Monday, October 5, 2015

The health of your nest egg is at risk

The Affordable Health Care Act notwithstanding, a considerable amount of money is being siphoned out of many retirees’ nest eggs. According to government projection, health care spending will account for nearly one out of every five dollars spent by the year 2024.

Not long ago, I wrote that retirees should earmark at least $250,000 for health care related costs and expenses. To my amazement, I recently opened up one of my financial journals and a headline read, ”Michigan is the most expensive state for retirement health care.”

That was the conclusion reached by HealthView Services, the nation’s leading producer of health care cost-projection software. Their research indicated that a 65-year-old Michigan retiree would spend $3,707 in premiums for Medicare parts B and D supplemental insurance this year.

HVS also said that over a 20-year period, a Michigan retiree would spend $40,000 more than his or her Hawaiian counterpart. It should be noted, however, that Hawaii is among the states with the lowest health care costs.

The bottom line is that, even after all of the health care debates and the passage of the Affordable Health Care Act, the costs associated with health care continue to increase at an alarming rate.

Meanwhile, because the government’s data indicates there’s no inflation, it appears that retirees collecting Social Security benefits will not see an increase in their payment in 2016.

Nonetheless, those same retirees are likely to be hit with jaw-dropping increases on their Medicare premiums. Clearly there’s a disconnect between Uncle Sam’s perception of inflation and the reality of increasing health care related costs and expenses.

Roughly 10,000 people per day turn 65 in America. As this group moves through their retirement years, it’s going to put a great strain on our health care system. The question that I believe will continue to be debated is, “Who should pay for these increasing costs?”

There are already new taxes in effect dedicated to paying some of the increased costs. For example, the .09% increase in Medicare taxes for married couples filing jointly who make more than $250,000 a year. And in 2018, a new excise tax for those whose employers offer so-called Cadillac health care plans will be phased in.

It’s important that people understand before they retire that all of their retirement dollars aren’t going to be spent on vacations. It’s very likely that a significant amount will go instead toward mundane expenses related to their health.

Anyone who is currently working and has a large deductible should see if you’re eligible for a Health Savings Account. If not, before the next enrollment period you should check to see if you can switch your coverage to a plan that is HSA eligible.

Simply stated, an HSA is similar to an IRA in that both are tax deductible and they accumulate tax deferred. Ultimately, the funds can be used for a wide array of health care services.

If you’re not HSA eligible, you just have to be more aware that a significant portion of your retirement nest egg will likely be used for health care related expenses.

After the Affordable Health Care Act was passed, many thought that, as a nation, we would stop debating health care costs. I have a feeling the discussion is just getting started.

Ken will be speaking at a workshop regarding healthcare spending on Oct. 21. For information and reservations please contact Lifetime at 248-952-1744.

Monday, September 28, 2015

Are you sure you can’t afford insurance?

Almost everyone knows someone who’s paying back a student loan. According to, the national student debt total recently surpassed $1.3 trillion. That sounds like a powder keg that could rattle the economy the way the housing market collapse and mortgage crisis did seven years ago.

The presidents of Oakland University and Eastern Michigan University were recently summoned to Lansing to explain large tuition increases. 8.48 percent and 7.8 percent respectively. I believe one of the hot topics of the upcoming election will be the exorbitant cost of higher education and the enormous student debt load that young adults are forced to carry.

I don’t pretend to have a quick-fix solution for the student loan crisis. But I am seriously concerned that it will create an unfortunate domino effect.

When young adults finally complete school, they have to start repaying their student loans. Unless they’re living in their parents’ basement, they also have housing costs. And regardless of where they live, there are car payments and all the other monthly bills that go along with becoming an adult.

Many are also getting married and starting families, so they have significant financial obligations in addition to school loans. And even though it’s another expense, as an adviser, I think it’s very important for a young family to have life insurance.

Sadly, it’s one of the most overlooked aspects of financial planning. Many young people feel invincible and give no thought to life insurance. Nothing bad is ever going to happen to them.

True, some do have insurance through their employer, but in today’s world people frequently change jobs and there can be gaps without coverage.

That’s why I believe it’s vital to actually own your life insurance rather than rely on your employer. Young people, especially those starting a family, need to make certain their loved ones are protected and loans are repaid in the event of a life ending tragedy, especially if there are children involved.

September is Life Insurance Awareness Month and I want to make certain that young adults take note. Life is all about choices. For example, do you really need the newest version of your favorite cell phone the very day it’s released? Is the fastest Internet speed worth paying a higher price? Do you really need a $3 dollar cup of coffee every day?

People need to make financial choices all the time. Unfortunately, too many of them make poor financial decisions or simply fail to look at reality. The difference with young adults is that they often have staggering student loan obligations in addition to everything else.

On the local news, you often see or hear about a fundraiser to help a family after a tragic loss. It’s nice to see so many big-hearted people willing to help them pay bills or perhaps fund a young child’s future education.

But responsibility comes with financial obligations, and if you signed for a loan or have children to house and educate in the years ahead, you owe it to your family to review your life insurance and find a way to include the cost in your budget.

Unaffordable? Consider a little budget juggling to free up enough money to cover insurance premiums. You’ll not only be buying life insurance, but also the comfort of knowing you have additional protection for the future.

Tuesday, September 22, 2015

If you enjoy your work, it’s not a job

Over the Labor Day weekend, a frequent comment I heard from friends and family was, “Where did the summer go?” During the long winter months everyone looks ahead with anticipation to the unofficial start of summer, Memorial Day.

Then the July 4th holiday sneaks up on us and in the blink of an eye it’s Labor Day. It seems like summer comes and goes in about the time it takes to walk the five miles across the Mackinac Bridge.

The purpose of Labor Day, of course, is to salute the American workforce. And my, how the workforce has changed since President Cleveland signed the law enacting Labor Day in 1894.

According to the Department of Labor, there were nearly 18 million American workers in unions in 1983. In 2014 the number of union members had fallen to just over 14.5 million.

As with so many things in our society, people tend to have very strong opinions one way or another about unions. As the auto unions are about to begin contract negotiations we’ll be hearing plenty of passionate opinions, both pro- and anti-union.

I believe that, regardless of union status, American workers are essentially dedicated and hardworking. That being said, I wonder just how many Americans like or enjoy their work.

Without question, the makeup of the workforce and the nature of many jobs in our nation have changed dramatically over the years. Rosie the Riveter during World War II began the influx women into the workforce.

More recently, service sector jobs and technology have dramatically changed the atmosphere and character of a typical workday. In other words, there are no typical workers or typical jobs.

Since Labor Day is the unofficial end of summer and the beginning of the school year, I encourage students to study with the objective of graduating with more than just a job. Work toward finding a field that is rewarding both financially and emotionally.

Find something you’re passionate about and that you’ll love doing day after day. I have encountered many people who are counting the days until they can retire and do something they’ll truly enjoy.

I was recently talking to a retired auto executive client who is passionate about his Corvettes and Corvette Club activities. He was surprised to learn I grew up in an automotive family and my high school and college job was buffing out automobiles.

It was great experience. I liked it, the money was decent and I learned a thing or two. But it was just a job, not a career. Not something I would want to do for 30 or 40 years.

I’ve been extremely fortunate for many years. As a financial adviser, I’m just as enthusiastic about my career as my client is with his Corvette Club. In other words, my work is my passion.

Life, like summer, is over much too soon. If you can find an enjoyable career to make a living, great! A workday does not have to be dull or boring.

Labor Day is an American tradition and a well-earned day off. People get up and go to work every day. As you study and prepare for the workforce, try to do everything you can to put yourself in a position where your work is your passion.

Tuesday, September 15, 2015

Even the military needs help maneuvering through retirement

Over the past few years, I’ve had the good fortune of attending a couple of educational seminars, each of which featured a former Navy Seal as a guest speaker.

One was Marcus Luttrell, the lone survivor of Operation Red Wings and co-author of the book “Lone Survivor.” The other was Robert O’Neill, who was not only part of the operation that rescued Captain Phillips, but also the final assault on the compound where Osama Bin Laden was killed.

Both men shared some truly fascinating stories about their rigorous training and military experiences. At the end of the day, it strengthened my opinion that our nation’s military has some incredible men and women serving our country.

Recently, within a short span of time, I heard from a cousin who is a retired Army officer and I also drove past a military convoy near the National Guard base near Grayling.

It made me realize that, although I work with many people who served in the military, only a small handful actually made the military their career. And just as with so many other occupations, the financial dynamics of a military career appear to be changing.

I’ve previously written that traditional pensions known as defined benefit programs are becoming extinct. The auto industry, state government, educators and most municipalities have eliminated traditional pensions for new hires.

It appears that the military is also going to significantly alter their retirement program, in an attempt to save $1 billion annually.

If approved by Congress, the new program will be a “blended” plan.

It will shrink the traditional pension amounts by roughly 20 percent and implement a mandatory contribution. However, for the first time, those that do not make the military a lifelong career — in other words serve for less than 20 years — will receive some retirement benefits.

If the Pentagon’s recommendations are enacted, the 20 percent reduction in military pensions will be offset by government contributions into a program similar to a 401(k) or IRA. The program is called the Thrift Savings Plan (TSP.)

Within the TSP, Uncle Sam will automatically contribute one percent of basic pay. Military personnel will also have three percent of their pay automatically withheld and deposited into the TSP. The similarity I referred to is that there will be a ten percent penalty if the money is withdrawn prior to age 59.5.

Participants in the plan can opt out of having their three percent withheld if they complete financial literacy training. The greatest benefit of the TSP is for military personnel with more than four years of service. Uncle Sam will match their contribution into the TSP dollar for dollar, for up to five percent of pay.

If all goes as planned, the new military retirement program will go into effect in January 2018. More than likely, there will be a grandfather clause for long-term military personnel to continue with the traditional pension or opt into the new TSP.

Naturally, as these changes move through Congress, I’ll keep my readers posted. Like so many things in our nation’s culture, it is becoming more complex even for military personnel. From private to general, military personnel also need financial advisers to sort through their situation, goals and strategies.

Tuesday, September 8, 2015

The splash heard ’round the world

Thanks to the Internet, we’re living in a world where information travels around the globe at lightning speed.  I recently wrote that when a rock falls into a pond halfway around the globe, we tend to feel the ripples here in the states.

Shortly thereafter, as most of us are aware, an economic boulder fell in China.  It wasn’t just a ripple in the pond; it was an enormous tidal wave.  And no one can say for certain when the onslaught of waves will stop hammering our shores.

Such financial turmoil makes it easy for your emotions to overtake your mind, allow panic to set in, and abandon your investment strategies.

My experience suggests that’s not such a good idea.  Rarely do emotional, panic-driven moves result in a positive outcome.  That’s not only true in the investment arena but also in many matters of life.   

I have written on numerous occasions that investors need an iron stomach to get through difficult times.  What we are now going through is a prime example.  If there’s one word I’d use to describe what we are in the midst of, it’s “extreme.”

I say extreme because we’re seeing investment values plummet one minute and then skyrocket just a few hours later.  These are not insignificant daily changes.  They’re extreme. 

The collapsing Chinese economy ignited a worldwide financial crisis and the European and U.S. markets have been swinging wildly as a result.

Unlike an amusement park, these are rides that can lead to stress.  A recent report estimated that the average 401(k) was down $3,000 in just one day.  In other words, if someone decided to take their money out of the market now, they would be exiting with a substantial loss.

So, how do you not cut your losses and run?  As I’ve written many times, you need to have an iron will and keep your emotions at bay.  When the markets are on a downslope, it’s probably not the time to make major modifications and adjustments to your portfolio.

Over the years I have navigated a great number of clients through financial storms.  That includes the traumatic one-day, twenty percent drop in 1987.  Often, when people panic over pocketbook issues the end result is negative.  I’ve seen it many times.

If you’re nervous or unsure about your portfolio, schedule a meeting with your financial advisor.  Granted, financial advisors don’t have a crystal ball, but reviewing your strategies might remind you why you diversified and selected your investment strategy in the first place.  It might also help push aside your inclination to panic.

Naturally, I can’t see into the future either.  That being said, however, I’m still fairly optimistic that there are sunny skies on the horizon.

Our domestic economy may not be growing at lightning speed, but it is growing.  Once again, you can hear the sounds of construction.  Vehicles are moving out of showrooms.  You need reservations to get into many restaurants.  And businesses are tepidly optimistic.

I believe the focus is shifting from China, the world’s second largest economy, back to our economy.  We have the opportunity to take the baton and lead the world’s economy out of the doldrums.  When this happens, the value of investment portfolios will bounce back and continue to move upward.

Monday, August 31, 2015

The give and take of Social Security, 80 years later

In case you missed it, the nation’s Social Security system program turned 80 on Aug. 14. It was controversial when President Franklin D. Roosevelt launched the program and it remains hotly debated to this day.

One extreme compares the program to a Madoff-type Ponzi scheme while the other end of the spectrum believes it’s not only a great public program but also that its benefits should be expanded. In other words, even after 80 years the Social Security controversy remains unsettled.

Yes, I have concerns about Social Security, essentially because of the underlying mathematics. People are living much longer today and roughly 10,000 people retire every day. That means there are going to be a tremendous number of benefit checks going out even as wages remain somewhat stagnant for those still working.

Meanwhile, active workers today receive a statement that informs them there will only be enough money to pay 77 percent of projected benefits. Is it any wonder so many younger people have doubts about the program?

A recent AARP poll shows that 73 percent of people doubt Social Security will be able to pay promised benefits. So, while the big picture of the program continues to be debated, I have two comments about the program that seldom make the headlines.

One concern is that many people overlook the fact that up to 85 percent of their Social Security benefits are subject to income taxation when they’re retired and receiving benefits.

I find this to be quite bothersome. During your working years you‘re paying income tax on the money withheld from your paycheck that goes into Social Security. Then you’re taxed again when you collect Social Security. That is double taxation, plain and simple. It wasn’t always this way, but in an effort to strengthen the program the Greenspan commission suggested this provision and it was signed into law in 1983.

My other concern is the seldom-discussed fraud that Social Security attracts. We’ve all read about identity theft. It’s a real issue in our society. In fact, a lot of sensitive personal information was recently stolen from the IRS coffers.

The Office of the Inspector General is finding out that identity theft is even a problem for the deceased. As a society, we generally celebrate the elderly, and rightfully so. The Gerontology Research Group recently concluded there were fewer than 50 people over the age of 112 worldwide.

Yet, from 2006 to 2012, nearly 67,000 individuals filed tax records where the names on the earnings report didn’t match the names associated with the social security numbers. For the same time period, more than 4,000 employers made E-Verify inquiries using nearly 3,900 Social Security Numbers that belonged to someone born before 1901. Clearly, criminals are using Social Security numbers of the deceased for fraudulent purposes.

Fraud is not just a problem for households and corporate America; it’s also an issue for Uncle Sam and the Social Security program. The statistics prove it.

As the debate intensifies over how to strengthen the program, I hope improving the record keeping and monitoring cash outflow is part of the discussion. A more efficient program could result in more income for retirees or lower taxes for workers.

As a nation, we want our elderly to be able to live their lives with dignity. Although it’s controversial, the Social Security program is part of the equation. But when life ends, Social Security numbers need to be permanently retired and kept from being used fraudulently.

Monday, August 24, 2015

What in the world is going on? Financially, you need to know

From an economic perspective, there’s no question that when a rock falls into the water halfway around the world, the ripple effects can be felt here in the U.S. And a lot of rocks have been falling.

The easing of economic sanctions in Iran, the debt issues in Greece and Puerto Rico and the recent devaluation of China’s currency, all to a certain degree, have an impact on your nest egg.

For example, with Iran re-entering the world’s oil market, there’s almost certainly going to be an impact on the price at the gas pump. The devaluation of the Chinese renminbi and the rather drastic slowdown of their economy is going to make it much more challenging for American companies like McDonald’s and our own auto companies to do business and make a profit in China.

This is important because many American companies rely on the Chinese market for a significant portion of their sales. And if you own stock in any of those companies, the impact on your nest egg could be considerable.

What’s happening overseas is also partly responsible for the drop in the price of commodities like oil, silver and gold. Some might even call it a price collapse. Your nest egg is also affected by the daily fluctuations in stock prices and interest rates. What happens throughout the world often causes those fluctuations.

As a financial adviser, I want to stress to clients and readers that, in this day and age of instantaneous news, there’s always something unsettling occurring that might cause us to worry about our money.

I can’t tell you not to worry, but I can say that investors need to have an iron stomach in addition to a strategy. For most investors, a strategy means diversification, which in turn means don’t put all your eggs in one basket.

Does diversification mean you’ll always get the highest returns? Of course not. For example, in 2013 investors who only invested in U.S. stocks generally outperformed those in diversified portfolios. Keep in mind, however, that they also shouldered more risk.

A diversified portfolio isn’t just domestic stocks. To be truly diversified, you should think globally. That means international stocks as well, plus bonds, cash, and perhaps some additional assets such as real estate and commodities.

In the investment world there will always be something to worry about. Some people believe they can avoid the worry by simply depositing everything into the bank.

True, bank deposits are “guaranteed” by FDIC insurance, but there’s also a downside. With today’s low interest rate environment, the purchasing power of dollars in the bank decreases as prices throughout the world increase. I’ve heard many retirees complain they can’t afford price increases because they’re on a fixed income. It’s a valid complaint.

Yes, investors can always find something to worry about. But, as an investor, it’s imperative you have a strategy. You may have to tweak it over the years, but it shouldn’t be abandoned at the first sign of bad news.

Your money has to work especially hard when you no longer work. Since retirement can easily represent a third of your life, it’s important that you have a long-term strategy. And because it has an impact on your financial well-being, be sure to think globally.