Participants are guaranteed a monthly income for life; a lesser amount if they retire at age 62 or a higher amount if they wait until full retirement age or later.

Like any annuity, when you die the payments stop. The amount of the payroll tax/premium incorporates actuarial estimates of how many people will die before the average mortality age or live long past it. The money paid in by people who die early is not “missing.”

Assessment

If you have questions about Social Security, you can find detailed information at www.socialsecurity.gov. It’s a much more reliable source than anonymous forwarded emails.

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™8Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™


“The medical education system is grueling and designed to produce excellence in medical knowledge and patient care. What it doesn’t prepare us for is the slings and arrows that come our way once we actually start practicing medicine. Successfully avoiding these land mines can make all the difference in the world when it comes to having a fulfilling practice. Given the importance of risk management and mitigation, you would think these subjects would be front and center in both medical school and residency – ‘they aren’t.’

Thankfully, the brain trust over at iMBA Inc., has compiled this comprehensive guide designed to help you navigate these mine fields so that you can focus on what really matters – patient care.”

 Dennis Bethel MD [Emergency Medicine Physician]

 

Do you Want to be a Millionaire?

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Millionaire versus Billionaire

By Rick Kahler MS CFP®  http://www.KahlerFinancial.com

Rick Kahler MS CFP

Doctor – Would you like to build up a million-dollar nest egg by the time you retire?

For middle-class earners, that goal is challenging but possible if you start at age 25 and save $1750 a month. Many married couples could do this by maxing out their 401(k) contributions. Or; you could take the route that many people follow and build a small business – or medical practice – into a million-dollar asset.

FREE WHITE PAPER [Is Medical Practice a New Asset Class?] from iMBA, Inc

Billion … with a “B”

What if you want to accumulate a billion-dollar nest egg instead? Starting at the same age of 25, you would need to save $21 million a year. Good luck with getting any employer match on that.

There’s a vast difference between a million and a billion. It’s completely misleading when activists, politicians, and the media refer glibly to “millionaires and billionaires” as if the two are almost interchangeable. Someone with a net worth of one million dollars isn’t even close to being in the same category as someone worth one billion.

Here are a few more examples to clarify the difference:

  • One million seconds from now is about 11 and a half days away. One billion seconds from now is about 31 and a half years in the future.
  • A million hours ago was 114 years in the past, early in the 20th century; our ancestors were using electricity and telephones. A billion hours ago was over 114,155 years in the past; our ancestors had evolved into Homo sapiens but were still using primitive stone tools.
  • Put one million ants on one side of a scale and a female Asian elephant on the other side. The million ants, at around six pounds, would hardly register against the elephant’s three tons. Put a billion ants on the scale, however, and they would balance or even outweigh the elephant.
  • One million pennies stacked on top of each other would make a tower nearly a mile high. One billion pennies stacked on top of each other would make a tower almost 870 miles high.
  • If you earned $45,000 a year and stashed it all under your mattress, you’d have one million dollars at the end of 22 years. To accumulate one billion dollars at that same rate, you’d need the help of your many-times-great grandchildren, because it would take 22,000 years.

Security versus Wealth

In today’s world, being a millionaire represents financial security, not vast wealth. At a withdrawal rate of 3%—the amount most experts consider sustainable—an investment portfolio of one million dollars will provide an income of $30,000 a year. Combined with Social Security, that would be enough to live comfortably but not lavishly in retirement.

Three percent of one billion dollars, on the other hand, will furnish an income of $30 million a year; definitely private jet and gated estate territory.

If millions and billions aren’t challenging enough, here’s a quick look at trillions. One trillion is a million millions, or a thousand billions. It would take one thousand elephants to balance the weight of one trillion ants. Astronomers estimate the number of stars in our Milky Way galaxy between 100 billion and 400 billion; not even close to a trillion. No wonder it’s so hard for most of us to wrap our minds around information like, “The current US national debt is more than 16.7 trillion dollars.”

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how-much-is-a-trillion

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Assessment

Becoming a millionaire? It’s not only achievable, but wise if you want financial security in old age. Becoming a billionaire? You’d better plan to invent something amazing, write several dozen international best-sellers, or build an incredibly successful business. Becoming a trillionaire? Don’t waste your time thinking about it. For good reason, the word isn’t even in the dictionary.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

 Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™8Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

Personal financial success in the PP-ACA era will be more difficult to achieve than ever before. It requires the next generation of doctors to rethink frugality, delay gratification, and redefine the very definition of success and work–life balance. And, they will surely need the subject matter medical specificity and new-wave professional guidance offered in this book.

This book is a ‘must-read’ for all health care professionals, and their financial advisors, who wish to take an active role in creating a new subset of informed and pioneering professionals known as Certified Medical Planners™.

Dr. Mark D. Dollard FACFAS [Private Practice, Tyson Corner, Virginia

http://www.CertifiedMedicalPlanner.org

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The Road to Crowd-Centric Retail Alternatives and the Future of Financial Products

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Including an Evolutionary Info-graphic

dara-pic

By Dara Albright

In simpler times, American workers relied on pensions to secure their retirement. Those who desired a supplement to their pension income opted to save during their pre-retirement years. Like television stations, investment options were primarily limited to three main providers. Instead of being bogged down with choices, savers essentially had their pick of placing money in interest bearing savings accounts, stocks or bonds. With the exception of occasionally having to get up from the sofa to change the television channel, life was pretty uncomplicated.

Then the 70s arrived – bringing a rash of polyester and laying the groundwork for sweeping changes throughout the financial system.

Ever since, our capital markets have been in a perpetual state of transformation fueled by innovations in brokerage services, advisory tools, investment products, retirement plans, financial technology and shifts in both the political as well as economic climate. The confluence of these evolutions – as depicted in the infographic below – continues to not only redefine retail investing, but America’s entire retirement framework.

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the-road-to-crowd-centric-alternatives1

[Check out this spectacular infographic depicting the evolution of financial services and where it’s all headed]

Click photo twice to enlarge

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From salespeople into asset gatherers

During the past four and a half decades the brokerage business has moved online, slashed commissions and turned its commission-based securities salespeople into asset gatherers. As the number of brokerage firms steadily declined, online alternative asset marketplaces began to rise.

The IRA and 401(k) transformed America’s retirement structure as pension plans became less and less prevalent. These new retail retirement vehicles fed the mutual fund business, and in tandem both industries ballooned into multi trillion dollar markets.

Tools were developed that would enable financial advisors to navigate across a growing number of asset classes and help ensure the proper diversification of retail portfolios. These advisory resources also contributed to the proliferation of new asset classes and retirement accounts.

Legislative changes coupled with technological achievement led to the democratization of both financial products as well as market data. This “poli-tech” dynamic not only furthered the growth of conventional asset classes, it inspired a host of innovative online investing platforms, lending models, equity financing structures and the creation of new asset classes.

A groundswell of investment products

Over the years, a groundswell of investment products has been engineered for the mass market resulting in the flow of retail dollars across money markets, mutual funds and ETFs. Particularly during the recent years, as interest rates reached historic lows and equity markets became excessively volatile, there has been an upsurge of interest in uncorrelated alternative assets.

To meet the mounting demand, a wave of retail alternative products entered the market. According to McKinsey, retail alternatives will soon account for almost 50% of total retail revenues. Furthermore, Goldman Sachs believes that retail alternatives are in the early stages of a 5-10 year growth trend – reminiscent of early-stage ETF growth and capable of becoming a $2T AUM opportunity.

As financial advisors were becoming acquainted with a growing number of retail alternative products packaged through mutual funds and ETFs, a new niche of alternatives known as crowd-centric alternatives had been gaining popularity – particularly among institutional and internet savvy retail investors.

These crowd-centric alternatives – designed to bring non-correlated yield and pre-IPO equity growth to mainstream investors’ portfolios – are made up of public as well as private funds, managed accounts and online platforms that provide investors with access to peer-to-peer, peer-to-business and peer-to-real estate debt as well as JOBS Act inspired equity offerings.

While momentum continues to build for crowd-centric alternatives, an interesting phenomenon has been brewing in the retirement plan industry. Flaws in the current IRA and 401(k) structures as well as the social security system have legislators as well as economists scrambling to prevent a looming retirement crisis. Thus far, none of the publicly proposed solutions even begin to scratch the surface of the predicament. That is until now.

Fortunately, a soon-to-be-unveiled RE-defined contribution retirement plan will resolve inherent issues by 1) unleashing a new generation of plan sponsors more inclined to match contributions, 2) providing lower-wage earners with a more realistic and achievable savings plan, and by 3) bringing higher yielding institutional-grade alternatives to the masses. (A new white paper: “The RE-defined Contribution Plan: Powering Economic Growth While Preventing a National Retirement Crisis” will be released shortly)

Fascinatingly, the RE-defined contribution plan and crowd-centric alternative assets have the potential to power one another’s expansion in much the same way that the IRA, 401(k) and mutual fund industry fueled each other’s massive growth in prior decades.

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conference room

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Crowd-centric alternatives

While the existing statistics for retail alternatives are staggering, none of the forecasters have even accounted for crowd-centric alternatives. If history is any guide, crowd-centric alternatives are about to catapult the retail alternative industry to unforeseen heights – particularly given the following key factors:

  • The surfacing of a more proficient retirement vehicle that accommodates alternative investing;
  • The introduction of new tools designed to assist financial advisors in managing their client’s crowd-centric holdings;
  • A growing number of financial advisors and next-gen BDs emerging to help retail investors access crowd-centric alternative products;
  • The prolific growth of marketplace lending;
  • Traditional offline private debt businesses migrating online;
  • The influx of P2P, P2B, P2RE managed products;
  • The maturation of the infrastructure to support crowd-centric alternative investing;
  • Venture capital is pouring into fintech (projected to nearly triple in the next 3 years). This will enthuse innovation and lead to greater sophistication of products, platforms and infrastructure;
  • The implementation of additional key components of the JOBS Act will inspire the creation of new investment products for the masses as well as provide liquidity for private alternatives.

Assessment

Although I cannot promise that polyester and orange shag carpets won’t make a comeback, I can absolutely guarantee that financial services will continue to evolve through the progression of new ideas, products, tools and technology.

More:

Conclusion

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OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™8Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

Health professionals are small business owners who need to apply their self-discipline tactics in establishing and operating successful practices. Talented trainees are leaving the medical profession because they fail to balance the cost of attendance against a realistic business and financial plan. Principles like budgeting, saving, and living below one’s means, in order to make future investments for future growth, asset protection, and retirement possible are often lacking. This textbook guides the medical professional in his/her financial planning life journey from start to finish. It ranks a place in all medical school libraries and on each of our bookshelves.

Dr. Thomas M. DeLauro DPM [Professor and Chairman – Division of Medical Sciences, New York College of Podiatric Medicine]

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