Blog Archives - PFwise.com

How Much Health Care Cost Might Be If I Retire Earlier Than Age 65?

11/30/2018

Q. How much should I budget for health care cost if I plan to retire early?

A. Mike Kitces has a very detailed article at Financial Planning magazine that analyzes the health care cost for people who plan to retire before Medicare.

If you plan to retire early but are concerned about health insurance cost, you need to read it.

What Is GICS and Why Understanding It Is Important For Investment

11/29/2018

GICS stands for Global Industry Classification Standard, it was introduced by Standard & Poor in 1999.

The GICS is an accepted framework for investments because:

It is universal. This is a global classification system applicable in both developed and developing economies.
It is accurate. It reflects the current state of all industries.
It is flexible. With 4 increasingly specific divisions, it can identify very specialized subindustries.
It can change. MSCI and Standard & Poor's review the entire framework annually to ensure that it remains as accurate a reflection of the marketplace as possible. In addition, significant corporate events will trigger a review of an individual company's placement.

The GICS framework
The GICS structure comprises 11 sectors, 24 industry groups, 68 industries, and 157 subindustries. The 11 sectors are:

Communication services
Consumer discretionary
Consumer staples
Energy
Financials
Health care
Industrials
Information technology
Materials
Real estate
Utilities

GICS and the S&P 500
The S&P 500 aims to be representative of the industries in the US economy, and sector classification is 1 of the 8 primary criteria considered. Thus, both the accuracy of GICS sectors and the assignment of companies within those sectors contribute to the overall validity of the S&P 500.

The GICS enables Standard & Poor's to develop sector indexes and index products from a common global standard. All S&P indexes, not just the S&P 500, use the GICS structure, creating an entire family of sector-based indexes that offer a global, consistent set of benchmarks.

Transamerica Income Plus Living Benefits Has 10% Growth Rate

11/28/2018

Transamerica Income Plus is an optional living benefit that can be added to a Transamerica fixed index annuity for an additional fee to help its clients get the most out of their retirement income. This feature supports -

Gguaranteed 10% annual growth
Once clients are ready to take withdrawals, that income is guaranteed to be there for the rest of their lives

Historical Performance of 4% Withdrawal Rule

11/27/2018

Q. If I withdraw 4% each year, can my retirement asset last long enough?

A. The chart below illustrates a historical look at how much an investor could have withdrawn from savings without running out of money over a 28-year retirement, depending on the date of retirement.

As the chart shows, actual sustainable withdrawal rates could widely, from just under 10% if you retired in 1982, at the beginning of a roaring bull market, versus more than 4% if you retired in 1937, during the Great Depression.

Should I Change Life Insurance Beneficiary After a Divorce?

11/26/2018

Q. Should I change my life insurance beneficiary after a divorce?

A. In most states, designating the spouse, by name, as beneficiary entitles that spouse to the proceeds of the insured spouse's policy, even if they are divorced and even if the former spouse remarries. The divorce decree or property settlement agreement will not take precedent over the beneficiary designation on the policy itself. Some states, on the other hand, have assumed that if you are divorced then you intend to name someone other than an ex-spouse, and those states have passed statutes invalidating an ex-spouse as beneficiary on the policy.

If you want to continue to name an ex-spouse as a beneficiary (maybe to take care of child support obligations, or for other reasons), you may want to complete a revised beneficiary designation form, listing the ex-spouse as the beneficiary again. This would provide evidence to the state that there was intent to keep the ex-spouse as a beneficiary of the policy after the divorce was final.

What if you don't want an ex-spouse as beneficiary? Too often divorcing parties and divorce lawyers rely on the state divestiture statutes and skip the step of changing beneficiary designations. Once again, best practice here is to complete a new beneficiary designation form because you may be at risk if you just rely on these state laws.

Now with that being said, any plan or insurance policy that is connected to your employment and subject to ERISA may or may not automatically change beneficiaries upon divorce. ERISA pre-empts state law and will control in those situations. And recently the U.S. Court of Appeals held that a divorce decree would qualify as a Qualified Domestic Relations Order (QDRO) and that the life insurance death benefit should be paid to the decedent’s daughter as stated in the divorce decree, despite the fact she was not the designated beneficiary on the life insurance policy.

So, if you are divorced and have a 401(k) plan or an insurance policy issued through your employer, the courts could look to the divorce decree or separation agreement for guidance if they rule that it qualifies as a QDRO. The moral of this cautionary tale? Don’t rely on separation agreements, divorce decrees, court rulings or state statutes for your beneficiary planning.

How Does Inflation Play Into the 4% Retirement Withdrawal Rule?

11/25/2018

Q. How do I factor in inflation in the 4% retirement withdrawal rule?

A. See the chart below to see how you should factor in inflation in your retirement withdrawal rule -

Which State Has the Best 529 Plan?

11/24/2018

Q. Which 529 plan is the best?

A. Morningstar Names The Best 529 College Savings Plans For 2018 – Back in 2011, Morningstar launched its Analyst Ratings, which were intended to be a qualitative forward-looking assessment of investment managers (to use in addition to or in lieu of its backward-looking-performance-based Star Ratings), and over the years the Analyst Ratings have been expanded beyond just mutual funds to now include 529 College Savings Plans as well.

In Morningstar's latest evaluation of 62 different 529 plans (representing more than 95% of all 529 plan assets), Morningstar rates less than half of them (27) as achieving at least a Bronze or Silver rating, and only 4 earning the coveted Gold rating: the Utah my529 plan, Virginia529, the Illinois BrightStart plan, and Nevada’s Vanguard 529 plan.

Notably, all four gold-rated plans are direct-sold plans to consumers that don’t necessarily include any advisor compensation (which helps to bring down their fees and likely improved their ratings),

Is 10-year Viewed As Long Term In Investment?

11/23/2018

Q. Is 10-year viewed as long -term in investment?

A. We used to think 10-year is long enough in investment evaluations, however, a recent paper by Eugene Fama and Kenneth French in the Financial Analysts Journal shows that even over 10-year periods – stock market volatility is great enough that there’s still a material risk that a superior strategy or factor will underperform.

For instance, their analysis suggests that otherwise-long-term-outperforming value strategies still lag in 9% of randomly created 10-year investment horizons using historical data… implying that the underperformance of value over the past decade is still well within the range of normal statistical noise (and not necessarily a signal that value investing itself has lost its value).

Another example, given their even-higher volatility, there is a 24% that small-caps will underperform over a 10-year cycle (even when assuming their historical return premium is persisting), and a 16% chance that stocks will underperform Treasuries (even if their historical equity risk premium remains valid).

On the one hand, the important implication of the research is that even 10 years is not necessarily long enough to determine if a manager (or a factor) has lost its ability to outperform. On the other hand, when the researchers also find that even over 20 years, there’s an 8% chance that equities will underperform Treasuries despite the equity risk premium… the question arises as to how long do you need to evaluate an investment strategy and asset class' performances?

When Am I Required to Withdraw Money From 401K Account?

11/22/2018

Q. When am I required to withdraw money from my 401(k) account?

A. Money invested in 401(k) is subject to required minimum distributions (RMD). The general rule is that you must begin to take RMD by April in the year following when you turn age 70.5, and then take annual RMDs every subsequent year.

One exception is if you are still working for a company where you have 401(k). You may be able to delay taking RMDs on a 401(k) from a current employer until April after the year you retire. Any 401(k) from old jobs are not exempt, those RMDs must start at age 70.5.

If you also have traditional IRAs, there is no way to delay RMDs past age 70.5.

A Simple Withdrawal Strategy to Reduce Retirement Income Taxes

11/21/2018

Q. What's the best way to withdraw from my various accounts to support retirement living?

A. Fidelity has a great article discussing this topic. Its main takeaways are:

How and when you choose to withdraw from various accounts in retirement can impact your taxes in different ways.
Consider a simple strategy to potentially pare taxes in retirement: Take an annual withdrawal from every account based on that account's percentage of overall savings will save you tax when compared with traditional withdrawal strategy.

15 Steps to Make the Best Medicare Coverage Choice - Part Four

11/20/2018

Now the final set of Medicare related questions you need to answer in order to make the best coverage choices:

13. Do you live in a rural area?
You may find your coverage beyond standard Medicare is limited. Some rural residents can't get Medicare Advantage programs in their area. For others, in-network providers are a long drive away. Go to medicare.gov/find-a-plan for available options.

14. Do you travel internationally?
Medicare does not usually pay for medical services outside of the U.S., but some Medicare Advantage, Medigap and Tricare plans cover emergeny treatment abroad. Consider buying a short term travel insurance policy before each overseas trip.

15. Do you have a second home?
If you split your year between states, check carefully what a prospective Medicare Advantage plan covers. Some wil charge more for out-of-network care or not cover that care at all. This isn't an issue with original Medicare, which covers services from any authorized provider, independent of location. Also note, Medicaid may not cover some out-of-state health costs, either.

15 Steps to Make the Best Medicare Coverage Choice - Part Three

11/19/2018

This is continuation of 15 Medicare choice questions -

10. Have you planned for monthly premiums?
Most Medicare beneficiaries pay monthly premiums, separate from copays or deductibles charged at time of care.

Original Medicare
If you only sign up for Part A, you will probably pay no premium. For most participants, the Part B monthly premium is $134, based on 2018 rates. If you add a Part D prescription drug plan, premiums average about an additional $41 a month. If you buy a Medigap policy, the premiums range from under $100 for a high-deductible plan to several hundred dollars a month for comprehensive coverage.

Medicare Advantage
You will pay the $134 monthly Part B premium, plus an additional premium that average $30 but varies depending on the services covered.

11. Are you eligible for Medicaid?
You should still sign up for Medicare as soon as you are eligible. Medicaid will pay some or all out of pocket expenses, depending on your income. Call your State Health Insurance Assistance Program, information is at shiptacenter.org.

12. Do you need financial help?
There are 4 Medicare Savings programs that help people with low incomes. You may also qualify for extra help with Part D costs. Contact your local SHIP office or call the Medicare hotline at 800-633-4227

Keep reading the last set of questions you need to answer in order to choose the best Medicare coverage.

15 Steps to Make the Best Medicare Coverage Choice - Part Two

11/18/2018

In last blogpost, we shared the first 4 questions you need to answer in order to make the best medicare coverage decision. Now the next 5 questions.

5. Do you have health insurance through your or your spouse's job?
If your group health coverage is through a company with 20 or more employees, you can delay signing up for Medicare without penalty, provided you sign up within 8 months after that employment or coverage ends. If you get insurance through a smaller company, you will probably need to sign up for Part A and B as soon as you are eligible.

6. Do you get your insurance through the Affordable Care Act (ACA)?
Switch to Medicare when first eligible or face lifetime late enrollment penalties of 10% a year. You might be tempted to stick with an ACA plan if tax credits make it seem cheaper than the Medicare Part B premium, but once you are 65, you are no longer eligible for that tax credit.

7. Are you covered by COBRA?
COBRA coverage you buy after you leave a job does not count as "creditable coverage" under Medicare rules. Once your employment or employee coverage ends, you have 8 months to sign up for Medicare or risk penalties.

8. Do you have retiree health insurance?
You have to sign up for Medicare Part B when you are eligible or face a penalty.

Keep reading for the next set of Medicare choice questions.

15 Steps to Make the Best Medicare Coverage Choice - Part One

11/17/2018

How to make the best Medicare coverage choices during open enrollment - Oct 15 to Dec 7? By answering the following 15 simple questions!

1. Do you want to keep your doctors?
Some doctors take original Medicare but don't participate in Medicare Advantage plans, which operate like an HMO or PPO. Some doctors do the opposite. ask your doctors exactly what coverage they accept before making any changes.

2. Do you have pre-existing conditions?
Medicare covers you regardless, however, be careful if you want a supplemental Medicare plan (aka Medigap). If you have a condition, it can turn you down, charge you extra, or make you wait before the policy starts if you seek a policy six months or more after you enrolled in Part B.

3. Are you taking medications regularly?
Each Part D prescription plan differs over which drugs it covers and how they are covered. You can compare plans at medicare.gov/find-a-plan

4. Would you change pharmacies to save money?
Many Medicare Part D plans offer lower cost sharing on drugs if you go to the plan's preferred pharmacies or get your drugs delivered by mail.

Keep reading medicare checklist questions.

How to Find the Best HSA Provider If You Already Had One Before?

11/16/2018

In our last blogpost, we discuss how to find the best HSA provider. But what if you already have a HSA account from your previous employer?

You have two options:

1. You can keep both accounts
2. You can close the one you had before and move the funds to current work-related HSA

You should not opt out of the current work-related HSA account because you need it to receive employer HSA contributions.

What if you want to keep the old HSA account? You should opt to do a trustee-to-trustee transfer once or twice a year by moving funds out of current work-related HSA account to your old HSA account, just be careful of fees associated with the move.

How to Find the Best HSA Provider?

11/15/2018

Q. How to find the best HSA provider?

A. HSA has triple tax advantages, however, tracking down the right one may involve some hard work, we will help you go through the decision process below.

1. Decide HSA Eligibiity
To qualify for use with an HSA, the IRS says a plan must have a minimum annual deductible of $1,350 for individuals or $2,700 for families and a maximum annual deductible of $6,650 for individuals and $13,300 for families.

You cannot have any other health insurance coverage, be enrolled in Medicare or be covered by another plan, say through the spouse's plan. Also, you cannot be claimed as a dependent on someone else's tax return.

2. Determine Your Use of HSA
There are hundreds of financial institutions that offer HSAs, but not all are created equal. How you will use HSA will determine where you open an HSA.

If you plan to use it to pay current medical costs, fees should be the main concern. Features such as a debit card and easy online bill pay will be important.

If you plan to use HSA as an investment vehicle to pay for medical expenses in retirement, the focus will be the plan's investment menu, the management and fund fees.

3. Pick the Best HSA
An analysis by Morningstar from 2017 of the 10 largest HSA plan providers found that Alliant Credit Union, SelectAccount (now called Further), and HSA Authority were the best options for people using HA for current spending.

If you want to invest HSA savings, Morningstar recommended HealthEquity, Optum Bank, and HSA Authority.

What if you already have a HSA account elsewhere? We will discuss your options in next blogpost.

How Your Income Will Impact Your Medicare Premium Costs

11/14/2018

Q. I was told medicare premium costs vary with income, how exactly will that happen?

A. Yes, Your Medicare premiums are subject to a surcharge known as an Income Related Monthly Adjustment Amount, or IRMAA. The chart below shows you how your medicare premiums will vary with your incomes.

4 Year End Smart Tax Moves

11/13/2018

Fidelity.com has an article that discusses 4 smart year end tax moves, it's good to check your actual situation and see what actions you should take now in order to minimize your tax -

1. Bunch deductions
2. Consider a Roth conversion
3. Reconsider 529
4. Remember the fundamentals

AIG Foreign National Guidelines

11/12/2018

Q. I am a Chinese living in mainland China, can I buy life insurance in U.S.?

A. Based on our experience, AIG （友邦保险） is the most lenient among life insurance companies towards foreign nationals. If you meet the following requirements from AIG, yes, you can apply for life insurance in the U.S.!

How to Supersize Your HSA Contribution?

11/11/2018

Q. Is it possible to contribute more than $6,900 per year to my family HSA account?

A. If your situation meets certain criteria, it is possible to contribute more than $6,900 per year to your HSA account.

For details, please read this article - Tips and Tricks for Supersizing HSA Contributions

What Are Social Security Benefits Earnings Tests?

11/10/2018

Q. What are social security benefits earnings tests?

A. There are two social security benefits earnings tests for early claimers who are still working.

Annual Earnings Test
The Social Security Administration always applies the annual earnings test first. Based on the test, the agency temporarily withholds $1 of a worker's benefits for every $2 earned over $17,040 in 2018. In a year the worker hits full retirement age, the test is more generous - the worker forfeits $1 in benefits for every $2 in 2018 earnings above $45,360.

In the month a worker hits full retirement age, the earnings test goes away! The worker can earn whatever he or she could, and the monthly benefit amount will be adjusted upward to take into account all the benefits forfeited in the past.

Monthly Earnings Test
If you are tripped up by the annual test, you still have a chance to get full benefit, if you pass the monthly earnings test. The agency will apply a monthly earnings test and set your payments according to whichever test is better for you.

This works best for people who retire in the middle of year not to be penalized. The monthly test can be used for only one year - usually the first year of retirement. And it comes to play generally for midyear retirees who have already earned more than the annual limit. Those who pass the monthly earnings test can receive 100% of their benefits for any whole month the agency considers them retired, regardless of total annual earnings.

Now your should know why it's better to claim social security benefits until you are at full retirement age!

The ABCD of Medicare

11/9/2018

If you’re age 65 or older (or disabled), you’re likely eligible for Medicare, the federal insurance program. There are two basic parts of Medicare, Part A and Part B, but there are a couple add-ons as well: Parts C and D.

Here are some of Medicare’s basic rules and regulations regarding coverage:

Medicare Part A:
This provides hospitalization coverage. If you’ve paid into the Social Security pool for at least 10 years, you’ll pay no premiums. There’s no spending cap, although coverage is limited to 90 to 150 days per benefit period. There’s a deductible of $1,340 and the copay is 20% of the service cost. Most people age 65 or older are eligible for Part A if they have worked and paid Medicare taxes long enough. You should sign up for Medicare Part A three months prior to your 65th birthday, whether or not you want to begin receiving retirement benefits. For more on Medicare enrollment, visit the Medicare Benefits page on the Social Security Administration website.

Medicare Part B:
Part B provides coverage for doctor visits and other outpatient costs such as medical equipment and physical therapy. It also covers some preventive costs such as diabetes testing, glaucoma screening, and colon and prostate cancer screening. Part B comes with a monthly premium that costs between $134 to $428 depending on your income, and has a deductible of $183 a year. Copay is usually 20% of service costs. This premium is deducted directly from any Social Security payments you receive.

There are gaps in Part A and Part B insurance. It doesn’t cover prolonged hospitalization or long-term care. It also doesn’t cover prescription drug costs, dental care and dentures, or hearing and vision. For those, you’ll need to purchase supplemental insurance.

Medicare Part C:
Also known as Medicare Advantage, Part C is the name for supplemental private plans operated through Medicare. These plans help cover some of the gaps between Medicare Part A and Part B. In addition to Part C, some private insurance companies offer supplemental policies (so-called "Medigap" policies) to help pay some of the healthcare costs medicare doesn’t cover, such as copayments, coinsurance, and deductibles. Before making a choice, review advantages drawbacks various plans. for more information, For more information, the Medicare.gov website offers detailed explanation of Medigap and Medicare Part C plans. (Note: some retirees may receive healthcare benefits from a previous employer. If your employer offers retiree benefits, see what kind of supplemental insurance it offers.)

Medicare Part D:
The Part D section is for prescription drug coverage. These policies are sold by private insurers. Plans differ, but most purchasers pay a monthly premium for Part D coverage. They may or may not have a small annual deductible. Most plans require an additional fee the enrollee pays for each prescription. This might be assessed as a copayment—a flat fee for each prescription, or coinsurance, or as a percentage of the cost of the drugs
.

Does Fidelity Support Testing Trading Strategies?

11/8/2018

Q. Does Fidelity support trading strategy testing?

A. Yes, Fidelity has Wealth Lab Pro that supports trading strategy testings.

See the Fidelity article here for more details.

The Power of Living Benefits of a Life Insurance Policy

11/7/2018

Below is a new case study video from North American that tells the story of one man’s brush with death, and how living benefits helped him get through it.

16 Best Conferences For Financial Advisors In 2019

11/6/2018

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