Mac’s Blog

 Is Health Insurance expensive—does it have to be?

I have helped individuals and businesses obtain health insurance for over 25 years and well aware of increase of cost for this necessary insurance.  However, I remember 5 cent cokes and candy bars and as a kid I remember my dad buying a two storey, 4 bedroom all brick house for $15,000.  All this to say the more money printed the more dollars required to meet cost.  $3.39 today will buy what $1.00 would buy in 84 considering 5% average inflation and all of us make a heck of a lot more in dollars per month than we made in 84.

Inflation is one reason Health Insurance is high in dollar cost another are the technological improvements keeping many alive and healthy.  Americans will not accept limitation in health care availability required by Socialized Health Care.  Our friends to the north and their health care system are often used as an example of good affordable coverage.  If it is so good then why do so many come south for health care and are we ready to accept limitation and availability of technological advances?

 On average, my clients pay $200 or more less for necessary health coverage.  This is complete major medical PPO coverage.  Why, it is all about design, actual projected used and related annual cost of optional benefits. 

1. What optional benefits are actually used, how often and at what cost to use or to have?
2. Do I really understand how health insurance works and how to obtain maximum benefit and value for dollars spent?
3. Is my agent more worried about commission than providing effective and affordable coverage?

 The biggest problem I see with health insurance and the health insurance industry are:

1. Agents
2. Insurance Companies
3. Insured Clients

 Agents are compensated to sell the highest cost product and quickly.  Agents are not rewarded, initially, to spend time and make the effort to teach clients how to obtain and use health insurance more effectively.

 Insurance companies no longer provide effective training for agents selling their product and encourage agents to sell the highest priced product.

 Insured Clients do not take the effort to understand how insurance really works, how they can make their policy work the best and do not hold the medical provider accountable to live up to their contract with the insurance company.

 By making just a few changes health insurance could become more affordable.  My recommendation to start;

1. All policies issued by a company should carry the same commission. 
2. Policy commission should be an average of all company policies.
3. Agents should not be allowed to sell health insurance without being trained under the supervision of the issuing company.
4. Agents must have a better knowledge of how insurance works and how to teach clients to use negotiated rates.
5. Clients must hold their agent more accountable to help them more effectively use their health insurance.
6. Clients must hold their medical providers more accountable to meet the tenets of their contract with the insurance company.

 If you would like more information on how to lower the cost of your health insurance call me; 888 270 9870 or email me; hmcminn@plannedassets.com.

September 25, 2009

 Are you keeping your Retirement Assets at 100% Risk? 

Last week I was talking with a client who is quite concerned about his investment portfolio.  He is fully invested in stock and since late 2008 and has taken a real hit in value with a loss of over $300,000: a little more than 30% of the investment value and not fully recovered from 1999/2000.

As for me, 2008 was my second wake up call; the first was 1999/2000.  This past year saw my investments again hit bottom, déjà vu all over again.  I, like my clients and so many other mature investors, was clinging to a 100% retirement plan risk.  However, this time I got the message. 

In the 80’s I took the advice of moving from individual stock shares to using a money manager by obtaining Mutual Funds.  I thought this change would give me diversity and little less risk.  In switching to mutuals, I knew I was giving up some possible gain, but hoped to decrease the impact of any loss.  However, this move while providing some diversity and asset potential had little bearing on my position of risk; I remained at 100% risk.  With individual stock and a small portfolio, it’s difficult to be diverse and you’re dependent on hitting the right stocks with your selections.  A position not unlike fishing with only one line, less opportunity to win and much greater opportunity to not win.  Moving to Mutual Funds provided change in both areas.  

However, the last 10 to 15 years have been very unrewarding to the hopeful.   At best, it has been a roller coaster ride with most mutual fund portfolios not reaching the average forecasted for mutuals over time.  Unless your timing was perfect, your return on investment is about 2.5% or less prior to July 2008.  This is less ROI than CDs and much less than any annuity.  In addition, portfolios remaining at 100% risk, took a beating after July 2008 and on average have now lost 30% or more, including loss of principal. 

Will the market rebound?  It always has and will do so again.  My personal opinion; we will see some increase to significant increase over the next few months, but what happens when the bills come due for all the money congress has expended and the higher taxes we know will happen? 

The questions I now often hear are ; how much can I afford to lose and should I get out now or hold on and wait?  The younger you are, the easier it is to stay in there, but if you’re nearing 50, 60 or older, a 10 year recovery period looks grim, especially when there are no guarantees.  As we look to or reach retirement, can we afford to continue with Wall Street’s rocky ride?  Ups, downs, recessions and corrections are predictable and part of the investment game.  But will our retirement plans survive and can we continue to bet the farm?  Can we count on having good timing and being smart enough to pull out and go to safer options when we near or reach retirement  or will we be in the same position many now find themselves in today?

A few are now very satisfied that they chose the road less traveled, bought the big life insurance policy or put most of their money in annuities and now are reaping the reward of slow but positive tax deferred growth.  Positive income growth, recent development in annuities and low stock market value has opened the way to move to more aggressive annuities and take advantage of possible short term significant mark growth periods, with a guarantee of no loss of principal or gain after it’s credited. 

Keeping some money at risk may be a good idea, but it should not be to the determinant of basic retirement planning!  Good planning means diversification, diversification of risk as well as in assests. 

Most of us will retire; early or late, willing or unwilling and while retirement planning is not time or age specific, retirement is! 

Are you sure of your Retirement Safety Net????

If not, email me: hmcminn@plannedassets.com or call me: 888.270.9870.

Anyone that reads Money magazine and read last October’s saw this headline.  The headline was referring to the use of Roth IRAs.  January 1, 2010 we have a change to Roth IRA law, after that date income restrictions on conversions ends. Those with adjusted gross incomes $100,000 and higher will be able to convert standard IRAs, 401K and other to Roth IRAs.

 For those in Retirement/Financial Planning this is the next big thing.  For you my readers, utilization of a Roth IRA in your retirement planning is an important concept to consider but even though a Roth IRA has a tremendous number of reasons to make the change it may not be the right decision for everyone, which brings up why this post.

 Converting qualified tax deferred investment to a Roth IRA will involve paying taxes, the larger the transaction the larger the tax bill.  If you wait until January 1, 2010 you have two years to pay the tax.  This is not another tax or extra cost to make the conversion, but payment of tax deferment you received when making the qualified investment.  What many holders of qualified plans do not know or understand is you can change standard IRA s to Roth IRAs over the course of years not just two and you can do it today, if your adjusted gross income is under $100,000.  Moving assests from a standard IRA to a Roth IRA in incremental amounts may allow you to remain in a selected tax bracket and keep the level of tax increase caused by the transfer lower and/or affordable.  As of January 1, 2010 all restrictions to making conversions based on income are removed. 

Regardless of what you have heard about converting qualified assets to a Roth IRA, converting to a Roth IRA will not be beneficial for everyone and a mistake may cost you thousands of dollars.  I often stress, before you make any change in your retirement plan you Must (not should) have a written Retirement Plan designed by a competent advisor.  Your retirement plan is your road map, designed just for you incorporating your goals and objectives short and long term.  A competent advisor can discuss the full extent of a Roth design and provide advice as to why the conversion does or does not make sense for you.

 Doug Warren in his book “The Roth IRA Boom for Advisors and Their Clients” makes the following point, “While there are numerous consideration, I believe that it becomes easier to avoid this possibility (in appropriate conversion) if the advisor pays close attention to these three primary factors:

1. Time Horizon
2. Tax Rates
3. Using Non-Qualified Funds to Pay the Conversion Tax.”

 Quickly breaking down Doug’s factors;

1. Time Horizons, any Roth IRA has two time horizons;

A. age 591/2; generally age at which there is no penalty for distribution of assets from plan.

B. 5 years; generally number of years before interest from principal may be distributed without tax.

2.   Tax Rates; current tax rate compared to projected tax rate.  What are your projected tax rates?

3.   Using Non-Qualified Funds…; conversion works best if required taxes are paid with non-qualified funds.

 Each factor requires discussion and understanding if a mistake is to not be made.  How complex is each factor?  Doug’s book is 172 pages concerning these factors and design of your retirement plan must be based on your answer to each question and your understanding how and why the Roth IRA would work for you.

 What most clients and many advisors do not understand is that having just a standard IRA or a standard Roth IRA may not be the correct answer, having both may.  Interest cannot be distributed prior to 5 years, but it’s not really 5 years, it’s possible to be just 4 years and a day.  Once set up, it is possible to remove principal after age 591/2 but before 5 years without paying income tax.  Another misunderstood factor is who should make the conversion?  There are situations were converting to a Roth IRA makes sense for a 80 year old and does not make sense for a 55 year old.

 Making a change to a Roth IRA can be a very complex decision and not one to be taken lightly.  A Roth IRA is generally not acceptable for short term consideration and not if you must use qualified funds to meet tax requirements.  When you consider investments for standard IRA’ or Roth IRA you often think about diversification, but designing use of a Roth in the retirement plan may also be considered Tax Diversification.

 [I will discuss Roth’s more from time to time]  Your comments and questions are requested!

Retirement, the dictionary defines it; “The act of retiring or condition of being retired”, retired as; “Withdrawn from business or public life” and retire as; “To withdraw …and live on one’s income, savings or pension”.

This well may have been the definition for our parents or grandparents but today it does not define the pre Boomer and Boomer generations.  Those born through out the period of 1940 through 1966 have consistently set new standards and forged new meaning to life and that has not changed as we enter the years after 50 and 60.  Unfortunately there are three sub classes that make up this population as they reach these supposed significant points in life:

1.      Those who will have to continue to work,

2.      Those who will live in leisure,

3.      Those who will see this time of life as just another chapter and who now have freedom to work in new careers that have more meaning to them.

In each case quality of life and freedom to do what we want, when we want will be based on how well we planned and how well we kept to the plan prior to reaching this point in our lives.

John has worked full-time since graduating college and Sue started work after her children were in high school is a case study.  Their children are out of college, with families, established and on their own.  John worked with a regional retail company from entry level to significant manage level.  The hours were long; weekends were lost as were most holidays through out the years.  Sue went back to school and worked as a nurse but retired early to take care of her mother now deceased.

As we have often seen, the company was bought out and soon afterwards John was dismissed as a cost cutting measure.  Although over 50, both John and Sue wanted to continue working but in a field where they felt they would make a difference and one they could do together.

Soon after they found the opportunity to take over and develop a non-profit business working with special needs children and individuals.  Pay; almost non existent, the work difficult and problems are many but each day is more exciting than the day before and they feel more alive than ever before.

How were they able to make this change without affecting their income or life style?  When John and Sue recognized how the economy was changing and you could not count on future employment with current employment, they looked for help.  After talking to several advisors, they found one who listened and with him developed an initial written Retirement Plan.  Once the plan was agreed on they changed some of their investments and obtained financial products to fill the gaps identified by the retirement plan.  By the end of 6 months after completing the retirement plan they had a basic safety net in place using a non-qualified indexed annuity, started changing their IRAs to Roth IRAs with another indexed annuity over a three year period with completion planned for 2010 and made a structural change in John’s 401k to a more diverse and secure position.  Additional changes were made in their insurance program, including health insurance, to coincide with security and long term requirements. 

The retirement plan was consistently review and updated the first year as the year progressed.  The second year other changes were made and the plan updated to reflect what was going on in the economy.  Last year John was let go; the 401k was change to a more secure position already identified in the retirement plan as part of the safety net.  This was the only change required at that time.

John and Sue are maintaining a position of risk with a limited number of mutual funds and their position with the indexed annuities.  Both feel some money needs to remain at managed risk, but they really like the fact their safety net in index annuities is using the roller coaster ride of the market for return without risk of loss to principal or past gain.

Currently John and Sue are well pleased with this new chapter in their life and are very well pleased at how their plan is working for them.  The only wish they have at present, is that they had started the process well before they did!

In the financial arena knowledge and timing are keys to moderate success sometimes but Perfect knowledge and Timing are the keys to riches.  But how many of us have even good knowledge and fair timing?  For most, mutual funds with dollar cost averaging has been the best bet, but for what?  Considering the last 12 years, unless you put your money in and took it out at the right time you made a little less than 3% per year, unless you were really lucky.

Since November of 08 we have seen two bull markets and one very deep bear market.  Late November 08 to early January 09 we had a bull market with the S&P increasing on average by 25%.  But Lord help you if you kept your money in after January 6, because the S&P was in free fall by 27% and then just as fast another bull market this time with a 37% increase.

With perfect knowledge and timing this was three opportunities to make a fortune, did you?  With perfect knowledge and/or timing you would have known when to buy long, sell short and then buy long.   Listening to stock brokers, they tell us to “have patience the market will come back and you know it has provided an average 15% return over time”.   But here we are again and I have still not got back to the price I paid for Mutual Funds in 1999.

The question is; where is the economy going?  We just spent $700 Trillion and some what to spend more, the stock and bond market appear to have gone as low as they are going to go and now is on the rebound, until a correction.  The pundits tell us the economy and markets will improve in the next few years, déjà vu all over again.  There is no quick recovery and someone is going to have to pay the bill not counting all the new programs our government is considering.  Even now 9 out of 10 Americans may be without a job or a decent paying job and we are already promised of increased cost for electricity and taxes.

Regardless of age, what is your retirement plan?  Successful retirement does not just happen but is planned.  Under 40, retirement is a long way off and you have other things to worry about, but a few dollars a month can make a lot of difference later on.  40 to 50, college for the kids takes center stage and there may be no extra dollars, but if there are now is the time to get active.  50 up, you’re there; it’s just around the corner even if you plan on waiting. 

So when do you want to retire, do you have a written retirement plan?  A written plan is a roadmap, it’s not static it evolves over time with review and update at least annually.  If it is not written, it’s not important and it’s not real.

Just as with any building, the foundation is the most important part of a successful plan and you should start building the foundation as soon as possible the younger the better.  If you’re in your 20’s call it your financial plan, older it’s your retirement plan, but regardless of name it provides a coherent path to move through life and makes it possible for you to know where you are going and reduces unprotected risk.

A good plan starts with the basics; health, life, disability, critical illness, long term care, accident insurance. A good plan will cause you to establish an emergency fund, 3, 4, 6 or 12 month income safely stashed away.  Some portion of all this must be considered and it all does not have to be completed at the same time.  But if you don’t what is the use of long term financial or retirement planning?  The biggest cause of Bankruptcies in the U.S. is health or disability problems.  If you’re not prepared it will terminate any and all planning, not to speak of investments.

Good planning does not just tell you what you need, but helps you obtain it cost and tax efficiently.  For instances; health insurance has taken a bad rap for years.  Health insurance is expensive and the average individual or family is paying too much, but the real problem is lack of knowledge.  With the right design and utilization of other important financial product, you need, you can reduce the need for high cost health insurance. 

Most individual are not Retirement Planners and designing their own retirement plan will be difficult at best.  Being shy of “Financial or Retirement Planners” may be a good thing.  The term Financial Planner has been cooped by Registered Reps selling stocks, bonds and mutual funds.  In a resent survey, 60% surveyed considered their investment knowledge as below average, more than 60% of this group have investment advisors with less than 30% having a formal written plan and those that do have not had it review or updated since it was first written.

Many insurance agents also consider themselves as planners and some really are as are some Registered Reps.  When choosing an advisor four things to look for;

1. Training: there are many certifications to look for such as CFP and ChFC but there are many others having no basis.
2. Experience: it takes several years to actually put in practice what might have been learned.  Being new is not the problem, not having back up or a back office of help is.
3. Listening ability: this is the one key that is easy to determine, does the prospective advisor really listen?
4. Needs-Based Analysis: Before any recommendations has the prospective advisor completed a basic needs analysis in written form?  If not, why not?  This is critical and if it is not being done you might be better off going else where.

Since the 1990’s retirement planning, retiring and being retired has become more difficult.  In many cases return of principal has become as important as return on principal. (Will Rogers)  What all of us want to know, will I out live my assets?  How do I build a safety net to make sure I have enough no matter how long I live!

The answer is not any one product Annuities, Mutual Funds, CDs and so on.  The answer is and will be based on your goal and objectives hopefully designed into a written retirement plan that makes sense.  A plan, road map, the advisor can explain and you can understand.  A written plan in your hand you can take to others if the need arises for review and update.  Without constant review and update based on the economy and your situation even the best written plan will fail.

 Your imput, comments and questions are welcomed

The Retirement Gap

 “Tough times in the U.S. to be retired or getting ready to retire”

John Meyer, Senior Vice President New York Life Insurance Co. recently wrote for Insurance News Net Magazine (May 2009) “Bridge the Retirement Gap”.

Mr. Meyer writes; “These are very tough times in the U.S. to be retired or getting ready to retire.”  The stock market lost 56% of value in 6 months by March 2009.  With most retirement accounts dropping 40% or more in value, today’s retirees’ and those facing retirement may not have or be aware of viable options.

Formerly, retirees could reduce spending and hope for a speedy economic recovery.  But is this hope now realistic?  The $1 million portfolio of years past may now be valued at less than $600,000 and returning $18,000 per year or less.  With the chance of regaining the losses being fairly slim, as is significant return on investment increases.  In addition, we must consider out living reduced assets given statistical probabilities of better than a 50% chance of today’s healthy 65 year olds living well beyond age 92.

Mr. Meyer suggests the most effective option for optimizing and replacing lost income continues to be the immediate annuity.  A suggestion based on a 2007 study; “Investing Your Lump Sum in Retirement” prepared by two Wharton professors, demonstrating an income annuity can generate the same income as traditional portfolios while providing a safe haven to grow retirement income.  This same annuity can provide guaranteed monthly income regardless of market conditions an continue a lifetime. 

The most important first step of any investment or financial change is determining why and how.  Planned Assets, provides free consultation and review of your financial program, if you don’t have a financial plan we will build one for you at no cost. 

Hubert McMinn Jr.

Designed Benefits Associates is not an NASD Register Brokerage or associated with one.

July  2009

What is your Retirement Recovery Plan?

                            With out a plan/roadmap how do you expect to meet your retirement goals?

In a resent survey, 60% surveyed considered their investment knowledge as below average, more than 60% of this group have investment advisors with less than 30% having a formal, written financial plan and most that do have not had it review or kept up todate.

Without a plan/roadmap how can you expect to meet long term income and retirement goals?  As stated by Marie Rice, LIMRA’s Director of Retirement Research; “Clearly, there is a need to continue to educate consumers…”  Ms. Rice goes on to say that “By conducting needs-based analysis (first) to help their clients understand their options, financial professionals can show them how to choose the proper retirement income solutions…”

In plan English:

1. Regardless of age or means, you must have an up-to-date written financial plan!

2.   If your Financial/Investment Advisor has not completed a “needs –based analysis” should you be working with him or her?

The most important first step of any investment or financial change should be determining why and how it fits into your financial plan.  Designed Benefits provides free consultation and review of financial plans, if you don’t have a financial plan we will build one for you at no cost.  Then as necessary we will make recommendations to help you meet your long term goals and plans.

Hubert McMinn Jr.

Designed Benefits Associates is not an NASD Register Brokerage or associated with one.