Health Care Reform — YIKES!

Health Care Reform has REALLY become a ‘hot potato’ nobody can afford to ignore.  Today’s workforce and retirees are finding it increasingly difficult to stay insured.   

** Fact: in 2008 national health expenditures increased nearly 7% and employer health insurance premiums increased by 5%. Both figures are more than double the rate of inflation. 
** Fact: the annual premium for single coverage averaged over $4,500.
** Fact: The average retirement age at which men and women retire in the U.S. is 62 (for men) and 61 (for women).  Average years spent in retirement = 20+.

So, what does it take to comfortably afford a $4,500 annual “single coverage” health care premium?  Many financial planning professionals and financial advisors suggest no more than 3%-5% annual expenditures from a retirement portfolio.  $4,500 is equal to 4.5% of a $100,000 portfolio!  That’s great if you are single, however, but a married couple will need twice as much; $200,000 set aside just to cover health care insurance premiums!

Additionally, this savings would only cover insurance premiums not deductibles, co-pays or other out-of-pocket expenses.  As it stands, the average after-tax social security check marginally covers average health care insurance premiums. 

Our recommendation:  Create a savings plan with a trusted financial advisor to ensure you stay insured!   You deserve to have a little GOLD during your Golden Years!

A chance to take control of the employer sponsored retirement account you left behind!

With Americans changing jobs every 2-4 years it presents an opportunity to revisit and consolidate retirement account assets i.e. 401K, 403B, Simple IRA and Defined Benefit plans. Without formal instruction given to the previous employer, retirement accounts are often left in the pre-existing status with no proactive advice from the employer or financial advisor.  This can make account maintenance and investing cumbersome.  Once a change of employment occurs the opportunity to Take It, Roll It or Leave It comes alive!  This is your chance to take full authority of retirement account assets.

Take It:
By taking it a request is made by account owners to the previous employer for full liquidation and distribution of assets held in the retirement account.

Formal documentation, called distribution paperwork, will require the owner’s consent (signature) to pay the appropriate federal and state income taxes. Additionally, if the assets are distributed prior to the age of 59 ½ a 10% pre-mature withdrawal penalty is assessed. The bottom line: taxes combined with penalties significantly reduce the net amount received!  Use this option as a last resort for accessing money.  If forced to use this option try to make the distribution during a year in which you will be in a lower tax bracket softening the blow.

Roll It:
For those who want to maintain the tax advantages of the existing retirement account, roll the old retirement plan assets into a Self-Directed IRA with the help of a qualified financial advisor or into a retirement plan sponsored by your new employer.

Formal documentation, called distribution paperwork is required to make this transaction possible. However, some plan administrators recently have allowed telephone and/or internet directed rollovers. If it matters, check to see if there is an option to roll assets “like-kind” or in cash. “Like-Kind” allows previously held investments to transfer without change into the new investment firm (“The Custodian”).  Usually, like-kind transfers are available when rolling into a Self-Directed IRA account. Double check with the outgoing and receiving custodians prior to this type of transaction to make sure it is possible. Cash rollovers are the most common, especially, for those rolling into a new retirement plan. For the most efficient rollover, first open the new Self-Directed IRA or Retirement Plan account and then request the rollover from the old plan. Rollovers to Self-Directed IRAs allow investors the widest range of investments and an opportunity to work with their financial advisor. 

Leave It:
Let the existing plan assets stay where they are and do nothing — if the old plan had everything you needed; including a wide array of investments, good service and acceptable performance. In some cases, smaller account balances (<$5,000) can be forced out of the plan.  Considering that employers change plan administrators and investment menus often – ”doing nothing” can become a real challenge if you need to track down the account sometime in the future.  Don’t expect the firm who previously handled the plan to still be there.

Find a knowledgeable investment advisor or financial advisor to help consolidate retirement accounts into one concise account. This will streamline investment activity, help reduce expenses, reduce account maintenance and ease the ability to monitor investment performance.

Remember to keep primary and contingent beneficiary designations (who the $ goes to if you pass away) updated no matter what you decide!

Find 401K to IRA Rollover Advisors

Only if the estate can pay the tax bill! 

Financial Planning is essential.  It’s never too late to correct your errors or put an estate plan in place, if you have neglected to do so up to this point. 

Early this week the judge presiding over Michael Jackson’s estate ruled in favor of the co-executors listed in Jackson’s 2002 will. Mr. John Branca, a renowned music attorney and Mr. John McClain, a music executive will now take control of the Jackson estate. Together, with a team of legal advisors, they will orchestrate strategies to assess opportunities embedded within Jackson’s assets including real property, music, video and publishing rights. Overall, the estate value could increase significantly as people want to remember Jackson’s legacy similar to Elvis Presely’s estate.  Could Neverland become the next Graceland?  Should Jackson have had better comprehensive financial planners?  or a single high-quality financial advisor?

Now, the co-executors are facing an estimated $80 million dollar federal estate tax bill due within nine months from the date of death. Unfortunately, most of Jackson’s estimated $236 million estate, as reported by The Associated Press March 2007, assets are relatively illiquid and difficult to value. Until a final valuation and liquidity solutions are in place the executors are expected to request a tax payment extension from the IRS.  In special cases, estate tax can be spread out for a period up to 14 years.

This scenario sets itself up to have assets with significant intrinsic value to be sold off at discount prices. Remember to visit with your favorite investment advisor to ensure your estate has liquidity strategies in place to comfortably settle your estate.

Search: Financial Advisors with a specialization in Estate Planning.

Michael Jackson’s Estate Issues:

Michael Jackson’s estate was not kept up to date.

Indeed, Michael Jackson’s estate plan included a will in conjunction with a family trust. Unfortunately, Jackson’s will is missing vital information, beneficiary designations!

This omission temporarily disqualifies the originally appointed administrator and executors from exercising their powers to privately settle the estate. As a result, the estate now must be exposed to the California probate system; it will determine who gets control over the estate and make many of the proceedings public record.

Currently, Mrs. Katherine Jackson, Michael Jackson’s mother, is the administrator of the estate.  She will likely be succeeded by two of Michael Jackson’s former business colleagues, an attorney and a recording label executive. Michael appointed them as his executors when he established the estate plan in 2002. These individuals are interested to gain immediate control over the estate for business purposes. You can see how the viewpoints of a mother mourning the loss of her son could differ from two businessmen awaiting to take control of her son’s estate.

Estates with multiple administrators and/or executors who have differing agendas can become very difficult to settle, expensive and emotionally taxing.

This is a great example of how important it is to keep an estate plan updated.  Additionally, be very careful and ask lots of questions before deciding who will handle your affairs.  Don’t let your estate become a “Thriller”. 

Who will have control after you are gone?

Find: Financial Advisors with Estate Planning expertise.

What Is Full Disclosure?

Bernard Madoff, yet another reason to know more about your financial advisor. 

Mr. Madoff’s previous experience as Chairman of the NASDAQ combined with posting unusually high investment returns helped his investment firm garner unwavering faith by many investors. In fact, it became “bragging rights” to say, “My money is with Madoff” a club-like experience. The Madoff portfolio was treated as a “sacred cow” by many investors who neglected to investigate the investment strategy because they were making money and were told he can be trusted.

As the world’s largest Ponzi scheme began to unravel it became evident his investors neglected to ask pertinent questions of Mr. Madoff and his firm. Several simple questions can be asked of your advisor and the firm he/she represents to prevent getting blindsided by a Madoff like event.

When signing the necessary paperwork to open your account, ask if your advisor if he/she has authority to make withdrawals from your account for anything other than fees. Make sure you see it in writing!

Ask the advisor who has custody of your money? Is the custodian the investment firm you are personally working with or a larger third party financial institution. A large third party institution helps create an arms length distance between your money and the advisory firm. Should anything seem weird with the advisory firm you can call the third party financial institution to inquire.

Transparency, Reporting and Liquidity are three other vital factors.

You need to be aware of what exactly is being held in your account, when statements are scheduled to be sent to you and how long does it take to sell-off the entire account in the event of an emergency.

An honest advisor should be happy to review all of this information with you upon your request. It is very easy to focus on other things and get distracted from the basics. Armed with answers to these questions you should be able to make an informed decision that will let you sleep at night.

We hope you find the best financial advisor or financial planning firm for your needs.