Medicare Jump

As a result of low inflation during the past year, it appears that there will not be a Cost of Living Adjustment (COLA) applied to 2015 Social Security Benefits for the 2016 year. This is only the 3rd time in the past 40 years this has occurred. Because there will be no 2016 COLA, it enacts an obscure provision in the Medicare laws which prevents Medicare premium increases in a year in which there is no COLA. However, Medicare is required to pay for a part of its funding through beneficiary premiums. This means that approximately 70% of Medicare beneficiaries will be “held harmless” and will not experience a premium increase. However, the other 30% made up of non-exempt beneficiaries and new enrollees will endure all of the premium increases.

For tax year 2014, those whose modified adjusted gross income (MAGI) is greater than $85,000 filing as individuals or $170,000 filing as couples do not fall in the “hold harmless category” and are subject to premium surcharges on a graduated scale from 42 percent to more than 200 percent (see below chart). Others not protected by the hold-harmless rule include those who do not have Medicare Part B premiums deducted from their Social Security benefits. This includes individuals who are delaying Social Security benefits even if they are enrolled in Part B — e.g., many who elect to delay or “file and suspend” their Social Security benefits. Those individual’s Medicare Part B premiums may increase regardless of family income.

Medicare Jump-table

These are huge premium increases, and we recognize that this will have a major impact on many of our client’s annual medical spending. The good news is that the Medicare Trustees anticipate this increase to be a one-year phenomenon with premiums returning to a normalized level in 2017. However, we anticipate that increases in Medicare premiums will rise faster than COLA increases provided by the Social Security Administration over the coming years. For this reason, we plan with our clients for medical costs rising faster than broad market inflation to ensure that they will have adequate spending power necessary to maintain a high level of medical care. If you have questions about your own Medicare coverage, let your advisor know. Medicare is an important part of every retirees financial plan.

Daniel Johnson III, CFP®
Financial Advisor

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A Real World Retirement Story

My father was ready for retirement. We had several discussions about picking the right time. Choosing when to retire is always a big decision. Conventional wisdom suggests the longer you wait, the better. You have more time to save and eliminate debt. Your Social Security benefit could be higher. On the other hand, how many people do you know who died before they could retire? There is something to be said for “getting out of the game” and enjoying your life.

We discussed a myriad of items. In the interest of brevity, let’s talk about two of them: finding the right insurance coverage and managing your time.

Health care is a big ticket item. No matter how well we take care of ourselves, our bodies will need more attention as we get older. Finding the right coverage is vital. Individuals over age 65 have Medicare Part A. Most people obtain supplemental insurance coverage since Part A does not pay for everything. Some plans are very expensive. Some plans provide minimal coverage at a reduced cost. Penalties can be incurred if one does not sign up for Medicare when required. And, if someone retires before age 65, coverage must be found to bridge the gap between the retirement date and Medicare eligibility.

I was overwhelmed. I arranged for my parents to meet with an insurance agent who specializes in Medicare plans.

Thanks to the draft, my dad spent a few years in the Army. His service gave him a permanent distaste for peeling potatoes. More importantly, it provided him with access to health care benefits. His previous employer’s insurance plan was awful, so he used the VA coverage as a supplement for years. He said the prescription drug discounts are good.

The agent found appropriate policies for both of my parents. My father’s supplemental policy needs were reduced by the VA coverage, whereas my mother needed increased coverage. It helped to have someone with Medicare knowledge guide them through the process. I highly recommend seeking help instead of trying to research it on your own.

She could not help us with the other problem: occupying my dad’s time. He is not a “lounge around the house” kind of guy. He must stay busy. He made a plan for the first year of retirement. He wanted to remodel the kitchen – build cabinets, replace the countertop himself, install new flooring, et cetera. He planned to tackle some home improvement projects at my house (yeah!). He wanted to get a dog which would give him a buddy and an excuse to get outdoors. Then, in about a year, he hoped to get a part-time job at a nearby home improvement store. He would be perfect for the job, and the store employs a lot of older workers.

He knew he could not be happy unless he was busy doing something. When considering retirement, it is very important to think about how one will occupy time previously spent working. We all have fantasies about what we would do. When faced with the reality of filling those hours, though, it can be a daunting task.

In the end, my father did retire. I saw an immediate “lightness.” He smiles and laughs easily. Plagued with ulcers and wicked reflux most of his life, his gastro issues have greatly improved. Retirement definitely agrees with him.

Someday, you may have the same conversations with your parents. My advice is to get help from people who know more than you – financial advisors, insurance experts, estate planning attorneys – whenever you encounter unfamiliar issues.

The same advice applies if you are considering retirement. There is more to the issue than whether or not you will have enough money. My parents and I spent almost a year talking about it. Just as you took time to find the right career or the right house, care should be taken with retirement planning too.

Of course, Parsec is here to guide you. Retirement matters are too complex to tackle alone.

Cristy Freeman, AAMS®
Senior Operations Associate

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Paralysis from Analysis

This month, I celebrate my 500th year at Parsec.  OK – it is really 22 years, but sometimes it feels like 500 years.

During that time, I have been involved in a lot of highly technical projects.  With one project in particular, I was really stressed out about the details.  I analyzed every piece of data so much that I made little progress.  Bill Hansen, one of our Managing Partners, said I suffered from “paralysis from analysis.”  After some reflection, I realized he was right.  At some point, I had to let go and realize nothing would ever be perfect.

In my lengthy career here, I have seen the effect of “paralysis from analysis.”  Some investors may be reluctant to act based upon the endless stream of information available now.  One can flip on the TV at any hour and hear the opinions of investment commentators.  Peruse the Internet, and one can find a vast amount of data about the stock market and the economy.  With so much information and contradictory opinions, it is easy to sit on the sidelines and do nothing.

In some cases, inaction can be as devastating as making the wrong choice.  Consider this scenario.  On March 9, 2009, the S&P 500 hit bottom.  A lot of people panicked and sold all holdings, leaving the proceeds in cash.  Five years later, the index was up 205.84 percent or 22.6 percent annualized (total return).

At the bottom point, there were probably a few people on TV who claimed the end was near.  One could probably find endless charts and articles foretelling great doom to come.  If an investor was paralyzed by this data overload, sat on the sidelines, and did not invest during that five-year period, he or she could have missed an opportunity to recover from deep losses.

What should a person do?  For starters, it helps to leave emotion out of the decision as much as possible.  Then, develop an investment plan that will not lead to sleepless nights.  The real test will come when the market has wild swings – either up or down.  One must commit to the plan and not deviate based upon the mood of the moment.  It is fine to alter the plan if goals or needs have changed, of course.

We at Parsec try to help our clients develop these plans and weather the inevitable market fluctuations.  Communication is a key factor in success.  We encourage our clients to tell us their goals, their changing life situations, or anything that is relevant to staying on target.

So, let’s switch off the talk shows, put down the business magazine, and take a nice walk.  Let’s try to enjoy life instead of obsess over every little detail.

Cristy Freeman, AAMS®
Senior Operations Associate

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How much is that Doggie in the Window?

According to a recent announcement from the American Pet Products Association, Americans spent $55.7 billion last year on their pets. That’s billion, not million. An article at Time.com (http://time.com/#23451/pets-dogs-cats-spending-americans/) cleverly noted that the figure is $10 billion more than Germany spends on its defense budget.

I admit I am one of these people. My little rescue dog hit the lottery when she came to live with me. She has seven dog beds, if you include her car seat (yes, car seat). She owns more jackets than I do, although they are all for function, not fashion. She has multiple, color-coordinated harnesses, collars, and leashes so that she need never feel ashamed about how she looks. When we go on vacation, she has as much luggage as I do. Yes, she is spoiled rotten.

I am not alone. Bill Geist of the “CBS Sunday Morning” program tells a hilarious story about his “free” rescue dog: http://www.cbsnews.com/news/even-cat-people-fall-in-puppy-love/.  Sometimes, the unexpected costs can really add up.

In our industry, I see a number of fees that some people pay for investments: high commission rates for certain products, either on the front or back end of the transaction; frequent, unnecessary trade costs from a practice called “churning;” and expensive investment counsel fees. Before long, that simple purchase of 100 shares of ABC Widget Works has cost a fortune in added fees.

When you are evaluating an investment advisor, consider how the person earns his or her money. Does he receive a commission for his or her investment recommendations? Is he or she directly affiliated with a broker? Does he or she charge an additional investment counsel fee? While he or she may promise a great gross return on investment, the net return after all of those fees may be no better than what you would find with a simple savings account.

At Parsec, we do not receive commissions for any of the investment products we recommend – no commission from the trade, no commission for recommending a certain security, nothing. In addition, when we recommend mutual funds, we look for funds that do not carry significant internal fees.

We are not beholden to a particular broker. We have four brokers who we like to recommend, based upon client needs.

We do charge an investment counsel fee that we think is reasonable to industry standards. When you sign a service agreement, you see upfront what your fee schedule will be. On a quarterly basis, you receive a reports package that includes information about net-of-fee investment performance, current holdings, et cetera. We are also here to help with planning – everything from college savings to retirement to estate. We like to think service goes beyond placing a trade. Our clients pay us to act as a partner in planning their future.

Everything in life – from owning a home to adopting a rescue dog – has the potential for unexpected costs. How you invest your money, though, should be a little more straightforward. With a little research in advance, you can evaluate whether or not fees charged for service are reasonable and affordable.

Now, if you will excuse me, I need to order organic food for my doggie. And maybe I will pick up a bottle of shampoo. She told me she is tired of smelling like a bowl of oatmeal.

Cristy Freeman, AAMS
Senior Operations Associate

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Where is My Money?

It seems there are always stories in the news about the latest scheme that has defrauded many people. Seeking a big return, people give their hard-earned dollars to criminals. The big return is never realized. All the money is lost.

With all the bad guys in our industry, I can understand how someone would look at Parsec with a skeptical eye. I am not going to discuss our performance returns or market strategies in this post. I want to discuss something a little more basic that everyone should consider when interviewing a potential investment advisor: “Where is my money?”

In some cases, the victim gives the criminal money to buy investments. In turn, the fraudsters provide the victim with a statement showing assets purchased with that money. It may contain the names of easily recognizable companies. Without an actual stock certificate behind that piece of paper, the statement is worthless.

At Parsec, we do not take custody of your assets. The assets are held at an independent broker, in your name. We recommend Charles Schwab, Fidelity, and T.D. Ameritrade, all brokers whose names you probably recognize. You will receive a quarterly statement from us that contains performance statistics and other information. You also receive a monthly statement from the independent broker so you know exactly what you own in each investment account.

Furthermore, we do not have the authority to move those assets to an unlike-registered account without your consent. You must sign a letter or form to authorize the movement of securities to unlike-registered accounts, which adds another layer of security.

When assets are held at a broker and registered to you, an independent source tells you what you own. There are no “phantom” assets. Also, giving someone the ability to move assets to accounts not registered in your name can be dangerous if in the wrong hands.

When you select an investment advisor, I hope you will ask this very basic question. You worked hard to accumulate what you have. Don’t let an unscrupulous person take it away from you.

Cristy Freeman, AAMS
Senior Operations Associate

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Time is Running Out!

When we were kids, it seemed to take FOREVER for Christmas to get here.  After Thanksgiving, you knew it was close but oh so far!  Nowadays, it seems as if December just flies by.  We have so much to do!  How do we get it all done?

In the midst of the holiday chaos, let’s take a moment to handle charitable donations.  Your favorite non-profit organization appreciates anything you can do for them. 

You still have time to make a donation.  You must make cash donations by December 31 to count them toward the 2013 tax year. 

If you want to donate securities, call us the second you read this blog post.  Time is running out to ensure processing of these types of donations by December 31.

Also, if you have old clothes, furniture, or other items to donate, you should deliver the items to the charity by December 31.  (Some charities even offer pick-up service.)  Make a detailed list of the items you donated.  If something is particularly valuable, it would be a good idea to snap a picture.  You would have proof, if you are ever audited, of the item’s condition.

It is possible to get everything done on time.  As I mentioned, charities need our support.  Just take a deep breath, make a list, and do one thing at a time.  If you planned to make a donation, just add them to the “to do” list.

We hope everyone has a safe holiday season and a healthy, happy new year.

Cristy Freeman, AAMS
Senior Operations Associate

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Safety First

E-mail account hacking seems to be on the rise, based upon recent activity.  We rely so heavily on e-mail that it is easy to forget basic security precautions we should all take.  Here are four simple suggestions:

  1.  Never provide confidential information via e-mail.  E-mail accounts are vulnerable to hacking.  For example, you could have an e-mail in your Inbox that references an account number.
  2. Use strong passwords.  What is a strong password?  A strong password includes capital letters, numbers, and special characters.  I like to use lengthy phrases that include all of those items.
  3. Do not click on embedded links in unsolicited e-mails.  Hackers are clever people.  They can easily replicate the logo for your bank, making you think the e-mail is legitimate.  Pick up the phone and call the institution if you are uncertain.
  4. Use security software.  Install a personal firewall, anti-virus, and anti-spam software.  And do not forget to run regular scans.

Be safe out there!

Cristy Freeman, AAMS
Senior Operations Associate

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Leaking Hot Water Heaters

Our Asheville office was built in 1892.  I cannot speak for any upgrades made between 1892 and the mid-1980s, but I would like to think there were a few.  When Parsec moved into this building around 1986, almost the entire building had been remodeled.  It was brought up to what was then considered modern standards.

Over the years, we have experienced lots of challenges with our building.  For example, it is always fun to run network cable.  If you have ever renovated an old house, you can appreciate the architecture – and frustration – of buildings that were never designed for the age of technology.

Our latest adventure involves remodeling the top and main floor restrooms.  It was supposed to be a simple job of replacing fixtures, painting, et cetera.  Unfortunately, we discovered that the hot water heaters (inexplicably located in the ceiling) were leaking and needed replacement.  The contractor then uncovered significant water damage in one of the bathrooms, resulting in an almost complete gut of that room.

The project is now over budget due to these unexpected expenses.  As with everything else in life, the best laid plans are often derailed by things you cannot foresee.  The same principle applies to your financial life.

While we can design a careful plan for any financial goal, things happen.  You could encounter a bear market.  Or the stork can bring an unexpected baby late in life.  Or your college graduate child could move home to live with you, thwarting your plans to downsize your home.

The key to success is to be adaptable.  Realize that you will most likely need to periodically adjust your financial plan.  It will not be static.

We are here to help.  We greatly appreciate it when you tell us of life’s unexpected events.  We are a team, working together to help you meet as many of your financial goals as you can.  We encourage you to call us so we can stay on track.

Cristy Freeman, AAMS
Senior Operations Associate

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