Why you need to comparison shop for Medigap coverage

As reported in the Squared Away Blog (Center for Retirement Research at Boston College):

• A 65-year-old woman in Houston can pay $5,300 a year for Medigap’s Plan C policy or she can buy a policy with exactly the same coverage from another insurance company for $1,700 a year.

• A 65-year-old Hartford, Connecticut, man can spend anywhere from $2,900 to $7,400 annually for the most popular and comprehensive Medigap policy – Plan F.

• The price disparity for Plan A for a 75-year-old man in Manchester, New Hampshire, is also large: anywhere from $1,820 to $6,301.

These are fairly typical of the enormous differences in the premiums that consumers across the country are paying for their Medigap policies. (all direct quote).
For details, check out the full blog post: http://squaredawayblog.bc.edu/squared-away/medigap-premiums-differ-by-thousands/

Keep your investment expenses low!

“How Do Fees Affect Plans’ Ability to Beat Their Benchmarks?”

by Jean-Pierre Aubry and Caroline V. Crawford

The brief’s key findings are:

• One way that public pension plans assess their investment performance is to compare returns by asset class to selected benchmarks.
  
  
• Plans pay fees to external asset managers with the expectation that they will exceed the benchmarks.
  
  
• As these fees have come under greater scrutiny, the question is whether higher fees help plans outperform their benchmarks.
  
  
• The analysis, using new data for 2011-2016, found that plans that paid higher fees experienced worse performance relative to their benchmarks.
  
  
• This finding held across all major asset classes, but was particularly pronounced for alternative assets, such as private equity and hedge funds.

This brief is available here.

Quoted from the Center for Retirement Research at Boston College. 

Take-away: Keep your expense low by investing in low cost index funds (not all index funds are low cost).  

Low-cost mutual funds have virtues beyond being cheap

"While cost savings are one obvious advantage of low- or no-fee mutual funds, there are some others investors may not realize, writes Lewis Braham. These funds also exhibit low volatility, which may help investors resist the temptation to trade too often." 

Low fees leave more money to invest. Low volatility discourages costly trading. The combined result: better returns.

By

Lewis Braham, Aug. 24, 2018

https://www.barrons.com/articles/best-mutual-funds-for-investors-cheap-and-boring-1535145075?reflink=smartbrief

Stock Market Volatility

Is the stock market more volatile today than in past decades?
Ray E. LeVitre, Investment Adviser, CFP, Founder, Managing Partner at Net Worth Advisory Group addressed this question on July 5, 2018.
"Today it’s not uncommon to have the Dow Jones Industrial Average, a measure of large U.S. company stocks, swing up or down 100 points in a day. In fact, it’s not uncommon to have moves of 200-300 points in a single day. That sounds volatile, right? However, when we dig deeper we find there is more to the story."
LeVitre explores the numbers and provides tables to demonstrate his findings that
"current stock market volatility is similar to that of the past." So... "why does it feel so much more volatile? The reason is actually quite simple. The index is much larger now, so a 1% move up or down represents a far greater number of points."
Check out the numbers at: https://www.kiplinger.com/article/investing/T047-C032-S014-is-the-stock-market-more-volatile-now-than-ever.html 

70% of Americans support single-payer health care

"Medicare for all," a single-payer health-care system is supported by 70% in a recent poll.
"The Reuters–Ipsos survey found 85 percent of Democrats said they support the policy along with 52 percent of Republicans.
Medicare for all has been in the headlines after a study by the libertarian-leaning Mercatus Center at George Mason University found it would lead to $32.6 trillion increase in federal spending over a 10-year period.The study’s author, Charles Blahous, wrote in The Wall Street Journal earlier this month that even doubling taxes would not cover the bill for a single-payer health-care system.
The policy’s proponents, however, point to a note in the study showing that health-care costs would also decrease by $2 trillion by 2031 if it became law."
Read the details in Megan Keller's 8/23/18 article in "the Hill" at:
http://thehill.com/policy/healthcare/403248-poll-seventy-percent-of-americans-support-medicare-for-all

Trump Administration rolls back student loan protections

Under Mick Mulvaney the Consumer Financial Protection Bureau is stepping back from protecting students from predatory student loans and from for-profit colleges that took advantage of students and saddled them with large student loan debt while providing sub-par education. In May Mulvaney eliminated the "Office of Students and Young Consumers" within the CFPB and terminated enforcement actions against some of the most abusive For-profit colleges. Several senior CFPB officials have resigned in protest over Mulvaney roll-backs of consumer protections.

"Default and delinquency rates on student loans are higher than many observers realize, with new data showing 30% of borrowers struggle to manage their loans five years after repayment begins. The figures have been understated in official statistics because the government traditionally looks only at default rates over the first three years of repayment." (Retirement Security Smartbrief). 

"Federal laws attempting to keep schools accountable are not doing enough to stop loan problems. The law requires that all colleges participating in the student loan program keep their share of borrowers who default below 30 percent for three consecutive years or 40 percent in any single year." Above 30 percent is a “high” default rate. "That’s a low bar."

"Among the group who started repaying in 2012, just 93 of their colleges had high default rates after three years and 15 were at immediate risk of losing access to aid. Two years later, after the Department of Education stopped tracking results, 636 schools had high default rates."

For-profit institutions have excessively high default rates. 

source: The Student Debt Problem Is Worse Than We Imagined The New York Times

By Ben Miller

Mr. Miller is the senior director for postsecondary education at the Center for American Progress. 

So students are suffering while taxpayers lose out on unpaid debts.   

"Seth Frotman, student-loan ombudsman at the Consumer Financial Protection Bureau, has resigned, saying the CFPB is no longer protecting student borrowers. "Instead, you have used the Bureau to serve the wishes of the most powerful financial companies in America," he said in his resignation letter to acting Director Mick Mulvaney.

Aretha Franklin died without a will. Do you have a valid up-to-date will?

You may not have assets worth $80 million but you still need a will to avoid probate and make life easier for your heirs.
Her four sons face a complicated estate settlement process plus having to pay federal estate taxes (good for all the rest of us). See: https://www.wealthmanagement.com/estate-planning/aretha-franklin-died-without-will
To die without a will is to die "intestate" which means your state legislature has decided for you how your assets will be distributed. Is that what you want? As Michelle Singletary wrote in The Washington Post, when heirs end up in extended legal proceedings, it exacts a substantial financial cost. Singletary concludes:

"So, let me ask you one question: Do you love your children/family?

Because if you care about their well-being, and you want to minimize the drama after you die, you need a will. Tomorrow isn't promised."

Fund fees really do make a difference!

The Center for Retirement Research at Boston College has released a new Issue in Brief:

“How Do Fees Affect Plans’ Ability to Beat Their Benchmarks?”

by Jean-Pierre Aubry and Caroline V. Crawford

The brief’s key findings are:

• One way that public pension plans assess their investment performance is to compare returns by asset class to selected benchmarks.
  
  
• Plans pay fees to external asset managers with the expectation that they will exceed the benchmarks.
  
  
• As these fees have come under greater scrutiny, the question is whether higher fees help plans outperform their benchmarks.
  
  
• The analysis, using new data for 2011-2016, found that plans that paid higher fees experienced worse performance relative to their benchmarks.
  
  
• This finding held across all major asset classes, but was particularly pronounced for alternative assets, such as private equity and hedge funds.

Read details: http://crr.bc.edu/briefs/how-do-fees-affect-plans-ability-to-beat-their-benchmarks/

Thanks to the Squared Away Blog, a great resource: http://squaredawayblog.bc.edu/

Does your financial advisor put your interests before his/her's?

The term "fiduciary" has been in the news for past couple of years. The Obama Administration proposed a rule that financial advisors who deal with retirement must follow a fiduciary standard rather than a "suitability" standard. A fiduciary must put the client's interests ahead of her/his own (i.e., costs, commissions, etc.); previously most advisors only had to recommend products that were "suitable" for the client (but perhaps were more costly than other alternatives, thus paying the advisor a higher commission and costing the consumer higher fees and lower returns). The Trump administration has rolled back this rule.

Therefore, it is essential that consumers ask their advisor: "Are you a fiduciary? Are you putting my best interests ahead of your financial gain?"
Read Peter Fisher's article:

Why Conflicting Retirement Advice Is Crushing American Households

In a 2015 report by the Council of Economic Advisers, the authors estimate that “the aggregate annual cost of conflicted advice is about $17 billion each year.” This conflicting advice comes from individuals and institutions that are "compensated through fees and commissions that depend on their clients’ actions. Such fee structures generate acute conflicts of interest." (full quote).

"Unfortunately for the American family seeking 'professional' financial advice, the choices are few. Just a small percentage of financial professionals are able to offer financial advice without facing the conflicts outlined by the Council of Economic Advisers." 

Very few are "fee-only advisers who follow a true fiduciary standard that prohibits commissions on products recommended to clients and legally requires the advisers to always put their clients’ interests first." 

Check out a list of questions you should ask your advisor at: https://www.forbes.com/sites/forbesfinancecouncil/2018/08/17/why-conflicting-retirement-advice-is-crushing-american-households/#470655621355 

US budget deficit increased 21% in 10 months since new tax law took effect.

US budget deficit sees 21% increase 10 months into fiscal 2018

Treasury Department data show the US government's budget deficit rose 21% to $684 billion in the first 10 months of fiscal 2018, compared with $566 billion during the same time frame in fiscal 2017. One factor behind the increasing deficit is that government spending has risen while business and individual tax rates have decreased. (Retirement Security Smartbrief). Details are available in The Wall Street Journal, August 10, 2018 by Sharon Nunn.

July budget deficit $77 billion, up 79% from year earlier

So if you are happy with paying lower taxes, think about the long term implications for your children, grandchildren, and social supports for your retirement years. Republicans are likely to try to cut Medicare, Medicaid and Social Security benefits as deficits continue to increase. 

Think about it....

Is your home adequately insured?

With all the fires raging in the west and memories of floods last year, we are reminded that global climate change is disrupting our patterns of weather. While many people have said that extreme weather that we've experienced is "the new normal," experts say that what we've experienced so far is only the beginning. If you aren't already demanding that our politicians at all levels, acknowledge and address climate disruption, you should be.
In order to protect your property you need to assess the risks from fire and flood (earthquakes are another risk in Utah that are addressed in other blog posts). Having recently spent a week in N. California helping a friend clean up from the aftermath of the Tubbs fire that killed 44 people and destroyed the house her grandparents built, I saw tons (literally) of dry vegetation waiting to turn into disaster. Just a week later, the area where we hiked in Lake County was obliterated by fire, along with many homes lining the road to our hike.
The August 4/5 Wall Street Journal features an article by Leslie Schism & Nicole Friedman: "Learn what your insurance covers before disaster hits." I can't provide a link since you need to be a subscriber, but will summarize:
1. Read your policy! It's important to know what is excluded, like flooding. Flooding is a real danger in Utah, even if you aren't near a stream or river, especially if you are near a hillside that burned in past few years.
2. Live in or near a flood zone? Buy a flood policy through your insurance company or the National Flood Insurance Program.  https://www.fema.gov/national-flood-insurance-program
3. Check out: https://www.floodsmart.gov/
4. Know the maximum your policy will pay. Repair and rebuilding costs spike after a disaster.
5. Increase your coverage after a major improvement.
6. Inventory your possessions and store this info outside your home.
7. Take action to reduce damage & avoid claims: clear defensible space around your property. Can you reduce the potential for flooding with landscaping? What's in your basement and what will you lose if its flooded?

Student loan repayment vs. retirement savings?

Paying down student loans vs. saving for retirement: Here's how to prioritize

• Paying down student loans and saving for retirement are two competing goals that can take some individuals up to 30 years to accomplish.
• While your student loan balances may seem daunting, there are ways to evaluate where you will earn the best return for your money based on the terms of your debts and available investment opportunities.
• Keep in mind how your tax situation, ability to refinance your student loans and overall financial picture can determine your financial priorities.
• If your student loan balances are high and you have a long time until retirement, it can be difficult to decide which financial goal should be your priority. Should you sock all of your extra money toward getting those loan balances down?
  Or, should you instead focus on growing your money through your retirement savings?
  "In reality, most new graduates should probably be doing a little bit of both," said Christine Benz, director of personal finance at Morningstar.
  

  Evaluate your rates

  The first thing you want to look at when deciding where to focus your money is the interest rate you are paying on your student loans versus the return you would expect to earn on your investments.
  "Debt pay down is guaranteed," Benz said. "If you pay more on your debt, that means that you will be able to retire that interest rate that much sooner."
  If the interest on your student loans is 5 percent, it might be hard to match that return on an after-tax basis through your investments, she said.
  Quoted directly from source: https://www.cnbc.com/2018/07/27/paying-down-student-loans-vs-saving-for-retirement-heres-how-to-pri.html
  
  Keep in mind that you do NOT want to carry any credit card debt because the interest rates on cards far exceed government subsidized student loan rates (private loan rates are usually higher). So pay off those credit cards first! 
   

Are you having enough taxes withheld from your paycheck?

Despite all the attention to tax cuts for most American tax payers, simulations by the Government Accountability Office "suggest 30 million Americans -- 21% of taxpayers -- aren't having enough withheld from their paychecks under the new tax law, meaning they will owe money to the IRS next year. That compares with 18% under the old tax law." (Retirement Security Smartbrief, 8/2/18). Source: https://www.npr.org/2018/08/01/634474267/more-taxpayers-will-owe-the-irs-in-april-due-to-under-withholding-report-says
To estimate your tax liability for the year, use the IRS Withholding Calculator: https://www.irs.gov/individuals/irs-withholding-calculator
To avoid penalties for under payment, file a new form W-4 with your employer(s).  
The Basics of Estimated Taxes for Individuals: https://www.irs.gov/newsroom/the-basics-of-estimated-taxes-for-individuals "The IRS has seen an increasing number of taxpayers subject to estimated tax penalties, which apply when someone underpays their taxes. The number of people who paid this penalty jumped from 7.2 million in 2010 to 10 million in 2015, an increase of nearly 40 percent. The penalty amount varies, but can be several hundred dollars."
"The IRS urges taxpayers to check into their options to avoid these penalties. Adjusting withholding on their paychecks or the amount of their estimated tax payments can help prevent penalties. This is especially important for people in the sharing economy, those with more than one job and those with major changes in their life, like a recent marriage or a new child."

"In general, taxpayers don’t have to pay a penalty if they meet any of these conditions:

• They owe less than $1,000 in tax with their tax return.
• Throughout the year, they paid the smaller of these two amounts:
  • at least 90 percent of the tax for the current year
  • 100 percent of the tax shown on their return for the prior year – this can increase to 110 percent based on adjusted gross income"