Blog

Sep

Should You View Your House as an Investment?

Comparing housing appreciation to stock market returns over the past year

The National Association of Realtors recently announced that first-time home buyers accounted for 33% of home sales in August, which is up from 31% a year before. And you can bet that many of those first-time home buyers were told that they are making a great “investment” by purchasing a home. In fact, it’s likely that many consider their home as a wealth-building tool, especially since it allows home buyers to not “throw money away” on rent. But should you compare the appreciation on your home to traditional investments like stocks and bonds?
Assuming you do, how has housing performed over the past year versus the stock market? The answer to that absolutely depends on where you live. And it depends on how you are invested too.

Apples to Apples

Before we make any comparison between your primary residence and the stock market, we need to make a lot of assumptions. First, you already know that your house comes with expenses beyond just a mortgage payment. You have insurance expenses, property taxes and maintenance costs to consider too. But let’s just stick to appreciation for this exercise. In terms of stock market performance, should one use the S&P 500, the Down Jones Industrial Average or NASDAQ? Everyone will have an opinion – the DJIA is too narrow, NASDAQ is too tech-heavy, or the S&P 500 is too large-cap. For this exercise, let’s use all three.

Stock Market Performance

It should be noted that investors cannot invest directly in an index and quoting performance for just one-year could be considered short-sighted. But we will do it anyway to make the comparison between U.S. stock market indices and housing prices.

For the 1-year period from September 1, 2019 through August 31, 2020, the DJIA climbed from 26,198 to 28,133 – a gain of 7.4%.
For the 1-year period from September 1, 2019 through August 31, 2020, the S&P 500 climbed from 2,909 to 3,508 – a gain of 20.5%.
For the 1-year period from September 1, 2019 through August 31, 2020, NASDAQ climbed from 7,906 to 11,761 – a gain of 48.8%.

Location, Location, Location

On Tuesday, September 22nd, the National Association of Realtors reported that August’s national price increases marked 102 straight months of year-over-year gains.

Consider these price increases:

In the Northeast the median price of $349,500 was a 10.4% increase from a year ago.
In the Midwest the median price of $246,300 was a 10.7% increase from a year ago.
In the South the median price of $269,200 was a 12.3% increase from a year ago.
In the West the median home price of $456,100 was a 11.8% jump from a year ago.

What Does it All Mean?

While it’s challenging to make blanket statements, home-owners are generally happy that prices have appreciated significantly in the past year and that we have seen 102 months of year-over-year gains.
But home-owners should also remember that home prices are like the stock market, meaning short-term real estate prices can fluctuate wildly. Remember in 2009 when median home prices dropped by 14%?
Further, the above real estate prices are median prices – meaning the prices in the middle. While it’s true that in the West, the median home price saw an increase of 11.8%, that means half were less than 11.8% (less desirable) and half were more than that (more desirable). Not unlike quoting stock market returns – depending on how you are invested, you might have experienced returns greater (better investments) or less than the market (worse investments).

Past Performance is No Guarantee

One more thing that stock market investors and home-buyers should never forget: Past performance is no guarantee of future results. The increases that home-owners witnessed this past year are about triple the average annual price increases that home-owners have witnessed over longer periods of time. And the performance for the three stock market indices over the past year? Well, those are well past their average annual returns too – by a lot. Past performance is no guarantee of future results.

Sep

Divorce Rates Spike During COVID Pandemic

Unlocking two myths about divorce that might help reduce stress

Divorce lawyers, marriage counselors and the U.S. court systems are bracing for a surge in divorce filings once quarantine restrictions are lifted. And while it might be months or years until we begin to fully understand the true impact that quarantining will have on America’s divorce rate, sadly the data that is beginning to emerge is not hopeful.

Late this summer, Legal Templates – a company that provides legal documents – announced a 34% increase in sales of their divorce agreement documents compared to the same time period in 2019. In addition, the jump in the number of Legal Template-users has provided shocking information about why so many couples are ending their marriages. And it is information that Legal Templates suggests “won’t be available from government sources or scientific studies for years to come.”

The data reveals that:

Newlyweds were hit hardest by a significant margin;
Couples in southern states were far more likely to seek a divorce;
The rate of divorcing couples with children increased compared to 2019; and
The number of life insurance policies and payouts required in divorce settlements soared.

At a time when nearly 50% of first marriages end in divorce already, learning the truth about this painful life transition is vital to both saving money and reducing stress. Unfortunately, despite living in an age of instant information access, myths about divorce are rife. This lack of understanding can damage your financial future short- and long-term. Let’s explore two of the more common myths.

The Lifestyle Myth

Strangely, many people believe their manner of living isn’t affected after the marriage is over. But the lifestyle they’re accustomed to is over. Taking one household and making it two guarantees that both parties make sacrifices. In many cases, those sacrifices are severe.

Outcomes in divorces vary wildly from state to state, and there is a fundamental lack of common sense in settlements. Settlements too often freeze a former couple’s financial situation in place. One ex-spouse has a lifetime financial obligation, the other is barred from improving his or her financial standing on their own.

Worse, many state systems trap one spouse – more often the woman – in a spousal support situation that discourages re-marriage and penalizes their search for decently paying employment.

Those going through a divorce should ask themselves whether the former spouse will always be able to pay. Because often, that long-term, often punitive spousal support keeps both spouses at risk. If the ex-spouse becomes disabled and cannot work, the former spouse can lose that court-ordered income, for example.

Case in point: it was not that long ago that the state of Massachusetts recently changed its alimony statutes, following several egregious cases in which the paying spouse was forced into bankruptcy in some perverted attempt to help the receiving party. The new law in Massachusetts now has alimony ending at retirement in most cases. There are other limits as well, including one based on how long the couple was married.

Establishing a marital financial plan that allows for a simple division of assets could be one way to help reduce the financial and emotional stress of a divorce.

The Total Separation Myth

Many divorcees believe that once their settlement is final, the financial troubles with their ex are over. Unfortunately, even when an equitable financial settlement is reached, issues like reimbursements for expenses related to raising children can force the divorcing couple to interact with each other directly every month. And in many cases, such interaction is a bad idea.

Before signing the papers, make sure settlements can be modified as circumstances change. A child’s needs may shift over the years in ways no one can predict.

Review all aspects of a settlement and ensure it makes sense to both spouses – both the paying party and the receiving party – who must live with the outcome. Usually, child support is the only modifiable part of a settlement agreement.

Divorces Happen

While they are never pleasant, planning in advance can help mitigate their negative impact. The simplest piece of divorce advice is that there are no do-overs, so it pays to get the settlement done right the first time.

Disclosure: You should consult with and rely on your own independent tax and legal advisors regarding your particular situation and the concepts presented herein. Eddy Financial, LLC does not provide tax or legal advice. Although care has been taken in preparing this material and presenting it accurately, Eddy Financial, LLC disclaims any express or implied warranty as to the accuracy of any material contained herein and any liability with respect to it.

Jul

At Mid-Year, Keep Your January 1st Pledges

Do you have a will, investing in education or building a emergency fund?

Amid the heat of mid-summer, do you remember your New Year’s resolutions regarding your personal financial planning? How are you coming with your to-do list?

It seems like only yesterday that, in late 1999, the worry du jour was Y2K, a fear that obsolete computer programs that did not allow for year 2000 would lead to widespread technology breakdowns and chaos. Did you hold your breath at midnight on January 1st of 2000, expecting the lights to go out? What happened? Nothing. We continued partying like it was 1999 (the reference is too easy).

Those who remember the media’s focus on a potential crisis now wonder what all of the fuss was about. Since then, we survived the tech wreck market decline and the 2008 stock market and real estate debacle, 9/11, two wars, the euro crisis, never ending Middle Eastern turmoil, a deep recession, a slow-growth recovery, the longest bull market in history, and now we’re in the midst of a pandemic. Yet here we are, 20 years later, with the stock market at new highs and interest rates still at relative bargain levels.

Time is Fleeting

Our children grow up and we get older. Sand keeps passing through the hourglass of our earthly sojourn. The year 2020 is over half gone. In less than a month, children will (hopefully) start back to school and traffic will worsen. The summer break for most will be over. So it’s high time to get done what you need to get done.

As a financial advisor, it’s amazing to see the number of people with no wills or obsolete wills. Such a lapse in planning is especially critical in a marriage with minor children in the mix. An old will is better than no will, but it carries potential problems for minors, especially if both parents die at once, or a single parent passes on.
Often the bulk of a couple’s savings, or that of a single parent, resides in retirement plans. There too, money passing to a minor presents problems. Have you checked both the primary and contingent beneficiary designations on retirement accounts, and personal and group insurance policies?

Investing in Education

For those with young children, have you funded a 529 college savings plan for 2020? Anyone, a parent or a grandparent, annually may gift up to $15,000 each per beneficiary to such a college plan. Gifts are made with after-tax dollars, but the money grows tax-free and may be spent tax-free to meet qualified school expenses.

Saving for a Rainy Day

How are you coming with plans to pay down debt and build savings outside of your retirement plans? We urge individuals and couples to have an emergency fund, a pool of liquid capital. The typical rule of thumb is six months worth of living expenses, but you may save more or less depending on your needs. Living paycheck to paycheck is motivation-draining stress. Liquid and available capital creates peace of mind and freedom to roll with the punches or pursue opportunities.

If you are a key breadwinner in a family or household, are you adequately insured against the consequences of disability or death? As advisors, we ask the same question of key persons in an enterprise, including business owners. Is there a succession plan? Is it up to date? August is almost upon us. In slightly over three short months, holiday decorations will pop up on your street. The poet Irving Layton wrote, “Time flames like a paraffin stove, and what burns are the minutes I live.” (A Wild Peculiar Joy, 1982).

Your 2020 resolutions? Time to get cookin’ and keep them.

Jul

Where Does Your Money Go?

Solve the Mystery with a Budget

Where does all your money go? The truth is not that mysterious. It just requires a little discipline on your part—along with a budget. Much of what we do with our money is often done in small increments without our realizing how it all adds up. By helping you track your income and spending, a budget can help you gain control of your personal finances.

Make It a Family Affair
A budget should be a joint family effort. All adult family members should be familiar with the budget. Since children affect and are affected by the budget, they should also be as fully involved as possible. Seeing that money is not unlimited can help them understand why everything they want is not always theirs for the asking.

Each family requires a personalized budget tailored to its own particular needs. Here are some of the basic steps to follow:

Track Income and Spending. To start, tally all sources of income and track spending for a few weeks or months. Refer to credit card statements, receipts, and check stubs.

Categorize Expenses. Then set up different categories for your expenditures. Two basic types of expenses are: 1) fixed—over which you have no control, such as mortgage or rent, insurance, and utilities; and 2) discretionary—which you can control, such as clothes, movies, sports events, and dining out.

Set Priorities. Now that you see how much money is coming in and how much is going out, it is time to set priorities. Do you wish to buy a house or a new car? Or, to save for your child’s college education or your retirement? Perhaps your immediate objective is just to get out of debt.

Prepare the Budget. You are now ready to prepare your budget. Remember, keep it simple. The less complicated, the more likely you are to maintain it. To estimate expenses such as for tax bills or insurance premiums, calculate the annual expense and divide by 12. The budget process should give you a better sense of where you need to cut spending. It may take several passes before you whittle your expenses down to put them in line with your income.

Stick to It. Get in the habit of reviewing your budget at least weekly. A budget must be consistently maintained in order to work.

Conduct an Annual Review. Review your budget at the end of each year. By adding up what you spent and comparing it to what you had budgeted, you’ll see areas to work on for next year.

Additional Reminders
Once you have prepared a budget, there are still two important things to remember: 1) Don’t forget to set aside emergency savings in case of an unforeseen problem, such as a job loss, or an unexpected major expense. The general rule of thumb is that an emergency savings fund should cover three to six months worth of living expenses. To work best, savings should be set aside on a regular weekly or monthly basis. And, 2) Watch your credit card spending. Don’t let your credit cards run away with you. Due to the ease of using a credit card, many people end up buying things they could do without and which may end up costing more in finance charges if they don’t pay the bill on time.

By making a budget a part of your family’s personal finance routine, you will be well on your way to solving the all too familiar “Case of the Missing Money.”

Jul

COVID-19, Nursing Homes and LTC Facilities

Determining the right living arrangement for your senior is much harder now

The decision to place your loved one in a nursing home or another long-term-care facility is a difficult one under any circumstances, especially since most adults would prefer to remain at home. Human nature is such that seniors tend to be in denial and their families tend to put off the decision as long as possible. The result often then limits your senior’s options for care.

As if that were not challenging enough, layering on an analysis that suggests that over 40% of COVID-19 deaths have occurred in nursing homes and assisted living facilities, it’s no wonder that families can easily become paralyzed into inaction.(Source: freopp.org, June 2020. Nursing Homes & Assisted Living Facilities Account for 43% of COVID-19 Deaths by Gregg Girvan and Avik Roy).

Nevertheless, being prepared for this decision – financially and emotionally – can help your loved one make this complicated transition in the smoothest manner possible.

The Choices Seem Endless

There are essentially five categories of care for our seniors, although each of these categories seems to also contain nuanced-care descriptions that requires a slightly different name.

But here are the five main categories:

Nursing homes are the largest category and offer 24-hour supervision. According to the Centers for Disease Control and Prevention, there are approximately 15,600 nursing homes in the U.S. with 1.7 million licensed beds, occupied by 1.4 million patients. The primary advantage to nursing home care is that patients have access to skilled care 24 hours a day, 7 days a week.
Assisted living facilities are similar to nursing homes but are for seniors who do not require full-time medical care or as much assistance with daily activities.
Adult day service centers are similar to assisted living facilities but are usually only open during business hours and are for seniors who require even less medical care and less assistance with daily activities. The CDC estimates that there are approximately 4,600 adult day services centers in the U.S.
Home health care could be considered similar to the care a senior would receive from a nursing home, but the differences are that the care is delivered by an agency in the senior’s home (or the home of a loved one). The CDC estimates that there are approximately 12,200 home health care agencies in the U.S.
Hospices are facilities for those with terminal illnesses, often with very few months left to live. The CDC estimates that there are approximately 4,300 hospice care agencies in the U.S.

(Source: Centers for Disease Control and Prevention, National Center for Health Statistics, June 2020).

No matter which category of care your senior needs, all of them can vary greatly in quality of care, so it takes considerable planning and research to ensure the right choice for your loved one. To start, it’s important to know that waiting lists can be very long for the best facilities – up to a year or more. Therefore, the time to arrange for your loved one’s care is before the need arises.

Discuss When Everyone is Healthy

A discussion for moving a parent (or anyone else) to a nursing home is best made when everyone is healthy. Once stricken by illness or frustrated by the loss of mobility and freedom, an older parent may not understand questions or state details of their wishes. In addition, lack of a plan often ignites family arguments without even knowing what the parent would really want.

These talks should go beyond just the money to include the parent’s future independence and decision-making regarding finances, health care and other subjects as well as basic preferences for day-to-day living.

Jumping directly into bank accounts, wills and powers of attorney usually stops the conversation cold. Instead, talk about health and lifestyle issues and then ask where important papers such as a will or power of attorney are kept, how to reach doctors, how household expenses get paid, what specific medicine is needed, etc.

None of these asks about dollars and cents, but instead focus on how your parent lives today and the answers will shape how much more planning is needed.

Your parents’ financial advisor is also a great place to start, as that person knows their situation and about any decisions already made. But make sure you get your parent’s permission first. Their financial advisor can also suggest legal documents to put in place and ways to make sure both parties can access accounts to pay medical and household bills.

Once you feel confident that you understand the current situation, plan a family caregiving strategy meeting.

The reality is that if you wait too long to plan, the likely result might be anger, fear, despair or worry. And you never want to be reactive in your planning, because then your options are limited and much more costly.

Senior Care During COVID-19

You might know that nursing homes and long-term care facilities are required to report all COVID-19 cases to state and local public health officials. But did you know that this mandate just took effect in mid-May? Now, every nursing home in the U.S. is required to:

Inform its residents and their families within 12 hours of a confirmed COVID-19 case;
Provide current and past COVID-19 information to the Centers for Disease Control and Prevention; and
Make the information public.

Remember that estimates by Girvan and Roy that suggest over 40% of COVID-19 deaths have occurred in nursing homes and assisted living facilities? Well, that study actually suggests three different estimates. Taken directly from their work:

“We estimate the national share of nursing and residential care home COVID-19 fatalities in three ways:

Estimate 1 (44.0%): Among states reporting nursing home fatalities, death from COVID-19 has struck 2.5% of U.S. residents of nursing homes and residential care facilities. We estimate that 2.1 million Americans over 65 live in nursing homes and residential care facilities; by extrapolating 2.5% across the entire U.S. nursing and residential care home population, we estimate that nursing homes account for 44.0% of COVID-19 fatalities.

Estimate 2 (43.2%): This is our most simplistic estimate. Among states reporting nursing and residential care home fatalities from COVID-19, nursing homes account for 43.2% of those deaths. If we simply assume that this share holds true in non-reporting states, we get to a national share of 43.2% (i.e., identical to the share in reporting states).

Estimate 3 (51.5%): This estimate excludes New York State, which is an outlier in terms of its reported share of COVID-19 deaths in nursing homes. A number of policymakers in New York have alleged that nursing home facilities in that state have been underreporting their COVID-19 fatality figures, possibly because New York State counts as hospital deaths those of nursing home residents who die in a hospital. It could also be that the high number of non-long-term care deaths in New York explain the lower percentage (i.e., a much larger denominator).”

Sadly, the work of Girvan and Roy is consistent with another study by researchers at the International Long Term Care Policy Network that found close to 41% of COVID-19 fatalities took place in nursing homes. And that study compiled data from facilities in Austria, Australia, Belgium, Canada, Denmark, France, Germany, Hong Kong, Hungary, Ireland, Israel, Norway, Portugal, Singapore, South Korea, Spain, Sweden, and the United Kingdom.

(Source: International Long-Term Care Policy Network, May 2020. Mortality associated with COVID-19 outbreaks in care homes: early international evidence by Adelina Comas-Herrera, Joseba Zalakaín, Charles Litwin, Amy T. Hsu, Natasha Lane and Jose-Luis Fernández).

What Should You Do?
The decision on which senor care facility is an agonizing one and requires online research, multiple site-visits, enormous patience and the willingness to ask a lot of probing questions.

Many facilities have on-staff nursing help with diverse experience in senior needs, as well as readily available medical equipment for specific conditions. Nursing homes are usually affiliated with hospitals, so that a doctor can visit a patient and assess changes in health before your senior needs to be sent to a hospital.

Many facilities offer a choice of living arrangements, such as apartments with kitchens. Services are delivered by a professional onsite staff and include prepared meals, emergency response systems, personal care, social activities, transportation, and housekeeping. And while there are lots of online tools that help you compare facilities (including one at www.medicare.gov), personal visits are essential to helping you make the right decision.

Even if a senior facility is part of a national chain, that doesn’t make their care consistent between sites. You need to visit and ask questions of the staff and residents about safety, customized care, activities, and meal variety. Take the time to find the right fit. Make sure that your loved one is completely comfortable with the environment before making a final decision.

Visiting During COVID-19

Right now and for the foreseeable futures, nursing homes and long-term-facilities are in lockdown, with access limited to essential staff. And federal guidelines suggest outside visitors can only visit during what is called a “compassionate care situation,” which means when a senior is very near death.

Further, when senior facilities do resume allowing visitors and tours, you can bet things will be very different. Right now, most facilities are offering virtual tours, but as everybody knows, virtual tours can be limiting. In other words, your due diligence is much harder today versus what it was in early 2020.

As such, it’s important that you talk to your financial advisor to help you with this decision. Your financial advisor can help connect you with experts, including elder law attorneys, social workers, health care professionals and others that have been through what you are going through.

As always, your financial advisor will provide you truly unbiased advice that has the best interests of you and your family front and center.

Determining appropriate living arrangements for your senior in need is never easy. However, advance preparation, research and your ongoing support will be essential to ensuring the comfort of your senior.

Sources: freopp.org, CDC.org, Itscovid.org, Medicare.gov

May

Congratulations to the High School Class of 2020

COVID-19 reminds us that our high school seniors need a few legal docs

COVID-19 has crushed the spring ritual of high school graduations. But it can also encourage graduates and their parents to prepare to meet the practicalities of the youngsters’ sudden entry into adulthood, from making medical decisions to choosing what to study. How can parents and their offspring get ready for the transition?

Amid the (muted) joy of the occasion, facing such practical concerns is easily overlooked. The entrances to many housing subdivisions sport banners trumpeting the names of the community’s high school graduates. For parents and grandparents alike, it’s an exercise in wondering how little ones grew up so fast. Grow they did and grow more they will. As they celebrate their high school graduations with virtual commencements that are around the time of their 18th birthdays, we hope and pray that they will advance in wisdom and make good choices in life.

Critical Docs for Your New Adult

From a financial planning standpoint, your recent high school graduates still depend largely on the Bank of Mom & Dad. Recognize, however, that the law now views many of them as adults. In 46 states, the age of majority is 18. In six states, legal adulthood commences at 18 or upon graduation from high school, whichever is sooner. In Alabama, Delaware and Nebraska, the threshold age is 19. In Mississippi, it is 21.

As an adult, your graduate should have a will, even if he or she owns very little. Otherwise, in the event of a fatal accident or illness, the legal process (called an intestate proceeding) to sort out who gets the deceased’s belongings could be heartbreaking and irksome.

Once young people are deemed adults, health-care providers will not share medical information with parents. That’s unless a parent has a durable power of attorney for health care, signed by the adult child, appointing mom, dad or both as their agent empowered to make medical decisions if they cannot.

The Health Insurance Portability and Accountability Act (HIPAA), bars doctors, hospitals and other health-care providers from disclosing information about a person’s health or medical condition without express permission.

Your relationship to the patient is irrelevant. Unless you have a power of attorney with HIPAA provisions, no health information will be shared. Without documentation, a sick or hurt adult child away at school or traveling on a break has a problem: Parents could encounter potentially disastrous delays in getting proper care.

As your high school senior embarks on his or her new journey, the more they plan, the more successful their journey will be.

Jan

Kobe Bryant’s Death Reminds Spouses to Prepare

The world lost one of its greatest and most accomplished basketball players on Sunday, January 26, 2020. Early in the morning, Los Angeles Lakers legend Kobe Bryant and his 13-year old daughter, along with seven others, died when the helicopter they were in crashed amidst foggy conditions in the hills of Calabasas, California. Kobe was 41.

Losing a spouse brings grieving and heartache enough without the unanticipated leap into the deep end of personal financial management. And Kobe’s death reminds us that if your spouse were to die, you have special considerations when planning your financial future.

Most Surviving Spouses are Women

Most women understand too well the odds that later life might find them alone financially. Among baby boomers, for example, an estimated 7 out of 10 wives will outlive their husbands. If you’re one of these women, how do you prepare?

Research shows that the average American woman lives almost five years longer than the average U.S. man. According to the Women’s Institute for a Secure Retirement, half of all widows become so by age 65. Vanessa Bryant became a widow at the age of 37.

More than 700,000 American women are widowed every year, according to the latest U.S. Census data, and widows are more likely than their male counterparts to lose income after a spouse’s death.

When your husband dies, you may have to dive into dealing with the murky waters of probate to validate a will, as well as many other legal and financial issues. In many marriages, the husband handles tax and financial issues – and understanding these new and confusing challenges can be overwhelming.

Acquiring enough financial knowledge to make money decisions confidently goes a long way toward easing the transition if you lose a spouse.

Plan and Re-Evaluate

Even when a death causes no new considerations for the surviving spouse, personal finances can still be a jigsaw puzzle difficult to fit together. Dealing with the death of a spouse can be overwhelming by itself but generally there is no need to make urgent money decisions.

Think Logically About Priorities

What does your financial plan look like? Re-evaluate what you value, what’s important to you, the purpose of your money. You might change your goals or timelines for what you and your deceased spouse planned. You might also reconsider how and where you want to live. This reset of your goals and how you want to deploy your money also helps you think of what-if scenarios to identify where you enjoy financial flexibility or where your long-term planning has stress points.

Analyze Cash Flow

Address changes to your income and budget before you consider more complex investment, insurance and tax issues. One needs to understand changes to their Social Security income and possibly survivor pension payments and if either relate to expenses. With month-to-month basics understood, you can then explore rules for inheriting investment accounts or insurance proceeds, and how to put these resources to work smartly.

Review your Investment Strategy

Maybe your investment objective differs enough going forward that you must revise investments to fit your new plan.

Think Ahead

Even though one might feel they have a good handle on their finances, many may benefit from the help of professional advisors.

Nov

It’s Open Enrollment at Work — Spend Time to Review your Benefits

Maximize your employment benefits!

Open enrollment for employee benefits kicks off this month. While you plan your Thanksgiving menu, review your benefit choices.

Here are some pointers:

Medical

Even if you carry the same plan as in many past years, spend a few minutes evaluating which one is best for you and your family when you choose – especially high-deductible health plans and traditional plans. Switching from the traditional plan to a high-deductible option might save money if you don’t visit the doctor much. Perhaps too your spouse’s company now offers a better plan and you can switch the family coverage to the better alternative.

Improved employer plan descriptions lay out plans’ differences and costs, and do that much better this year. Take advantage of their free help, online or in person.

Dental

Often you receive only one choice for dental coverage, but you may be surprised at how many people decline to pay the relatively small premium for this coverage. Even if young and cavity-free, you take care of your teeth now to potentially prevent large dental bills in retirement. If nothing else, dental insurance provides a teeth cleaning twice a year.

Vision

This benefit works great if you wear glasses or contacts and need regular eye exams. Those with perfect vision may opt out of this coverage.

Life insurance

Most employers offer some basic life insurance, the coverage usually a multiple of your salary. If you are married, own a home or have kids, this basic coverage falls short. Pay extra if possible to increase life coverage through your employer. If that’s not an option, consider supplementing this minimal coverage with a term policy. These policies come with set duration limits on coverage and you decide whether to renew once the policy expires. Remember that whatever life coverage your employer pays for vanishes if you leave that company.

Long-Term Disability

Standard coverage in this category usually pays 60% to 66% of your compensation if you become disabled and unable to work. As this coverage often comes with a cap, if you are highly compensated, this insurance might also fall short to sustain your standard of living. Estimate your minimum to live on if you become unable to work and, if that number scares you, purchase a supplemental policy.

Long-Term Care

This pays for assisted living, a nursing home or in-home care late in your life. Even as our lifespans increase, long-term care premiums escalate. If your employer offers any coverage at a relatively inexpensive group rate, lock in some protection. Many advisors will recommend LTCI when you turn age 50 – but getting it while you are young and healthy under an employer plan may still make sense.

Flexible Spending Account

This savings account reduces your taxable income and funds medical co-pays, orthodontist appointments and prescription drug orders, among other expenses. Figure your out-of-pocket medical costs and sign up to set aside that amount, up to $2,750 for 2020, pre-tax in an FSA. Each working spouse can do one. Remember that if you participate in an HDHP, you maintain a related health savings account and can only take advantage of a limited FSA.

Either way, pay for the most of out-of-pocket medical costs with pre-tax dollars.

Dependent Care Flexible Spending Account

If you pay for day care, after-school programs or summer day camps for children under age 13 or for elder care for a dependent parent, DCAs help you offset that cost with pre-tax dollars. Again, a working couple can set aside up to $5,000 from paychecks.

Transportation Credits

If your company offers this and pays in whole or in part for public transportation passes, ride-sharing or other options, reconsider your routes to work.

Life-Planning Resources

Advisors see this wide-ranging employee benefit more and more, from simple mental-health hotlines to complete menus of services.

For instance, if you lack a will, many companies now offer reduced-rate or even complimentary legal services to establish your basic estate planning documents.

Questions?

If you have questions about your benefits, talk to someone in Human Resources. The point is, make sure you review your benefits. Your future self will thank you.

Oct

General Electric to Freeze Pension Plans

Be careful of the “lump sum illusion” and talk to your financial advisor

The last few years have not been kind to General Electric – the once invincible, well-known blue-chip company that was one of the most widely held stocks for decades.

Consider the last three years:

For the year ending 2017, General Electric was the worst-performing stock in the Dow Jones Industrial Average, losing about half of its value.
For the year ending 2018, GE would have been the worst DJIA performer again, but mid-way through the year, GE got kicked out of the DJIA-club (GE lost about 56% in 2018, by the way).
A few months later after getting kicked out of the 30-company DJIA, GE’s CEO got the boot.

GE Freezes Pensions

Then on Monday, October 7, 2019, GE announced plans to freeze pension benefits for about 20,000 employees in an attempt to shrink its pension deficit and shore up its balance sheet. Further, GE is “offering a limited time lump-sum payment option to approximately 100,000 eligible former employees who have not started their monthly U.S. GE Pension Plan payments.”

What to Know About Lump Sums

A lot of companies have made changes to their pensions, including plan terminations, plan freezes for employees, and changes to the formula by which pension benefits are calculated. In fact, GE is joined by a growing list of companies making changes to their pensions, including UPS, L.L. Bean, the Boston Red Sox, the Washington Post, Boeing, General Motors, American Airlines, and Bank of America, to name a few. Should you object to a wad of retirement cash all at once? Here are a few things to consider before you opt for that lump sum.

The Lump Sum Illusion

In a recent podcast, Olivia Mitchell, executive director of the Pension Research Council and professor at Wharton talks about what she calls the “lump-sum illusion.” She told her listeners that, “Somebody who gets a lump sum of say, $100,000, might think they are suddenly rich, but that money doesn’t go very far. Based on annuity estimates, a $100,000 payment would provide a monthly income of $560 for a 65-year-old male, and $530 for a female, because women live longer than men.” Mitchell then adds, “But a lump-sum payment could help many older people who are entering retirement with far more debt than they did in the past. Baby boomers are getting into retirement not having paid off their mortgages, and not having paid off their credit cards. A lump sum in such cases could really help older people pay off their debt and move into retirement less exposed to interest rate fluctuations.”

Lump sums might make sense if you expect to die soon without a surviving spouse who will need lifetime income. They might also make sense if you already have another secure source of retirement income or are trained in handling such amounts of money at once. In many other cases, however, accepting a lump sum payout rather than income from a pension may significantly affect your retirement funding unless you take proper steps.
Regarding taxes, for instance, if you receive a lump-sum distribution and were born before January 2, 1936, you may qualify to elect optional methods of figuring, reducing or deferring tax on the distribution, according to the Internal Revenue Service.

Among other tips for you to consider:

Take your time. You can’t reverse your decision to take the lump sum.
Lump payouts may not include subsidized benefits that some employers offer as an incentive for early retirement.
And most importantly:
As you might after any large windfall, plan your decision with your financial advisor.

Sep

Thomas Cook Bankruptcy Strands Retirees

Three tips so that your financial plan can account for retirement travel

Thomas Cook, the 178-year-old British travel company, declared bankruptcy on September 23rd, suspending operations and stranding 600,000 tourists around the world.

The travel company employed approximately 20,000 people, operated its own airline, and was listed on both the London Stock Exchange and the Frankfurt Stock Exchange.

If you’re like most people who think about retirement, you probably imagine traveling in your golden years. But before you browse those travel websites and whip out the credit card to buy your ticket, make sure your financial plan accommodates for your retirement travel – and that includes some emergency funds too.

Because of those 600,000 stranded Thomas Cook clients and the 20,000 Thomas Cook employees, think of how many were either in retirement or real close to retirement.

Travel on Your Bucket List?
What’s at the top of your retirement bucket list? If you are like most folks thinking about retirement, travel is high on the list. But consider that as you travel, you will find that your bucket list does not grow smaller – it expands as new possibilities entice. And while certainly some people do experience years of unlimited and unfettered retirement travel, many more don’t find it so easy. Doing “what you want, when you want, with whom you want,” assumes three things we often take for granted: good health, adequate finances and meaningful relationships.

Invest in Your Health
When it comes to travel, good health may not be essential, but it makes your experience more fulfilling and enjoyable. Of course, we aren’t typically in either good or poor health, but fall somewhere on a continuum. With limited mobility, you may be able to shop at the bazaar in Istanbul, but chances are you won’t hike the Grand Canyon or explore the Acropolis.

Like most things, good health typically requires a conscious intention to create and maintain it. Someone who says, “when I retire I’ll have the time and money to take better care of myself,” may be in for a surprise.

Most people who chose not to take care of their health before retirement won’t do so in retirement. As one retired person might tell you, “if you didn’t have the energy to work out when you were young, you sure won’t have it when you retire.”

And you can’t bank on your spouse’s health staying good enough to share your travel adventures. Even if you’ve taken care of yourself, your significant other may be unable to travel. Instead of strolling a beach in the Bahamas, you could end up at home as a caretaker.

Money and the 80% Rule
On average, baby boomers have saved about $150,000 for retirement. That won’t pay for many around-the-world cruises. If you want to travel after you retire, you need a serious commitment during your working years to invest as much as you can.

Saving for retirement is critical, because your expenses in retirement can be significant. Consider that the average retiree spends $4,300 each year on out-of-pocket healthcare costs, according to a study from the Center for Retirement Research at Boston College. And that figure does not include long-term care.

Many financial planners suggest you think about the 80% rule: take your annual income today, and assume you will spend about 80% of that income in retirement. So, for example, if your pre-retirement income is $100,000, plan on spending $80,000 in retirement every year.

Relationships Matter
If you spend your career working 80-hour weeks, you may accumulate enough assets to fund plenty of retirement travel, but by then you may be traveling alone. Saving for the future is out of balance if it’s done at the expense of enjoying life and close relationships today – especially your marriage.

Did you know that over the past 25 years, the divorce rate of couples over the age of 50 – often called the gray divorce – rose 109% according to Pew Research? For comparison, the divorce rate among couples 25 to 39 years old decreased 21%.

There are a lot of theories about what is driving this trend, but when 50- or 60-year olds divorce, their assets are divided and the respective expenses of each are usually closer to what the combined expenses were as a couple. In other words, same expenses, half the assets. So, just as you invest in your health and your retirement plan today, invest in your relationships now too.

Think About This
If travel is one of your dreams, why not do some of it now? Use your vacation time while you can enjoy yourself. Take that motorcycle trip through Europe or go scuba diving in Belize while you’re in top shape. Do the international travel now when you can better negotiate airports, handle travel delays, and power through jet lag.

To save on expenses, plan ahead, use a credit card that awards frequent flyer miles (which you pay off monthly), and use cost-saving options like home swaps and off-season travel. Then, after you retire, when you need more access to medical care and less demanding travel, you can stay closer to home and enjoy the opportunities in your own back yard.

Your Financial Advisor
What a lot of people don’t understand about financial advisors is that we are not there solely to plan your financial future. We are at your side today to help you make yourself better.

We can not only help you make sound financial decisions but also help you think through different dreams and what it takes to achieve those dreams. It can be much easier to achieve your dreams if you have a plan that helps you get there.

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