Mac’s Blog

The problem lies with what our parents told us, what their parents told them and so on back to the depression era of 1929 & 30.  During this time period there were many reasons not to carry a mortgage if you could afford to pay it down or not to have one to start with and the number one reason was loans of the era were callable and were called.  As a result many lost their homes and it was more of a factor than what we have recently seen or experienced.  This callable factor is not a factor of today.  Today, we are seeing or have seen many lose their home but not for the same reason as in 29 & 30.  Many who have lost their homes or are currently losing their home should not have been provided the loan in the first place and the mortgage industry has no one to blame except them selves.

On the other hand, many are losing their homes just because they did pay the mortgage down using up all of readily available money.  These home owners are in the worst possible situation.  They have lost their job or had their income reduced and are now unable to continue making mortgage payments not to mention keeping food on the table or maintaining tax and upkeep of their home.  They have built up equity in their home by prepaying mortgage cost and home value inflation.  But now through no fault of their own, home values have decreased rapidly and due to their own situations home equity loans are not available. 

Maintaining a mortgage is similar to the argument for buying Term Life Insurance, other than the fact you get more bang for your buck in the short term in both cases.  If I buy term and invest the difference, consistently, I will be better off in the long run financially.  In both cases, which you choose is a matter of self discipline. 

Consider: average home value is $250,000 to $300,000, average mortgage balance is $150,000 to $225,000 and most of those with the ability to obtain a home without a mortgage or a very low one don’t.  Additionally, most of those having the ability to pay their home off more quickly do not.  Instead, most of these qualified buyers take the longest mortgage they can obtain and maintain a mortgage by continuing to siphon out as much equity as they can, why?  The answer goes back to self discipline. 

 Most who whish not to maintain a mortgage state the reason: “what if I lose my job, how will I be able to keep my home”.  It is always better to have money readily available than to be equity rich.  There are several points to be understood as to the plus side of this statement and a nagging question that has more smoke than fire.  However, remember my arguments are based on the assumption you have effective self discipline and at least a little knowledge concerning investment risk tolerance.

 If you have no self discipline in regard to money and absolutely no discipline or knowledge when it comes to investing, perhaps you are better suited to rent or buy Universal or Whole Life Insurance.

First the universal question; why pay more than the total cost of the home in interest over the 30 years of a 30 year loan.  Answer; Current home loans are at a low of and at times lower than 4.75% with an APR of 5.026%.  If you are in a 25% tax bracket your actual APR is 3.77% or given a 15% tax bracket actual APR is 4.272% except from mid 2008 through the first half of this year it has not been too difficult to obtain a net higher interest than these rates.  Even now you can obtain 20 & 30 year tax free bonds which at worse match up to your net interest payments and in better times your rate of net rate of return half again as high as the interest you are paying and you still have the cash.  Then consider effect of inflation on your loan and cost of your loan.  20/30 years ago home cost was lower in dollar cost than now.  Over time your relevant cost has actually reduced even though you are still paying the same amount of dollars.

If you lose your ability to earn, where will you turn to obtain money to pay your mortgage or to meet more pressing needs if all of your money is tied up in equity, other than to sell-if you can?  When unemployed how difficult is it to obtain an equity loan from a bank?  Is there any advantage to having a high equity house without money to meet other pressing needs, feed your family, maintain maintenance or pay tax?  Having money readily available allows you the ability to ride cash flow problems out while maintaining mortgage payments or taking care of more pressing need.  And just how difficult is it to adjust and seek other opportunites when worred about keeping your home.

By over paying or paying your mortgage off is there a significant advantage concerning the value of your home?  Regardless of the level of mortgage your home will increase or decrease with the market.  Using the worst case principal what if your home is in California or Chicago where values have dropped through the floor, would you be better off having the money readily available or tied up in home equity?

As a retirement specialist would I rather have my clients money tied up in equity of their home or in a secure investment earning a net 2 or 3% per year?  The operative words here are secure; this money, as is the money covering basic income and living needs, is not available for spending on just anything and is not money you can afford to lose or is put at any significant risk.

Secure inflation meeting growth investments are still available.  Investments providing tax deferred compounded growth until the money is actually taken out.  Additional investments are now available allowing for tax deferred growth and tax free distribution with the additional advantage of not increasing tax on United States Social Security Income Benefits.  These investments may be designed in multiple ways to meet a host of needs within guaranteed structures providing security the money will be there when required.

 Discussion is welcomed!

 Hubert McMinn

 Hubert McMinn may be contacted at www.hmcminn@plannedassets.com or by calling 888 270 9870.

Hubert McMinn is a retirement planning specialist working within Texas, USA and located in the Houston area.  For other retirement planning information contact him by email at hmcminn@plannedassets.com or visits www.plannedassets.com.

Often I have clients that do not understand just what they should be doing when they reach the magic age of 65 and have to sort out their options between their individual or group health insurance and Medicare.  Information is not provided by insurance companies or Medicare concerning this issue and when time for change comes about many unwittingly make mistakes which may be very damaging, especially if you have an ongoing issue.

Medicare part A; basically inpatient hospital coverage and free starting at age 65, “if you have worked for at least 10 years”.

Medicare part B; helps cover doctor visits and other outpatient treatment.  Monthly cost is $110.50* a month, up from $96.40, for new enrollees in 2010 and could be more for individual with income above $85,000 and $170,000 for married couples filing joint tax returns.

Alternatively, Medicare Advantage plans may cost $0 up while providing coverage covers similar to parts A, B & D.  Advantage plans may reduce the need for a supplement plan.

 Medicare part D; adds Medicare prescription coverage.

Should you sign up for Medicare Parts B and D when you have retiree coverage through a former employer?

1. Yes, because work place coverage may become secondary to Medicare for retirees at age 65.
2. Yes, if employed but employer has less than 20 employees, Medicare becomes the primary coverage at age 65.
3. No, if the employer has more than 20 employees.*  That policy remains primary and you do not need to enroll in part B until after coverage ends. Insure that employer is listed with insurance company as having 20 or more employees.

* It is not unusual to find employers making the mistake of not adding employees to their group health insurance.  This does cause problems for senior employees and the business owner.  If the business has more than 20 employees but they are not covered a senior employee can make a tragic mistake by not enrolling with Medicare.

For the employer; even though your employee is not on your health insurance he is still covered, but guess who is responsible for paying the bill.  In addition you could run into problems with the IRS if you are audited.

 If you maintain your own coverage, individual coverage ends or becomes secondary at age 65.

If still employed by employer with less than 20 employees you have 8 months to sign up with part B without penalty. Understand that moving to COBRA does not extend the option or the ability to sign up for part B.  If you miss the 8 month window you must wait until January and then coverage does not start until July.

Word of warning: in no case will COBRA protect your ability to sign up with Medicare.  Once you are no longer employed you have only 8 months, do not miss this

 From: WSJ December 30, 2009

 *Most Medicare beneficiaries will continue to pay the same $96.40 Part B Premium in 2010.  Beneficiaries who currently have the Social Security Administration (SSA) withhold their Part B premium and have incomes of $85,000 or less ($170,000 or less for joint filers) will not have an increase in premium for 201

 v      New Part B beneficiaries will pay $110.50

• Beneficiaries who do not currently have the Part B premium withheld from their Social Security benefit will pay $110.50.

v      Higher-income beneficiaries pay $110.50 plus an additional amount, based on the income-related monthly adjustment amount (IRMAA)

 Those of us who selected not to take Social Security prior to this increase or who selected not to have the SSA pay the part B premium are being penalized, without question!

For additional information go to:http://questions.medicare.gov/cgi-bin/medicare.cfg/php/enduser/std_adp.php?p_faqid=2262 or just enter Medicare premium increase rules (in search)

Good luck get prepared, as with taxes and Social Security there is no replacement for knowledge dealing with Medicare is not difficult and a little knowledge goes a long way.

Hubert W. McMinn Jr.

For questions or discussion please contact me by email at hmcminn@plannedassets.com

 Next year about 10,000 baby boomers will hit retirement age and Medicare per day.  Prior to anyone planning to retire there are many thing that should be considered and aspects of the future that must be known if there is any hope of having a successful retirement.  Following are a few I think warrants consideration:

1. Do you have a complete, written Estate Plan?  An estate plan is not just to pass on your estate tax efficiently.  A proper Estate Plan provides care for your property (assets) during your life time and cares for your person as well.  Then the Estate Plan provides the guidance to effectively pass on your assets to your heir’s tax efficiently.
2. Do you have a written Retirement Plan?  You are going to live a long time and your money must last through Health and Sickness.  If you are married you must make sure your retirement plan provides the asset development and protection for your spouse you desire.  The Retirement Plan must work with in the Estate Plan to effectively meet your goals and objectives.
3. You may live to be 100 or at least you have to plan to live to 100.  Current median age is 84 but statistics say that if in good health at 65, the average male will live to 85 and female to 87.  This of course is average and a high percentage will live into their 90’s and beyond.  The fastest growing sector of the population is those over 100.  You should plan on living as many years retired as you spent working or more. 
4. You have to know how much money you will need in retirement.  With inflation as low as 2.5 the cost of living would double in 29 years and 4.1%, the average for the last 50 years, cost doubles in 17.5 years.  Even at 3.4%, inflation over the last 5 years, cost of living takes a hit that may not be affordable if not planned for. Successful planning happens when you start by keeping the end in mind. 
5. You must know and have a source of income to meet your basic needs regardless of the economy.  Only then can you plan an investment package to meet inflation. 
6. At best you may withdraw only about 3.5 to 4% per year of your portfolio annually if you want your money to last and this is only if the economy remains stable.  By having a guaranteed source of income to start with to meet basic needs makes this planning somewhat easier.
7. The new form of annuities and guaranteed income riders may be the best protection for meeting your basic requirements.  But to beat inflation you will have to invest in equities or the equivalent of equities, such as indexed annuities which provide significant investment protection, precious metals, bonds or other investments that may keep pace with inflation.
8. What is your investment risk tolerance and what is the level of risk your portfolio is in?  I am constantly shocked when potential clients want to discuss their retirement picture without knowing or understanding the level of risk of their investments.  History shows equity investments will recover over time.  The question is what is the time factor and at what point in you retirement plan did you hit the low or loss point.  Understanding that equities will correct in the future does not pay current bills.
9. Certain kinds of protection have always been essential to personal and financial well being.  Retirement planning will require exposure to some risk, if you are prepared for problems you sleep better at night and live longer.
10. All effective planning is written and your planning will be more accurate and comprehensive if you work with an advisory team.  As with any team it is important to have quarterback capable of providing structure and direction.  No advisor can do it all or know it all.  Having one advisor able to provide direction and concepts outside his immediate area of competence is crucial to any effective plan.
11. Your planning team is based on need reference your financial situation.  Most generally it should include an Accountant, Attorney and Financial, Retirement or Estate Planner with the Financial, Retirement or Estate Planner providing general guidance.   Your Account or Attorney may be able to provide the general guidance, but taking this route may wind up short changing you in the long run.  Your Accountant and Attorney will always work for a fee but your planner may or may not.  As with your investment broker, most planners derive their income from products they provide.  If the Planner, Accountant, Attorney or other member are more concerned about you than there fees or commissions they will make or save you more than their cost.

 Hubert McMinn is a Retirement Specialist with experience of 29 years residing in the Houston area of the State of Texas, USA.  For additional information, questions or comment he may be reached by email at hmcminn@plannedassets.com  or visit  www.plannedassets.com.

Wall Street Journal 12.30.10 front page provided an article by Anne Tergesen concerning information all individual considering working past 65 and possibly maintaining current health insurance coverage rather than obtaining Part B of Medicare should have.  In case you do not know, you must apply for Part B of Medicare Coverage as opposed to part A which is automatic if you qualify.  You may apply 3 months before or 3 month after turning 65 and once you apply you’re covered the first of the following month.  A fact I did not know is Medicare is effective the 1^st of the month you turn 65, if you apply the month before.  Another fact I was unaware of is my Health Insurance changed when I became covered or qualified for coverage and only paid what Medicare part A & B did not pay.  Even more disturbing, if I did not apply my insurance did not cover me at all until I had effective coverage.  In my case I applied on my birthday the 14^th of December and then found out I had had no coverage as of the 1^st of December and would not until the 1^st of January.  Do not make this mistake, it can be expensive!

 I digress from interest in the article from Ms. Tergesen.  Ms. Tergesen points out, if you’re already collecting Social Security enrollment is automatic (part A) but if you are working beyond this age and staying with your employer’s plan your options become quite limited concerning part B.  The point is you cannot sign up for Medicare just anytime there are strict enrollment deadlines and if you miss them you will not have the coverage you think you have and you may have to pay a fine for life.

 Missing dead lines means you cannot sign up until the next open enrollment period, January and Medicare coverage does not become effective until the following July.  In addition to not obtaining effective coverage you also face a penalty of 10% additional cost’s for the rest of your life.  A real benefit of the article is a Medicare Enrollment Deadlines chart.

 Ms. Tergesen, explains based on the type coverage you have and number of employees covered by the health insurance provided, you may or may not be able to keep your current coverage even though it still may be available.  In a nut shell, the rules are these:

1. Initial enrollment period; A period spans seven months, three before the month of your birth and three month after.
2. Special enrollment period; within eight months after you stop working!  (Pay Attention)  This means after you stop working if you go on COBRA and wait until COBRA runs out 18 months to 3 years you have fail to comply with an enrollment rule and you will wait until January to enroll, you will wait until July for coverage to start and you will pay at least 10% penalty for the rest of your life.
3. General enrollment period; January to March 31 for those who have not enrolled at the proper time or those wanting to change their plan, such as enrolling in an Advantage Plan or changing from an Advantage Plan.
4. Annual election period; November 15 to December 31 if you did not enroll in a Medicare plan with drug coverage during your initial enrollment period.
5. Medicare Advantage open enrollment period; January to March 31^st for those who want to join, drop or change a Medicare Advantage plan.

If you do not comply with these rules and you have significant reason as to why you did not, you may apply for “equitable relief”, a legal protection that allows for immediate enrollment without penalty.  However, this process is not easy, is not cheap and is not quick.

The bottom line is you should enroll for Medicare Part B and perhaps part D (Pharmacy Benefit) when you continue to work and have coverage through a current or former employer;

1, because work place coverage becomes secondary to Medicare for retires at age 65.

2, if the employer has less than 20 employees.

3, you are currently covered by COBRA

4, you have personal health insurance.

You are not required to convert if your employer has more than 20 employees on the plan.  If this is the type plan you have, the policy remains primary and you do not need to convert.  The key here is 20 employees on the policy or a total of 20 with those included that could be insured but wavered out.

Cost of Part B, 2010 is $110.50 per month, which is an increase of $14.10 per month over premium of 2096.  This is a base premium and can and will be increased at incomes above $85,000 for individuals and $170,000 for married couples filing joint tax returns.

For additional information, questions or comments call 888 270 9870 or email hmcminn@plannedassets.com.  Additional and significant retirement information is available at www.plannedassets.retirerx.com

Huber McMinn Jr. (CLU/ChFC) is a Retirement and Estate Specialist in practice for over 29 years in New York City and now the Houston, TX area USA.

Two New Jersey hunters go hunting. After a while, one of the hunters clutches his throat and falls to the ground, his eyes roll back, and he’s lying there motionless. The other one picks up a cell phone, dials 911, and says, “I think my friend is dead! I don’t know what to do!” And the operator says, “Just relax. Calm down. The first thing to do is to make certain your friend is dead.” There’s a pause — then a gunshot. And the hunter gets back on the phone and says, “Okay. Now what?”

Certificates of Deposit (CD) are debt instruments issued through banks or credit unions.  Most CDs, but not all, are insured by the FDIC or NCUA which is their principal value for most CD holders.  Standard CDs normally earn interest at stated amount and terms at a stated frequency (monthly, quarterly or annually).  If the CD is issued by a bank and insured by the Federal Deposit Insurance Corporation (FDIC) or from a qualified credit union protected by National Credit Union Administration (NCUA) there is no credit risk as with money market certificates as long, as you stay within the deposit insurance guarantees.  Only bank accounts and Treasury bonds share the FDIC valuable feature of government protection.

As mentioned in this blog previously, CDs (Certificates of Deposit) do have a place in investment planning and development but should be limited to a temporary parking place for assets in transition or short term CDs for FDIC protection of assets marked for liquidity.

The principal value of CD investment is that most or under the protection of FDIC, but for this protection there is a price to pay which may be quite heavy with long term CD investment.  CD’s have traditionally provided lower increases in value, interest rates, than other investments except regular saving account.  At the end of 2009, banks offering standard CDs at higher rates offered 1 year CDs at an average interest rate of 1.614% and 5 year CDs at an average of 2.804%.  But this low interest rate is not the significant disadvantage or penalty of CDs used long term.

First and foremost penalty of using CDs as a long term investment are the tax consequents.  CDs are not tax efficient unless placed in a tax-deferred account.  Interest on CDs maintained in taxable accounts is taxed as ordinary income for federal income tax when received (added to the CD principal).  This means that once the interest is paid, regardless of where the CD is or if it is rolled, income tax is due.  Other tax may be added based on state of location.  This tax, of course, reduces the actual rate of return compared to assets invested with tax deferred investments or accounts, such as annuities.

A less obvious penalty is inflation risk!  While you are guaranteed to be paid back principle plus interest there is no guarantee that future value will be worth as much as present value.  Because of traditional low interest rates, high income tax rates for most investors and inflation risk most CDs return negative asset growth.

Currently, FDIC or NCUA provides protection for amounts up to $250,000 within a particular institution unless it is labeled correctly such as POD (Payable on Death) labeling.  Most institutions will help with correct labeling if asked or information is available from FDIC Insurance Electronic Deposit Insurance Estimator (EDIE).  Banks and Credit Unions do fail an over the last year there have been even a larger number of failures so it is critical to take these rules seriously.  Even if offered slightly higher rates it is not worth the risk of forgoing these valuable government guarantees.  If you have a large sum to invest and you desire to maintain it in CDs, you should investigate private CDARS services which automatically distributes your money (up to $50 Million) across a large number of instaurations.

Hubert W. McMinn Jr.

[Addition information and/or help is available from Hubert McMinn; please email hmcminn@plannedassets.com or additional planning information and help may be found at www.plannedassets.com]