“Watch the gap please”

If you haven’t realized it by now, Medicare has a lot of “gaps” in its coverage. In order to close that gap, various private insurance companies offer plans that cover a lot of out-of-pocket costs—for a price. Bare-bones Medicare coverage can leave you with some steep medical bills. As we discussed in our last column, if you are admitted to the hospital, for example, your first bill will tally $1,216 or more, which is the deductible you pay just for being admitted. After that, you pay 20% of the fee for every doctor visit, lab test, MRI, X-Ray and on and on. Remember, too, that there is no yearly limit for what you may have to pay beyond your basic Medicare Part A and B coverage. Depending on which plan you choose, a Medigap plan will pay some or all of these expenses. Some plans will pay the coinsurance for hospital stays; others could pay for the coinsurance expense for outpatient care. Other plans pay for additional costs like Part A and B deductibles, coinsurance for nursing care, and even emergency care outside of the U.S. As you might expect, the most comprehensive plans have the highest monthly premiums, although once you pay that premium, your insurance company pays everything else. That means you pay nothing for that quarterly medical checkup, that emergency room visit, or admission to the hospital. Here in Massachusetts, you have a guaranteed right to buy any Medigap policy sold in your area, beginning on the first day of the month after turning the age of 65. You do have to be enrolled in Medicare...

When your broker doesn’t want you anymore

Across the nation, various financial institutions, affected by the new “fiduciary” rules issued by the Department of Labor, are making some tough decisions. Don’t be surprised if your broker informs you they can no longer manage your company’s 401 (K) or other defined contribution plan. This happened to one of our clients just this week. The couples, both self-employed, had used one of the nation’s largest brokers to house and manage their money purchase plans at their companies. A money purchase plan, for those who don’t know, is like a pension plan where employees make contributions based on a percentage of annual earnings. This is standard stuff along with profit-sharing plans, 401(k) s and the like. Corporations use these plans as fringe benefits to reward and encourage retirement savings for owners, managers and employees. All of the above are tax-deferred savings plans and as such fall under the Department of Labor’s new rule (starting in April of this year). The rule requires financial professionals who give advice on retirement accounts to act as fiduciaries for their clients. This means they must act in their client’s best interests ahead of their own financial gain and that of their company’s. They will be required to disclose their compensation and any conflicts of interests as well. In our case, since we are already fiduciaries, we were able to swiftly transfer both the husband and wife’s accounts (worth over $1 million each) to our care and expertise without skipping a beat. We expect that as more brokers and insurance companies come to grips with these new responsibilities toward their client base, we will...

The gym is counting on your New Year’s resolution

It’s that time of the year again when people like me; hate people like you. January is the month when all those good intentions to get healthy and fit translate into a 12% bump in health club memberships. If only all those Americans who join gyms this month would stick with it. Sadly for them (but not for me) all those goods intentions dissolve by the end of the first quarter. The health clubs of America get back to normal by March. Actually, 4% of new members won’t make it past the end of January and 14% drop out by the end of February. Well over half of new members will fade by the end of the quarter. The gym owners have no problem with that. They assume that only 18% of new members will hang in there and use the gym regularly. You see, the idea of fitness (as opposed to actually doing it), is extremely popular here in America. We all know that, regardless of our good intentions, the population of unhealthy and overweight Americans grows larger all the time. Over 70% of Americans are overweight, according to the latest statistics. That leaves the fitness industry with a practically inexhaustible pool of potential buyers of their services. Statistics for 2016 indicate that worldwide revenues in the health club industry grew to $81 billion. Over 151 million members visited nearly 187,000 clubs. As you might expect, the U.S. leads all markets in club count and represents about 55 million memberships. Brazil and Germany are our runner-ups.  But health club memberships are also strong in both the Middle East...

Annuities and the new fiduciary rule

  In April, 2017, the Department of Labor’s new rules go into effect. Essentially, the regulation will require the financial sector to act as a fiduciary when advising consumers on their retirement plans and accounts. For those who sell annuities, this will fundamentally change their industry. Let me first state that I am not a fan of annuities (whether fixed or variable), and have written several columns over the years warning investors away from these instruments. I have received a great deal of hate mail from the insurance industry as a result. So be it. I think they are expensive, illiquid, the sales materials misleading and not appropriate for most investors. The crux of the matter is that thanks to the DOL ruling, brokers (insurance or otherwise) will no longer be able to sell these investments to retirement plans and accounts based on suitability alone. Next year, in order to sell these products, a broker must prove that their purchase is in the client’s best interest. That is going to require a comprehensive client analysis similar to one that is usually performed by a financial planner. Issues such as whether a broker is giving “prudent” advice (as opposed to simply acceptable advice) will come into play as will loyalty to the client. Most consumers are not aware that the sale of annuities was not governed by Federal suitability rules. Instead, individual states regulated annuity products and what was suitable varied from state to state. Now a whole host of factors will need to be examined. Questions such as the desire of a client for income and how much and...

IRA Distribution Time

Information abounds on why and when you should contribute to a tax-deferred savings plan such as an Individual Retirement Account (IRA). Less is known about what happens in retirement when you have to take money out of these plans. For those who turned 70 ½ years or older in 2016, pay attention, because it’s distribution time. The original idea behind tax-deferred savings was to provide Americans a tax break in order to encourage us to save towards retirement. Individuals could stash away money tax-free while they were working and then take it out again once they retired, when they were presumably earning less and at a lower tax rate. The government determined that once you reached 70 ½ you have until April 1 of the next tax year to take your first distribution. If you are older than that, you only have until the end of the year. Officially, it’s called a Required Minimum Distribution (RMD) and applies to all employee sponsored retirement plans. That includes profit-sharing plans, 401(K) plans, Self Employed Persons IRAs (SEPS), SARSEPS and SIMPLE IRAs, as well as contributory or traditional IRAs. The individual owner of each plan is responsible for computing the RMD and taking it from their accounts. There are stiff IRS penalties (of up to 50% of the total RMD) levied on those who fail to comply. The RMD is calculated by taking the total amount of money and securities in each IRA, or other tax-deferred plan, as of December 31 of the prior year and dividing it by a life expectancy factor that the Internal Revenue Service publishes in tables. The...

Dementia and your portfolio

As more Baby Boomers reach retirement age, few elderly investors are willing to discuss a growing risk to their portfolio. The onset of diminished mental capacity can cause huge losses in your life savings. Many only realize the problem in hindsight. Don’t let that happen to you. The facts are concerning. For example, one in nine people, age 65 or older, suffer from some form of dementia. That skyrockets to one in two people over the age of 85. What’s worse, there are at least 18 different diseases that bring on dementia. Alzheimer’s disease is only the most prevalent of causes. No one can predict who will get this disease, but we do know that the older we get the higher the risk. If you have been reading my columns on estate planning, you know by now that a visit to an estate planning attorney is in order. It is true that most investors with significant assets have already made wills, set up trusts and in other ways made plans to protect their money after death. In many cases, they have also set up a power of attorney to manage their affairs in the event of illness or when they can no longer manage their money themselves. The problem with all of the above is that none of it safe-guards you against an early onset of dementia. Only you can detect it, but even then, your mind can be telling you something different and usually does. It is a serious problem, since one out of seven us have it and may not know it. For investors, especially self-directed investors,...