Author: Dave Carboni

Avoiding Higher Medicare Part B and Part D Premiums

    In 2022, the standard monthly Premium for Medicare’s Part B is $170.10 per month per person. Higher Income Medicare recipients may have to pay higher premiums. “Higher Income” taxpayers for Medicare purposes refers to married couples with Modified Adjusted Gross Income (MAGI) exceeding $192,000, and single Medicare recipients with MAGIs over $91,000. For Medicare purposes, your MAGI is your Adjusted Gross income (AGI) with tax-exempt interest income added back in. 

     If your MAGI exceeds the thresholds outlined in the chart below, you’ll pay higher Part B and Part D premiums. For example, if you’re a married couple filing jointly and your MAGI exceeds $182,000 by one dollar, your Part B premium will jump from $170.10 per month to $238.10 a month per person, or an increase of $60 per month per person. As you may notice, for a Single Filer, if your MAGI exceeds $91,000 by one dollar, the monthly premium also rises to $238.10. Furthermore, if you have a Part D Prescription Drug Plan, Medicare will add $12.40 per month to your Part D monthly Plan Premium (PP).

     As you may also notice in the Table below, as your MAGI rises and exceeds various thresholds, your Part B and Part D premiums continue to rise accordingly.

                           ——–Annual Income (MAGI)——

 Prem./month (Part B)               Single                             Married Filing Jointly         Prem./Mo. (Part D)




Your Plan Premium 




PP + $12.40




PP + $32.10




PP + $51.70




PP + $71.30




PP + 77.90

     Most retirees assume that their incomes will be well below these thresholds, so the potentially higher Medicare premiums are not a concern. However, when the Social Security Administration (SSA), which administers Medicare, examines whether a person’s MAGI exceeds the various thresholds, they always look two years back. So, for someone just retired, the SSA is using income two years back to identify whether the higher premium for Medicare Parts A and D apply. For many, earner years immediately preceding retirement are their highest earning years, with possibly unpaid vacation, unused sick days and other incomes added in. Thus, many who are not “high income earners” in retirement may have to pay higher Part B and Part D Medicare premiums as if they were.

     The good news is that there is a way to remedy the situation, but the retiree must proactively file Form SSA-44 with the SSA to indicate that they’ve retired. Upon receiving it, the SSA will reduce the retiree’s Medicare premiums taking their current income into account. Additional situations that can qualify a Medicare Beneficiary to pay only the standard premiums, include:

  • You married, divorced, or became widowed.
  • You or your spouse lost income-producing property because of a disaster or other event beyond your control.
  • You or your spouse experienced a scheduled cessation, termination, or reorganization of an employer’s pension plan.
  • You or your spouse received a settlement from an employer or former employer because of the employer’s closure, bankruptcy, or reorganization.

     However, if you simply had a financial windfall, (e.g., you sold a piece of investment property at a great profit and your MAGI rose accordingly) this would be not considered one of the “life changing events” noted above. Thus, you would likely pay higher Medicare Part B and D Premiums as your substantially higher annual MAGI in the year of the sale could thrust your income to higher Part B and Part D premium territory. None the less, if your MAGI fell the next year below the requisite income thresholds, you would again be eligible for “normal” Part B and Part D Medicare premiums.

     These rules remind us that “retirement planning” is something that continues into retirement and reminds us how important it is to keep track of current rules and how they may affect our income, and thereby, our standard of living in retirement.


Filed under: Musings-Articles

What Should Prompt an Estate Plan Review?

     How long has it been since you created your estate plan? Could it be time to update your estate planning documents? New tax laws, a change in your health or that of a family member; the birth of a grandchild; a change in yours or a beneficiary’s marital status; a move to another state; or a falling out with your executor or family member, are among the plethora of events that could warrant an estate plan review.

     We’ll consider here why these changes (and others) are a reminder to keep your estate plans up to date. We’ll also consider how to go about making changes to your estate planning documents.

     We often give little thought to naming beneficiaries to Retirement Plans (including, IRAs, 401ks, 403bs, among others). If we’re married, the default option is usually our spouse. However, for single people and widow(er)s the choice becomes more complicated. “Stretch IRAs” has been the key tool used via Retirement Plan transfers to preserve and growth wealth across generations. However, the provisions of the Secure Act (SA), which became law on December 19,2019, severely limited the use of Stretch IRAs. Prior to the passage of the SA, non-spouse beneficiaries could “stretch” the distribution of funds from Retirement Plans over their lifetimes. By using Government provided life-expectancy tables, a relatively young beneficiary could effectively preserve tax-deferred growth of the deceased person’s retirement plan for many decades, while only having to take nominal distributions.  However, for IRAs inherited from original owners who have passed away on or after January 1, 2020, the new law requires many beneficiaries to withdraw all assets from an inherited IRA or 401 (k) plan within 10 years following the death of the account holder. 

     Exceptions to this “10-year requirement” include the spouse of the original owner, minor children of the original owner (not grandchildren), disabled and chronically ill individuals as defined by the IRS, and someone less than 10 years younger than the original owner. The individuals who qualify for these exceptions are called Eligible Designated Beneficiaries (ECBs). By the way, the 10-year period for your minor children begin once the child reaches the age of majority. In general, if you are an ECB and therefore continue to be eligible to “stretch” your distributions, then do it to maximize tax deferral.

     If your beneficiary does not quality as an ECB, needs the money to live on immediately, and expects their tax status to remain the same, it’s generally advantageous to take the money over 10 years in relatively equal payments each of the ten years. This will smooth the tax impact of the distributions by avoiding bumping the beneficiary into a higher tax bracket. 

     If you are the owner or inheritor of an IRA or other qualified retirement plan, you should consider how the SECURE Act may impact your own retirement accounts along with your beneficiaries and reevaluate your estate planning, and gifting strategies.

     What if your beneficiaries’ circumstances have changed? Are some doing far better than others? How do you feel about unequal bequests based on need? If unequal bequests are something you’re considering, let beneficiaries know the reason for your decision. Otherwise, misunderstandings and bruised feelings can last decades beyond your demise.

     Has the marital status of your any of beneficiaries about to change? Perhaps you don’t want your bequests to become part of a divorce settlement, with half going to an ex-spouse you were never partial to at the start. Certain kinds of trusts can deal with situations like this. Speaking of relatives, do you have beneficiaries with special changes? Do you now have any beneficiaries with “special needs”? This may require that you set up a Special Needs Trust to allow them access to bequest from you without disqualifying them from Government assistance. Perhaps other beneficiaries have developed addiction problems. “Incentive trusts” could be a way to provide support for them a way that doesn’t undermine their recovery.

     Do you now own real estate in multiple states? Each state jealously guards its right to transfer property. So, without proper estate plan devices in place, your estate could face ancillary probate in another state (or states) with the attendant probate costs and fees involved. So, discuss how to adjust your plans with your Elder Law attorney if situation applies to you.

     Has your or your partner’s health deteriorated to a degree that long-term care may be on the horizon? If so, it’s a good idea to discuss this with your Elder Law Attorney. There may be opportunities to transfer assets or change assets’ ownership to shield them from long-term care expenses. In this dynamically changing area of the law your Elder Law Attorney guidance can be priceless.

     If your estate plan includes trusts, it may also require updating in light of tax law and regulatory changes. Even if your trusts continue to serve their original purposes, certain provisions of trusts may also need modifying to comply with changing legal and/or regulatory environments either at the state or federal level. 

     The takeaway from this discussion is that many things can prompt an estate plan update. Some are more apparent than others. Even if you think nothing has occurred in your life or that or your beneficiaries to warrant a review of your plan, it’s good practice to reach out to your Elder Law attorney to discuss issues you may have overlooked. You family and your beneficiaries will thank you for it.



Filed under: Musings-Articles

Medicare: Things to Know to Help You Plan for the Future

    Medicare, the government health care program for those 65 and over (and disabled persons who have been collecting Social Security for at least two years, and selected others), has features important to understand as you plan for your retirement health care needs. A recent study by Fidelity Investments indicated that a 65-year-old couple retiring in 2021 without employer provided health insurance would need approximately $300,000 ($157,000 for women and $143,000 for men) at retirement to pay for their health care costs during retirement. The Employee Benefit Research Institute’s research concluded that Fidelity’s figure is probably a little low. These studies exclude the cost of long-term care. Rather, they include premiums, deductibles and co-pays associated with Medicare, as well as the cost of insurance to “fill the gaps” Medicare coverage leaves. Therefore, today’s retirees must not only know how Medicare works, but must also know their options to supplement Medicare’s core benefits.

     Original Medicare has two parts, Part A and Part B. In recent years, Medicare has added a Part C, known as Medicare Advantage (formerly called Medicare + Choice), and a Prescription Drug Benefit Program (Part D). The rest of this article reviews each of these parts of Medicare.

     Part A, or “Hospital Insurance” generally covers room charges and services associated with an inpatient hospitalization, including stays in acute care hospitals, psychiatric hospitals, and limited coverage for care in skilled nursing facilities. Part A also covers hospice care and limited amounts of home health care. In 2022, the Part A deductible is $1,556 for each hospitalization up to 60 days. Hospital stays exceeding 60 have co-insurance charges may kick in. Likewise, skilled nursing facility coverage levies co-insurance charges for days beyond the first 20 up to 100 days (with 80 life-time reserve days available). Part A will not pay for private rooms, TV, a telephone or private duty nurses, but nevertheless provides good coverage for acute hospital care, including coverage for medical tests, blood work, and drugs administered in the Hospital. There’s no premium for Part A for most people, as payroll taxes levied during their working lives establish eligibility for Part A.

     Part B (or medical insurance) covers physician care whether received in the hospital, at the doctor’s office, or as an outpatient at a health care facility. Part B also pays for ambulance services, lab tests, physical therapy, and rehabilitations services as well as coverage for x-rays, medical services, and durable medical equipment. The 2022 annual deductible for Part B is $233. After meeting your deductible, Part B pays for 80% of the “Medicare allowable” charges. Services not covered by Part B, include: eyeglasses, routine podiatric care, hearing aids, dental care, homemaker services, care received outside the country, and custodial care. In 2022, the monthly Premium for Part B is $170.10 per month per person. Married couples with Adjusted Gross Income over $192,000, and single beneficiaries with AGI over $91,000, pay higher Part B premiums.

     The Part D prescription drug program (PDP) covers prescription drugs through Medicare authorized, private insurance plans that must meet minimum standards, and they’re available nationwide. Minimum coverage for a Part Plan in 2022, includes an annual deductible of $480. PDPs then cover 75% of the cost of prescriptions up to $4,130 (including premiums). Then you’ll only may a small co-pay or co-insurance on prescriptions exceeding. Many private Part D insurance plans exceed this minimum coverage.

     If you are collecting Social Security benefits and you’re under 65, upon reaching age 65 you will be automatically enrolled in Medicare Part A. Part B coverage is voluntary. However, unless you are covered under a group health plan (or have dependent coverage under your spouse’s group health plan), it’s important to enroll in Part B immediately. If you delay and want to sign up for coverage later, you must generally wait until the next annual enrollment period (between January and March of the following year), and your coverage will not begin until the following July. Furthermore, Medicare will charge you a permanently higher Part B premium for each month you were eligible to sign up but failed to. Likewise, Plan D Prescription drug plans charge a permanently higher premium for those who don’t sign up when they’re first eligible (and then want to enroll later).

     Part C (Medicare Advantage Plan) works differently. Original Medicare allows beneficiaries to choose any physician who accepts Medicare, and it’s available anywhere in the country. Under Part C, insurance companies contract with the federal government to offer Medicare benefits through their own insurance plans. These plans can include: managed care plans (e.g., HMOs), preferred provider plans (PPOs), private fee-for-service plans (PFFS), and others. Generally, Part C Plans provide beneficiaries with all Medicare-covered services, and most cover prescription drug coverage and other services. Part C plans may restrict which doctors or health care facilities their participants may use, while plan benefits and cost-sharing arrangements may differ significantly from Original Medicare.

     Part C is available only to those who are in Medicare Part A and have enrolled in Part B. Also, participants must generally live in the plan’s service area. You become eligible to join a Part C plan when you first become eligible for Medicare (generally, at age 65). After your initial enrollment in a Plan C plan, you may change plans once a year during an “annual election period.” If special situations arise, (e.g., you move out of the plan’s service area, or the plan leaves Medicare), you’re also allowed to switch plans during the year.

     If you join a Part C Medicare Advantage Plan, you are subject to the rights and restrictions of each plan. It’s important to understand that you have alternatives to joining a Medicare Advantage Plan to supplement Original Medicare’s coverage. These alternatives include Medicare Supplemental Insurance (aka, Medi-gap) plans designed to cover the co-pays and deductibles not covered by Medicare. Medicare Supplemental Plans do not provide prescription drug coverage. So, if you buy a Medi-gap Plan you must buy a Prescription Drug Plan discussed above to cover your prescription drugs. Comparing Medi-gap coverage (along with a PDP) with Medicare Advantage plans, will be the subject of another article.

Filed under: Musings-Articles, Uncategorized

Long-term Care Insurance: What is It? Do I Need It?

    Long-term care (LTC) expenses are among the greatest financial risks retirees face. No other risk has quite the same ability to threaten lifestyles. In this context, LTC refers the care provided to help a person who needs assistance with at least 2 out of 6 Activities of Daily Living (ADLs) for at least 90 days. ADLs include:

-Transferring from the Chair to the Bed
-The inability of the insured to perform these ADLs (as certified by a physician) triggers the payment of Long-Term Care Insurance (LTCI) benefits*

LTC can be:

Nursing Home care
Care provided in an Assisted Living Facility
Care provided in an Adult Day Care Facility
Home Health Care
Personal Care (at home)
Respite Care

   The likelihood of needing LTC is greater than most people realize. 50% of retirees will need LTC at some point in their lives. Currently, 9 million people receive LTC and 85% of those individuals live in the community, and 40% of them are under age 65. 75% of those receiving LTC need it for a year or more, with 30% needing it for more than 5 years. 

    2020 national data indicate that the annual cost of basic LTC provided in a nursing home exceeds $93,000 (semi-private room), with many facilities in metropolitan areas charging considerably more. LTC provided today in an Assisted Living Facility averages approximately $55,000 per year, with a significant number of facilities charging much more.** LTC provided at home costs less, unless provided “around the clock”.  It’s important to understand that neither Medicare nor Medicare Supplemental insurance plans (including Medicare Advantage Plans) cover long-term care expenses. Though each pays for a limited amount of rehabilitation care provided in a nursing home or at home, neither pays for LTC.

    Long-term care insurance (LTCI) transfers the risk of incurring significant (LTC) expenses from individuals to an insurance company. Though LTCI has been around for many decades, over the last 10 years policies have improved significantly and gained increasing public awareness. Nonetheless, only a small fraction of those who may one day need LTC have purchased a plan.

    LTCI policies’ key features are important to understand. First, plans are “medically underwritten.” This means one must be relatively healthy to be eligible to buy a LTCI policy.*** Second, plan premiums are “age-based,” that is, the older a person is when he/she buys a policy, the higher the premium. Once plan is purchased, premiums are expected to remain level. However, the insurance company can petition the state to allow them to raise premiums if they can demonstrate that “it’s necessary”. Therefore, when shopping for a plan uncover how often a company has raised premiums. It may be a sign that the company has underpriced its products and will raise premiums again.

    LTCI policies are sold in increments of daily benefit amounts (DBAs) which can range from $50-$500 per day for care in a facility, with home care coverage a percentage of the full DBA. Plans also have “elimination periods,” the period you first receive LTC that you must pay for yourself. For example, if your plan had a 90-day elimination period, you’d pay for the first 90 days of care you receive before plan benefits commence. Elimination periods range from 0 to 180 days. LTCI policies also have “payout periods”: the time period the plan pays benefits. These can range from as little as one year up to five years. “Life-time” paying benefit plans are no longer sold. Another important option is an inflation rider. This can add significantly to the cost of a plan but is a must as it allows your benefits to rise with inflation.

The price of LTCI plans vary considerably, depending on:

-Your Age at purchase
-the Daily Benefit Amount
-the elimination period 
-your payout period, and
-whether it has an inflation rider

    For example, a “typical” LTCI policy’s annual premium can run $900 if purchased at age 45; $2,500 if bought at age 55; $3,900 at age 65; and $7,900 at age 75, and so on. So, consider buying LTCI at a younger age at a lower price. This also avoids the possibility of later developing health problems rendering you uninsurable. Some argue that buying a plan at a younger age has you paying premiums for many more years, thereby making the plan more costly. None the less, it’s important to remember that 40% of people receiving LTC are under age 65, and group health insurance plans don’t pay for LTC.

LTCI experts suggest you seriously consider buying LTCI if a number of the following apply:

-you have financial assets (excluding your house) greater than $300,000
-can afford the premiums (now and in the future)
-want to be in control of the LTC you receive
-do not want to be a burden to your family
-want to leave an estate
-already are saving enough to be on track to afford to retire

    As a reminder, LTCI is designed to protect your lifestyle (and your partner’s) by transferring the risk of LTC expenses to an insurance company. Just as few homeowners are without homeowner’s insurance, most people should consider buying LTCI to manage the risk posed by LTC expenses. Check with an Elder law attorney to see if you’re a good candidate for LTCI.



*Even if the insured can technically perform these tasks, cognitive impairment requiring substantial supervision   can also trigger benefits.

**For example, the average annual cost of a semi-private room in a long-term care facility in Connecticut in 2020 exceeds $155,000, with costs for assisted living and home care much higher than elsewhere as well. 

***Group LTCI plans offered through an employer will usually waive this requirement briefly during an initial            open enrollment period.


Filed under: Musings-Articles, Uncategorized

The Bucket Approach for Retirement Portfolio and Income Management

     The Bucket Approach divides a retiree’s assets into buckets for retirement portfolio management and for retirement income needs. Pioneered by Harold Evensky in the 1980s, this approach used only two Buckets, a Cash Bucket (CB) and a diversified total return bucket. The purpose of the CB was to protect the retiree from having to make withdrawals from equity funds in down markets. This would allow equity funds sufficient time to recover from down markets without harming the cash flow needs of the retiree. Evensky’s CB always had two years of income available to withdraw to pay bills. Ideally, this income will supplement Social Security benefits and other guaranteed incomes the retiree may have.

     In contrast, the Total Return Bucket (TRB) consisted of a diversified portfolio of Stock funds, bond funds, real estate funds, and perhaps funds of other asset classes. Its purpose was to provide portfolio growth over time. This will allow the retiree to make increasing withdrawals from this account to cover rising expenses. In practice, the retiree will be feeding funds from the TRB to assure that the two-year CB always had two years of inflation increasing expenses covered.

     “Feeding” the CB occurred at least quarterly. The retiree had a great deal of discretion in transferring funds from the TRB to CB. Typically, all income (dividends, interest, etc.) are transferred. Furthermore, quarterly rebalancing can provide additional transfers to the CB, especially when growth assets increase significantly beyond its prescribed allocation. Accordingly, the “excess growth” can be added to the CB. For example, if the TRB’s prescribed allocation is 40% fixed and 60% Stock, and a market rise transforms the TRB’s portfolio to 70% Stock and 30% fixed, the 10% “excess” of Stock value may be transferred to the CB. This will provide additional cash to the CB while also serving to return the TRB’s portfolio to its prescribed asset allocation of 40% fixed and 60% Stock.

   The Bucket Approach assumes that the retiree has already calculated and assembled the following information:

  1. the family’s monthly income need,
  2. the value of the portfolio,
  3. guaranteed incomes from Social Security, pensions, and other income sources
  4. the prescribed asset allocation to meet income needs (adjusted for inflation) until age 100

These values will help the retire identify:

  1. the income shortfall needed to fund the CB (two years of needed income)
  2. the minimum risk profile for the portfolio for the TRB (prescribed asset allocation)

   The retiree will need this information to identify the amount necessary to fund the CB, and to identify the least risky asset allocation (in the TRB) to provide inflation adjusted purchasing power to meet the retiree’s income needs until age 100.

     Since Evensky’s initial suggestions, others have developed variations of the bucket approach. Most add buckets and spread them in time segments over an assumed 30-year retirement. The CB still contains guaranteed investments, but generally has enough funds to cover 3 to 5 years of income not met by the retiree’s guaranteed income sources. Since there has never been a bear market exceeding three years since World War II, many suggest 3-5 years is sufficient. More conservative retirees extend the income shortfall beyond 3-5 years for added income protection.

     A Second Bucket (SB) contains investments with modest risk to principal. This will allow the retiree to generate growth greater than offered by short-term investments, while limiting downside risk. Intermediate bonds and conservative real estate funds may populate the second bucket. Over time, the SB will gradually meld with the CB, providing an additional guaranteed funds. 

     The Third Bucket (TB) contains the stock funds that will rise and fall with the stock market. The retiree will need the growth this bucket provides to increase the CB as the retiree’s income needs rise to keep pace with inflation.

   As gains occur in the TB, excess growth not needed to meet expenses, can be transferred to the CB to maintain the retiree’s guaranteed cushion. In down market years, the retiree can “cannibalize” the CB (draw down the principal) to meet current income needs. As noted, the presence of the CB protects the retiree from drawing down from a depleted TB in episodic stock market swoons. This will serve to protect the TB by allowing it enough time to recover from market lows to provide the retiree with long-term inflation protection. As inevitable changes occur (and unforeseen circumstances arise), the retiree will revisit the family’s asset allocation assuring that the portfolio stays current.

    Finally, as the retiree reaches his mid 80s, he/she will need a late retirement income strategy. Generally, the retiree could reduce the CB to three years of income protection, and then consider annuitizing some or most of the assets remaining in the TB. At this advanced age, annuitization will greatly increase income while protecting him from: outliving his portfolio, market crashes, and cognitive decline. Health considerations, assets remaining, current income need, and legacy goals will influence how much of the portfolio (if any) to annuitize.


Filed under: Musings-Articles, Uncategorized

Retirement Income Planning

    The key challenges of retirement income planning are to create an income that lasts a lifetime, keeps pace with inflation and allows enough flexibility to cover emergencies. While there are countless strategies to meet these challenges, they boil down to two fundamentally different approaches: the Probability based approach and the Safety-first approach.

     The Probability based approach, favored by investment manager types, assembles a sizable portfolio during your career and you systematically draw from it during retirement to underwrite your lifestyle. This approach requires significant participation in the Stock Market, a sizable portfolio, and a plan to deal with inevitable stock market swoons. Some call this approach the “4% Solution” drawn from the work of Bill Bengen during the 1990s. Bengen examined rolling 30-year periods from 1926 and discovered that a Portfolio of 60% S&P 500 and 40% Intermediate Bonds could sustain an annual withdrawal rate of 4% (and each year upping the withdrawal by the inflation rate). For example, a $500,000 portfolio would prescribe a $20,000 withdrawal (in retirement’s first year ($500,000 X 4% = $20,000). If inflation was 3% in year two, the next withdrawal would be $20,600 ($20,000 X 3% = $600) and so on, each year raising the annual withdrawal amount by the preceding year’s inflation rate.

     Bengen found that all 30-year periods, among the 100 or so he studied, avoided fully depleted the portfolio even with rising withdrawals matching inflation. By the end of some 30 periods, it was nearly fully depleted, whereas other 30-year periods could have sustained an 8% withdrawal rate without fully depleting the portfolio. It just depended on the market’s performances and the time sequencing of market downturns during the 30-year periods. Bengen assumed 30 years as a proxy for a retirement lifetime.

     Many variations of “the 4% rule” have appeared over recent decades. Vanguard’s iteration suggests setting “guard rails,” allowing somewhat greater withdrawals than 4% during Stock Market booms, while requiring withdrawals less than 4% in years when the Stock Market doesn’t deliver.

     The RMD variation follows the required minimum distribution percentages the IRS mandates from most qualified retirement plans. Here you make withdrawals somewhat less than 4% in retirement’s early years, and gradually increasing the withdrawal percentage each year as your life expectancy shortens. 

     Some 4% strategies suggest drawing 4% plus inflation “on a total return basis” each year, combining investment income along with capital gains (and investment principal, if necessary) from the entire portfolio. Other 4% withdrawal strategies exempt guaranteed buffer (emergency) assets from annual withdrawal considerations. 

     In contrast, The Safety-first approach (SFA) emphasizes guaranteed incomes as the centerpiece of retirement income planning. Payouts from defined benefit pension plans, Social Security’s benefits, and commercial annuities with guaranteed incomes are used to implement this approach. Here, withdrawals from Investment assets are used primarily to “inflation hedge” fixed incomes and to provide emergency/buffer funds. 

   The SFA employs commercial annuities to “risk pool” in generating lifetime guaranteed incomes. Insurance companies can guarantee life-time incomes because their actuaries know that everyone (as a group) dies at a predictable rate. This allows the company to spread the risk among populations of annuitants to cover the life-time income needs of even the longest lived. Immediate annuities, deferred income annuities, and longevity insurance (advanced life deferred annuities) in various combinations are the insurance products used to implement the plan. Each provides life income either immediately, or sometime in the near or distant future.

   With insurance company guaranteed payout annuities. you exchange a lump sum of money for an insurance company’s promise to provide you a life-time income. For a given monthly income, the longer you delay receiving the income, the lower the cost. For example, in 2021, a 65 year could buy a life-time annual income of $6,340 for $100,000. In contrast, a 65-year-old could buy the same life-time income to begin at age 85 (20 years in the future) for only $16,000 today.

   Because some who buy future income products do not live to receive the payments, these unused dollars are distributed among surviving annuitants. These income enhancements shared by survivors are called “mortality credits” and provide an important underpinning of guaranteed retirement income. Also, the IRS waives required minimum distribution (RMDs) requirements for qualified retirement plans up to $135,000 (in 2022), if incomes commence later than the RMD initial date of 72. These products are called Qualified longevity annuity contracts (QLACs). However, with QLACs, once the life-time income begins, the annuitant is subject to RMD requirements.

     Every retiree has a retirement income plan. Often, the plan is by default where the retiree never actively creates a plan but simply withdraws funds from accounts randomly. Often, a retiree’s pension and Social Security benefits are such a large portion of his/her retirement income, that these two income sources (along with haphazard withdrawals from savings and investments) become “the plan” by default. This article provides you with the impetus to be an active participant in creating your own plan. The two approaches described here (Probability based approach and the Safety Approach) provide templates to consider. Retirees need to take the best of each approach for themselves to create a plan they can live with. Successful retirees will combine portions of both to reflect their needs for certainty, willingness to take risks, and legacy considerations. Good luck on your journey!



Filed under: Musings-Articles

College Retirement Research Center Suggestions for a Secure Retirement: Keep It Simple

The Boston College Retirement Research Center indicates that the four most important things to do to increase your retirement’s financial security are:

Spend less (and Simultaneously Save More). Essentially, allowing you to reduce your income need while     simultaneously salting away more for your future retirement.
Delay your Retirement. This allows you to extend the time available to save more and to grow your assets     for a longer period, thereby, providing you with a larger “retirement nest egg.” Likewise, you’ll be     simultaneously shortening the retirement lifetime you’ll need to underwrite.
Delay collecting Social Security. By delaying collecting your Social Security until your “Full Retirement Age”    or better yet, until Age 70, you’ll substantially increase your retirement income while assuring that you’ll   receive higher future cost of living increases.
Use your Home’s Equity. Some retirees move to less expensive areas to “stretch their dollars”. Others prefer    to use reverse mortgages to tap their home equity to provide retirement income without moving. Though not      without caveats, in the right circumstances, reverse mortgages can generate tax free income or protect           portfolios in ways we’re just beginning to fully recognize.

There is often elegance is simplicity.


Filed under: Musings-Articles, Uncategorized

Having that Uncomfortable Conversation With Your Parents

     You may remember the television commercial about how important it is to have your car’s oil changed regularly. It went something like this, “pay me now, or pay me later”. We all knew what they were getting at: either pay attention to what needs to be done today, or you’ll have to deal with the consequences later. The same message applies to the uncomfortable conversation with your parents (or older relatives) on the need for an up-to-date estate plan. Without such a plan in place, the responsibility could fall to you to make difficult decisions when your parents die or become incapacitated. Making those decisions can be doubly difficult if you don’t know what their intentions were.

     For some families discussing these matters can be threatening. Parents may question the need for such a conversation. It may prompt fears over their loss of independence, incapacity, or eventual demise. Or, they may feel that it’s none of their children’s business, or even worse, that their children just want their money. Children may be reluctant to initiate the conversation because they may feel as if they’re challenging their parents traditional authority or that they are violating their privacy. Therefore, tact, patience, and persistence are keys to successful conversations.

     You’ll first need to discuss what they would like to happen if they were to become incapacitated or die. Once you identify their intentions, its simply a matter of making sure the appropriate documents are in place to carry out their aims.  A good estate plan will ensure that your parents property goes to the right people, at the right time, and in the right form, while minimizing taxes and administrative expenses. Also, they’ll need documents to authorize others to act on their behalf in financial and health care matters if they become incapacitated.(Discussed Below).

     Imperative is an up-to-date will. Also known as a last will and testament, this legal document directs property the will maker owns solely in his or her name at death. If your parents already have wills, they should consider updating them if they if there’s been significant federal or state tax law changes or if they:

– bought a new life insurance policy
– bought a time share
– moved to another state
– bought real estate in another state
– want to name a new executor
– got a divorce
– got married (or remarried)
– became estranged from a beneficiary-had a change in your health (or your child’s health) 
– had a birth or death in the family

    It’s also important to have your parent(s) create or update their Letters of Instruction. This document, though technically not a legal document, should accompany the will. It speaks for the parents as if they were still living. Suggest they include instructions not easily included in the will, such as: burial instructions; identifying various accounts, including passwords and pin numbers; contact information of advisors, attorneys, relevant family members, executors, employer benefits personnel, etc.; safety deposit box and key locations; where they keep important documents, including: life insurance policies, deeds to real estate, and the original will.

    It’s also important to make sure the named beneficiaries of your parent’s various accounts are current. These accounts include: their company savings plans; their life insurance policies, including group plans at work; IRAs, among others. Too often proceeds have gone to the wrong people or to reimburse the state for a parent’s nursing home care expenses because they forgot to update their beneficiaries.

    Make sure your parents have up to date Durable Powers of Attorney (DPOA) in place. This document authorizes a person to act on behalf of the parent for financial and legal affairs. The earlier this document’s in place the better, as sometimes, time limited property transfers may be necessary to protect the parent’s assets from costly long-term care expenses. Also, the enumeration of specific powers in the document provides the holder of the document with the needed flexibility to act as needed. Generally, if the powers are not specifically designated the law assumes the parent didn’t want the holder to have those powers.

    An Advance Directive for Health Care (ADHC) is another document the parent should have in place. As with the DPOA, the holder of the ADHC makes health care decisions for them and carries out their “end of life wishes” as they’ve expressed them in their Living Will. Living Wills are documents that express your parents’ “end of life” wishes, including “do not resuscitate” orders, and their wishes if they fall into a “vegetative state with no hope of recovery.”  Make sure all these documents comply with rules on protecting medical information (HIPPA) so that your parents’ agents can make informed decisions.

     In closing, review your parent’s estate plan every 3 years as it’s likely they’ve overlooked something, like the consequences of a new federal or state tax law. And don’t forget to coordinate changes in your parent’s will with their beneficiary designations, letters of instruction, DPOAs, ADHC, and Living Wills.


Filed under: Musings-Articles, Uncategorized

Rebalancing Your Portfolio: An Important, Often Overlooked Task

    Other than making sure you are saving enough for an investment goal, the most important decision an investor can make in an investment plan is deciding what percentage of investable assets to “allocate” to each asset class. With employer retirement plans, these asset classes ordinarily include mutual funds in: cash equivalents, bonds, and stock (and sometimes, a combination of all three).

    Generally, in a given economic environment, one asset class will perform better or worse than the others. For example, in the late 1970s, “cash was king,” handily outperforming stocks and bonds. From 1995 through 1999, stock market returns dwarfed cash and bonds. And from 2000 through 2002, bonds led the pack. Few (if any) prognosticators can consistently predict which asset class will lead in the future. But for the long-term investor it really doesn’t matter. Once you select a suitable “asset allocation” (i.e., one that reflects your goals, time horizon, and risk tolerance), you must only make certain that your portfolio doesn’t veer too much from your chosen allocation. That’s where rebalancing comes in.

  Let’s say that you have a prescribed long-term asset allocation of 15% Cash Equivalents, 50% Bonds, and 35% Stock. Let’s also assume that you established this allocation at the beginning of 2020 and didn’t add to nor make withdrawals from his portfolio during the year. See Row 1 in the Table Below.

Cash Equivalents

Bonds/Fixed Income Securities





10% (Year1) End Value

35% (Year1) End Value

50% (Yr1) End Value

+5% Rebalance

+15% Rebalance

-15% Rebalance




    If you re-visit your Asset Allocation at the end of 2020, notice that the equity (i.e., stock) portion of your portfolio swelled to 50%, with the bond portion dropping to 35%, and cash equivalents shrinking to 10% (See Row 2 of the Table). Here, a “casino mentality” might suggest doing nothing and “letting your winners ride”. However, a prudent investor would take the gains from the “winning asset class” (in this case, stock) and buy the asset class that did less well (in this case, cash and bonds) to return to his original allocation (See Row 3). This process is called “rebalancing”.

    When you rebalance, you are really selling “your winners” and buying “your losers,” not a very appealing proposition for most people, at least in the short term. However, if you look a little closer, you’ll also recognize that rebalancing “protects you from yourself” by forcing you to “sell high” and “buy low” every year. In our illustration, who would know that bonds might outperform stock the following year (2000-2002) and that the stock market might tank simultaneously. Those who hadn’t rebalanced might have lost a larger portion of their portfolio in a stock market downturn. Why? Because the stock portion of the portfolio would swollen to a larger proportion of the whole.

    Rebalancing takes discipline and courage. It typically puts you in the position of liquidating investments that have performed well recently and buying investments that are may be temporarily out of favor. Think back to the investment environment at the end of 2008. The stock portion of investors’ portfolios shrank dramatically during 2008. Rebalancing would have asked investors to add to their stock market holdings (assuming they had set a valid asset allocation) just at the time when “pundits” were predicting further market losses. However, investors who did rebalance were rewarded (with the greatest annual stock market surge since World War II) in 2009. Rebalancing doesn’t always work that dramatically, but 2009’s market performance is an important reminder of the importance of rebalancing.

    Experts differ on how often to rebalance, but most agree that you should do so at least annually. Some experts also suggest rebalancing if your “asset allocation” drifts more than 10% from its prescribed percentages during the year. For investors the key is to rebalance at least annually and to have a plan in place to make it happen. For employees with a significant portion of their assets in tax-deferred accounts, rebalancing can occur without triggering any taxable capital gains. Some employees prefer to rebalance by directing their new contributions to their “under-performing” asset classes until they return to their prescribed asset allocation. Though an acceptable option, it’s easy to forget to re-direct your new contributions once you’ve completed the rebalancing process. Again, the key is to choose a rebalancing method and stick with it.


Filed under: Musings-Articles, Uncategorized

Monte Carlo Simulations: What Are Their Limits?

    In the last decade or so, a “Monte Carlo simulation”(MCS) became the “gold standard” of retirement planning assistance. Named after the European gambling center, this calculation projects the odds of attaining your retirement financial goals. Unfortunately, MCSs don’t generally include scenarios like recent stock market meltdowns. Though the method runs portfolios through hundreds (or even thousands) of market situations, they assign very low odds to extreme market events. Unfortunately, these so-called “Black Swan events” appear to be happening all too frequently. So how much credence should some one planning for retirement give to MCSs?

    To answer this question let’s consider how simulations work. Though there’s no uniform approach, a good simulation typically has you enter information on: your age, retirement date, value of your investment assets, asset mix, income goals, annual contributions toward retirement, guaranteed retirement income sources, and other details. The calculating program then runs hundreds (or again, even thousands) of market scenarios based on past market performance. It incorporates assumptions on long-term expected investment returns, market volatility, inflation, and other factors. The resulting calculation provides a “rate of success,” that is, what percentage of expected market scenarios allows you to support your retirement income goals.

    It’s important to recognize that MCSs represent a significant improvement over past retirement planning approaches which simply assigned a set return to an asset class and assumed consistent performance every year. However, critics argue that MCSs are hardly a panacea because they fail to incorporate scenarios like the recent stock market swoon. In fact, William Bernstein, author of “The Four Pillars of Investing,” was quoted in the Wall Street Journal as saying, “just add 20 percentage points to the probability of failure your MCS predicts, and you’ll be O.K.” Others complain that different MCS calculators do not make the same assumptions about interest rates, inflation, and market gyrations. Also, many MCSs assume that market returns reflect a “bell-shaped” distribution. This means that the likelihood of a 6% market return (toward the middle of the curve) would be dramatically higher than the likelihood of an extreme return (e.g., a 50% loss occurring at the extreme end of the curve). MCS proponents argue that it should be that way because extreme returns are just that: extreme and infrequent.

    It’s important to recognize that some MCS models are better than others. For example, some MCS models assumes much higher odds of extreme returns than would be expected by a bell-shaped curve. Likewise, Morningstar has modified to its MCS model to allow its clients to assume returns that fall along a “bell shaped curve,” or to select a model which presumes higher likelihoods of more extreme market behavior. Other firms are considering similar modifications to their MCS models.

    How much should you rely on MSCs to help you figure out if you can afford to retire? First, recognize that a MCS is one tool among many to help you answer this question. Regardless of improvements to MCSs, no methodology will ever be able to accurately predict very infrequent events. This means that every retirement plan should have enough flexibility to respond to unpredictable occurrences that will inevitably happen. This could mean being open to working part-time, especially during your retirement’s early years. You could also mean gradually converting some or all of your assets to guaranteed life-time incomes (annuitizing). Delaying the collection of Social Security Benefits until you reach your full retirement age could be another prudent strategy. And finally, you could separate your retirement expenses into categories of “must haves” versus “would like to haves,” to identify an acceptable fall back life-style if extreme market events happen.

   As far as using MCSs, follow the recommendation of the Retirement Income Industry Association to only use MSCs that run at least tens of thousands (and preferably, hundreds of thousands) of scenarios. Currently, some MCS projections rely on as little as one thousand scenarios for their depictions. Larger numbers of simulations include more extreme events in their runs and reduce the possibility of relying on an overly rosy investment scenario for your retirement projections. Check with the MCS sponsor you use to make certain that they adhere to the Retirement Income Industry Association recommendation. As with most things, your retirement plan should be prudent and flexible to respond to “unhappy surprises” ignored by less than robust MCSs.


Filed under: Musings-Articles, Uncategorized

Funding Your Kids’ College Education(s)… Are You Ready?

   After funding your retirement, underwriting your children’s college educations is the single, largest expense most families face. Nevertheless, it’s important to make sure you’re on track for a financially secure retirement before looking to fund the kids’ college. That said, there are a number of ways to approach the daunting task of college funding. Before you get intimidated about the high price of college, it’s important to keep a few facts in mind. On average, four-year state colleges charge $21,447 annually for tuition and fees for students who live in state, according to College Board’s website. Private colleges charge $42,224, while two-year public colleges average $15,286 in tuition and fees, with two-private institution charging $28,155. Obviously, that’s not the total bill because you must include room and board. College Board’s website, offers some helpful ways to estimate these additional costs. So, your first step is to estimate the total cost of college.

   It’s important to break down costs between direct billable costs, such as: tuition, fees, and room and board. Tuition and fees can vary by academic program and whether you child attends full or part-time. Also, room and board charges usually vary by the meal plan and room your child selects. If your child lives off-campus or at home, don’t forget to estimate these costs as well. Many so-called “indirect” college costs include: books, supplies, travel, and personal items. These costs can run into thousands of dollars annually. Savvy students can make wise choices to avoid overspending on these items.

   It’s also encouraging to realize that most students receive financial aid. College Board reminds us that the average amount of aid for a full-time undergraduate student is approximately $13,200, with more than half coming from grants that don’t need to be repaid. Even students from well off families can receive financial aid. For example, 44% of first year students at Brown University receive financial aid, with the typical package around $55,682. Some of those students come from families with incomes exceeding $200,000. Therefore, don’t assume you don’t qualify for financial aid even if your family income is relatively high.

  The first step in applying for financial aid is for parents to complete the Free Application for Federal Student Aid (or FAFSA) which determines the student’s eligibility for financial aid (i.e., Pell Grants, Stafford Loans and Perkins Loans). The process considers the applicants “available income” which generally includes most taxed and untaxed income but excludes some tax credits such as the “earned income tax credit.” FAFSA puts your family’s financial information into a central data base for federal, state, and university-provided aid. You can find a FAFSA form at

   Generally, as part of applying for financial aid, FAFSA assesses parent owned assets at a rate of 5.64% in determining a family’s contribution toward college expenses. Student owned assets are assessed a 35% rate for contribution purposes Therefore, its generally a good idea to keep assets out of the student’s name when applying for financial aid. The FAFSA considers the “base year” the year prior to awarding financial when they examine a family’s assets and income. Therefore, it’s also wise to defer income and “load up on” tax deductions during your “base year”, as both income and assets play a significant role in determining your eligibility for financial aid. Assets in 403b and IRA accounts are generally not counted in determining your available assets because they are considered “inaccessible” for financial aid. So, you could have a situation where a modest income family with college earmarked assets in its child’s name could qualify for less financial aid than a higher income family with most of its assets in retirement plans. Know these rules and plan accordingly. Also, be aware that competition for financial aid is intense.

   Experts also agree that you shouldn’t be shy about trying to negotiate with financial aid offices. Some people have even tried to play one schools financial aid office against another, by letting their preferred choice school know what others are offering. But be careful not to alienate financial aid officials by being too aggressive.

   Under the financial aid provisions of the 2011 Health Care and Education law, students and parents are able to borrow for higher education directly from the federal government. Parent borrowers need a better credit record than students and parents can’t have any missed loan payments in the last 90 days or declared bankruptcy or had a foreclosure in the last five years. The law also provides more funding for Pell Grants, available for students from families making less than $50,000. Publishers of suggest that total education debt should not exceed what students expect to earn in their first year out of college.

   As another option, parents should compare the rates for a home equity loan before taking out a private education loan. While a home equity loan can put the borrowers house at risk, interest rates on these loans can be low and the interest may be tax deductible.

  In summary, fund your own retirement before funding your children’s college education. But when planning to pay for the kids’ college: know the rules, plan early, know your options, and be persistent. Your children’s college education could depend on it.


Filed under: Musings-Articles, Uncategorized

Target Date Fund Controversy: Lessons for Investors

    The growing presence of Target Date Funds (TDFs) in Defined Contribution Retirement Plans has been meteoric. In 2004, only 13% of Retirement plans had such funds. That percentage grew to well over 90% in 2020, with virtually all firms with over 5,000 employees having TDFs in their 401ks. However, the market swoon of 2008 (and early 2009) brought a lot of attention to TDFs, and most of it wasn’t good. Employees expecting to retire in 2010 (and thereby choosing a “2010 TDF”) testified to a joint hearing of the U.S. Department of Labor and the Securities and Exchange Commission that they “were shocked” by the steep losses in their “2010 TDF.” In fact, the average “2010 fund” lost 23% of its value in 2008, with at least one 2010 fund down 60%. Many (including government regulators) were asking how this could have happened.

    TDFs are designed to make investing for retirement convenient by automatically changing your investment mix over time. Most investment professionals agree that “asset allocation,” which involves dividing your investments among the various asset classes, such as stocks, bonds, and cash, as the single most important investment decision an investor will ever make. Once you select a TDF, managers of the fund make all asset allocation decisions for you.

    TDFs, which usually consist of mutual funds, hold a combination of stocks, bonds, and other investments. As time passes, the mix gradually changes to match the long-term retirement dates of employees. The TDF’s name refers to its “target date,” such as “Portfolio 2040”, set for employees who intend to retire in 2040. However, employee misunderstandings can arise because TDFs, even with the same target date (e.g., 2040), can have markedly different investment strategies and risks. Some employees assume that TDFs will guarantee them enough retirement income or that they can’t lose money. In fact, TDFs do not remove the need for the employee to decide if the TDF fits his/her situation.

    Most TDFs automatically change the fund’s mix of investments to becomes more conservative as the employee approaches the target date. Over time, most TDFs shift from a mix heavily laden with stock investments to a more bond weighted mix. This “shift” is called the TDF’s “glide path.” Nevertheless, funds vary enormously in philosophy, underlying assumptions, glide paths, and what is an appropriate portfolio for a given age. For example, the percentage in equities in 2010 Funds vary from less than 15% to over 60%. This happens because there is no consensus among TDF providers on appropriate glide paths. Furthermore, TDFs are designed for someone with an “average” risk tolerance, which varies significantly by provider. In addition, TDFs with similar target dates also vary by the date they arrive at a stable income glide path. Some achieve this at the “target date,” while others not until 20 or even 30 years beyond that date.

    Problems grew with TDFs because a provision in the Pension Protection Act of 2007 allowed employers to use TDFs as “the qualified default investment option” for 401k enrollees who failed to elect their own investment choices. Therefore, employees found themselves automatically invested in TDFs by their employer without a direct decision on their part. In the past, the default option was a money market or stable value fund where the principal was guaranteed. Because these funds historically did not grow enough to keep pace with inflation, these employees fell short in funding their retirements. So, TDFs as the “default option” was seen as an improvement. Nevertheless, as we’ve seen, TDFs have their own sets of problems.

    At a minimum, employees must evaluate the appropriateness of a TDF before (and after) investing in one. They must consider a TDF’s:

-asset allocation over its entire life
-its most conservative investment risk
-its risk level and glide path
-its performance, and its fee structure

This information is available in the TDF’s prospectus.

    Furthermore, when employees select a TDF they should consider all their assets earmarked for retirement, including assets held outside their employer’s retirement plan, assets held by their partner, and guaranteed incomes they (or their partner) may have. 

    Also, TDFs don’t provide for a systematic method for retirees to make withdrawals to fund their retirement income needs. Unless instructed otherwise, withdrawals will consist of taken from each asset class equally within the fund. This may or may not serve the best interests of the retiree. These withdrawals must be part of a comprehensive retirement income plan.

    Everyone must learn more about TDFs to use them properly. No longer will the excuse “I didn’t know” suffice. Too much is at stake for people to remain uninformed.


Filed under: Musings-Articles, Uncategorized

Perhaps You’ll Be Able to Retire After All

   We’ve all seen TV advertisements suggesting you need $2 million dollars (or more) to retire comfortably. With day-to-day family expenses pressing, its easy to get discouraged when planning for retirement. Yet, if you look at “retirement” differently, the future may not look so bleak.

    Some years ago Fred Brock wrote a provocative book, Retire on Less Than You Think (NY: Henry Holt & Co., 2004). Rather than lament the possibility of never being able to retire, he offered people some practical strategies to afford “retirement” without enduring too much pain and deprivation. They still apply today. The “watchword” of his message is flexibility of what you mean by retirement. I’ve listed below are suggestions to help make retirement affordable.

□ Plan to work in retirement…at least part time. This may include staying in your primary career (or job) longer than you had planned. Though some people may feel “cheated” if they have to work longer than planned, increasing numbers of people are recognizing the benefits of “working in retirement.” These benefits include: retaining lower cost group health insurance coverage until at least 65 when Medicare begins; delaying making withdrawals from portfolios to meet every day expenses; saving more for retirement; staying engaged socially; keeping minds active, not to mention the benefits of having some time apart from partners, or as the bumper sticker reads, “retirement: not enough money and too much spouse!”.

□ Separate “necessary expenses from “nice to have” expenses. Some people have never sat down and seriously figured out what its really “costing them to live.” When you remove the extras, your basic expenses may be far less than you imagined. Though “the extras” can be what makes life worth living, it can be reassuring to know that you could cut back without dramatically reducing your life style. This exercise can also help you distinguish between activities you really enjoy from those which you do by habit. Knowing “your necessary expenses” will help you more accurately calculate your retirement income needs.

□ Delay Collecting Social Security. In 1984, an Alan Greenspan led committee gradually increased the eligibility to collect a full Social Security benefit (known as your “Full Retirement Age”) from age 65 to age 67. The committee simultaneously increased the permanent penalty (in reduced benefits) for collecting “early” at age 62. Therefore, with people living longer, it has become increasingly important to delay collecting benefits to maximize your Social Security benefits. Furthermore, Social Security provides extremely generous “delayed retirement benefits” if you postpone collecting until age 70. This “enhanced” benefit (in some cases nearly 70% higher than your age 62 benefit) not only enables you to receive larger annual costs of living increases, but also can significant increase the survivor benefit your spouse could collect if you die first.

□ Consider Relocating. Most of us already know that many areas in the Northeast are among the costliest to live in the USA. Therefore, it could makes sense to consider relocating to a less expensive area. Not only will your dollar “stretch” further elsewhere, but seven states (Alaska, Nevada, South Dakota, Wyoming, Florida, Texas, and Washington) levy no state income taxes. Furthermore, 75% of all states exempt Social Security benefits from state income taxes. Many areas are 30% less expensive to live for the typical retiree, so it could make sense to move. A special capital gains tax exemption against federal income tax is also available if you sell your primary residence ($500,000 for married couples filing jointly and $250,000 for single filers). Likewise, recent legislation allows you to immediately buy a home elsewhere and take out a reverse mortgage on the new primary residence to supplement your income.

□ Consider Annuitizing Some of Your Assets. One of the biggest concerns many face is “outliving their money.” This results in some retirees needlessly scrimping to protect against this possibility, while others withdraw too much too soon from their portfolios and face the possibility of fully depleting it too soon. One way to protect yourself from this dilemma is to convert a portion of your portfolio into a life-time income. You do this with a “payout annuity” by a process called “annuitizing” which provides you with a life-time income. Just as life insurance protects your family from your dying “too soon,” a payout annuity protects you against “living too long.” Along with the income Social Security provides, you could annuitize just enough of your nest egg to meet your basic expenses. The remainder of your portfolio you can invest to draw from later to pay for discretionary expenses and to protect you against inflation.

Filed under: Musings-Articles, Uncategorized

A Financial Checklist to Keep Your Finances on Track

    Before major airlines allow flights to depart, their pilots must complete a thorough and systematic checklist. Not only is this good aeronautical practice, it’s also an excellent way to avoid problems before they arise. Likewise, employees should periodically complete a Financial Checklist to make sure their finances are in good order. Here’s a good list:

Create or Update Your Will. Review your will to make sure: it reflects any changes in your wishes; incorporates additional assets you may have recently acquired; confirms your choice of executor; incorporates any changes in the family (births, deaths, divorces, etc.); incorporates new tax laws (federal and state); and deals with real property you may have purchased, especially out of state real estate.

Create or Update Your Letter of Instruction. This document, which should accompany the will, is designed to speak for you as if you were still living. Here you put instructions not easily included in the will, such as: burial instructions; your various accounts, including passwords and pin numbers; contact information of advisors, attorneys, relevant family members, executors, employer benefits personnel, etc.; safety deposit box and key locations; where you keep important documents, including: life insurance policies, deeds to real estate, and your original will.

Create or Update Your Advance Directives. These documents authorize others to act in your behalf if you become incapacitated. The holder of your Durable Power of Attorney makes legal and financial decisions for you; the holder of your Health Care Proxy makes health care decisions for you and carries out your “end of life wishes” as you’ve expressed them in your Living Will. Make sure all these documents comply with rules on protecting medical information (HIPPA) so that your agents can make informed decisions.

Review Your Beneficiary Designations. As the years pass, it’s important to make sure the named beneficiaries of your various accounts are current. These accounts include you and your partner’s company savings plans; your life insurance policies; including group plans at work; your IRAs, among others. Too often proceeds have gone to ex-spouses or to reimburse the state for a parent’s nursing home care expenses because employees/retirees forgot to update their beneficiaries.

Calculate if You’re on Track to Afford to Retire. Though hard to believe, 44% of Americans retire today without identifying if they can afford to. Companies’ 401k or 403b providers, often have excellent, no cost calculators available at to help you with this task. Employees can also access Fidelity Investment’s excellent calculator at and look for the “Retirement Income Calculator.” Though no calculator can foresee all circumstances, attempting to figure out if you’re on track can be an eye-opening experience to motivate you to get more serious about your retirement planning.

Contact Social Security to confirm Your Benefit Amount. Nothing beats contacting Social Security directly at ( or at 1-800-772-1213) to confirm what your monthly benefit amount. While everyone receives an Annual Statement, contacting Social Security directly will provide a much more accurate projection. Likewise, you’ll discover which documents you’ll need to apply for benefits.

Filed under: Musings-Articles, Uncategorized

Confronting Challenges Women Face Planning for Retirement

    According to a recent study by the Society of Actuaries (SOA), women face special risks in retirement. The study, The Impact of Retirement Risk on Women, suggests that an overwhelming majority of women have a very poor understanding of their own longevity and what it will take to support that longer life-span. Olivia S. Mitchell, Professor of Insurance and Risk Management at the Wharton School, University of Pennsylvania, indicates that one of the reasons that many women are unprepared for retirement is that people, in general, have a very low level of financial literacy.

    According to the SOA study, the risks women face in retirement from an actuarial standpoint differ considerably from those facing men. According to the study, the five key issues that women face and fail to adequately plan for include:

►Outliving their assets

►Widowhood’s financial challenges (as well as emotional)

►Potential for Chronic Disability, either mental or physical

►Cost of health care

►Economic Factors

    Many of these issues occur because women tend to outlive men and because older women are much more likely to be widowed than men. On average, a 65 year old woman can expect to live into her late 80s, with many living well into their 90s. In contrast, a typical 65 year old man can expect to live about 20 more years, with far fewer surviving into their 90s. Also, widowhood falls disproportionately upon older women. Over 85% of women age 85 or older are widowed, while only 45% of men over 85 are. Because traditionally women have been younger than their husbands, and, along with their longer life expectancies, women can experience widowhood for periods sometimes exceeding 15 years or more. For many women, the loss of a spouse comes with a decline in standard of living. Of women over 65 living alone, 40% depend on Social Security for virtually all their income.

    At first glance these numbers can be intimidating. The good news is that there are resources and tools to help many female (as well as male) employees with the tasks. For example, eligible employees can make “pre-tax” contributions to company sponsored 401k and 403b Tax Deferred Savings Plan. Many employers also match employee contributions.

    These plans grows tax-deferred until you make withdrawals from the account in retirement. Tax deferral allows funds that would have been lost in taxes today to compound for your benefit. In addition, when you withdraw these funds in retirement, you will likely be in a lower tax bracket, further reducing the tax bite on these funds. While employees then have the responsibility for managing the investments in their tax-deferred savings plans, most plan sponsors provides a variety of tools to help.

    Many employees often overlook the opportunity of saving “just a little bit more” for retirement. The Table Below shows the impact that “saving a little more” can have on the amount you can accumulate at age 65. (The Table assumes a 7% annual rate of investment return).

Age Employee 401k Contributions Begin

Contributes $100 more a month

Contributes $200 more a month

Contributes $300 more a month

















   As mentioned earlier, another retirement challenge women face is the risk of outliving their assets. With traditional pension plans (that guarantee a life-time income) less common, women must confront the possibility of living longer than their nest egg can support. One way to manage this risk is to convert a portion of their assets to a life time income (i.e., “annuitizing” the asset). Only insurance companies (through payout annuities) can offer this guarantee to pay you life-time income beginning at a selected date. Generally, once the payments begin, they will continue for the rest of your life, regardless of how long you live. In most cases, the payout amount will depend upon how much money you annuitize, your age when the payments begin, and prevailing interest rates at the time of annuitization.*

*There are many different types of payout annuities and they will be the topic of a future article.



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The “Best Time” to Begin Collecting Social Security Retirement Benefits

     An increasingly important financial decision nearly every employee must eventually face: when’s the best time to begin collecting Social Security retirement benefits?  Not long ago, “conventional wisdom” was to begin collecting Social Security retirement benefits as soon as you became eligible at age 62, and not wait for a full, un-reduced benefit.” The thinking was that so few people would live into their 80s that it wasn’t worth the wait for a larger benefit.

    So, what’s the real story? Our parents (born in 1937 or earlier) received 20% less for collecting at 62 than had they waited to collect at their full retirement age of 65. Alan Greenspan extended Social Security’s full “un-reduced benefit retirement age” for anyone born after 1937. Those born between 1943 and 1954 get 25% less at age 62 than had they waited to receive their full benefit at 66 (new full retirement age). Those born in 1960 or later will receive 30% less at 62 and must wait until age 67 to receive an unreduced Benefit. By doing the math, you’ll see that you must live 12 years beyond your full (unreduced) retirement age to justify waiting to collect your full benefit. So, what’s the smart move?

    Most people approaching age 62 can’t imagine living into their 80s, and so they opt to collect Social Security benefits early. What they fail to realize is that a 65-year-old has about an 80% chance of reaching age 80, with women even more likely to live well past 80. Therefore, from a “dollar and sense” standpoint, it’s better to wait to collect. Not only will you get a substantially higher benefit, but your cost-of-living increases will be bigger because they’ll be based on a higher benefit.

    Selecting the best time to take Social Security is very important to ensure retirement income security, especially for lower and moderate-income employees. In fact, according to a recent study, an employee with a $40,000-a-year salary a spouse who’s been marginally employed, Social Security benefits are worth nearly $600,000 for that couple at retirement. For a $120,000 a year salaried employee, her benefit is worth well over a million dollars. Therefore, if your health prospects are average or above, you ‘re better off waiting to collect. There are a few exceptions that could justify taking benefits early. First, if your health is poor and your unlikely to live long enough to benefit from waiting. Second, you desperately need the income. And third, (and most people will need help calculating whether this option is best), it renders other family members eligible to collect ancillary benefits by virtue of you collecting (spouses, eligible children, etc.).

   There’s an added advantage if you wait until age 70 to collect. For each year you delay collecting Social Security from your full retirement age until age 70, your benefit rises by 8%. Not bad in a low interest rate environment where to receive an 8% return you must take substantial investment risk. Likewise, this strategy will result in a higher widow’s benefit for a surviving spouse.

   Bottom line: the decision to opt for a permanently reduced Social Security benefit at age 62 can have disastrous long-term financial consequences for employees, especially for women. Why women? Not only do women generally collect smaller Social Security checks than men because they have worked fewer years, but also because they live longer than men (a 65-year-old woman has nearly an 50% chance of reaching age 89), women are more likely to feel the “pinch” of a permanently reduced check. So, unless you’re in poor health, are desperate for income, or have more than enough income from other sources, consider waiting until you’re for a full, un-reduced Social Security retirement benefit.


Filed under: Musings-Articles, Uncategorized

Medicare Advantage Plans: An Alternative to Traditional Medicare

     If you’re enrolled in Medicare, it’s important to buy Insurance Plans to fill in the gaps Medicare leaves in co-pays, co-insurance, and deductibles. These plans, along with a Medicare Prescription Drug plan (Plan D), provide Medicare you with significant health coverage. Instead of buying a traditional Medicare Supplemental Plan (MSP), an alternative for health care coverage is a Medicare Advantage Plans (MAP). With MAPs, insurance companies contract with the federal government to offer Medicare benefits with their own rules and stipulations. They are different types of MAPs, including Health Maintenance organizations (HMOs), Preferred Provider Organization (PPOs), Medicare Private Fee for Service (PFFS) plans, and others. Costs, extra benefits, and rules vary by plan. With MAPs there’s no need to buy a Medicare Supplemental Plan.

     MAPs are required to provide the same services as traditional Medicare. But there are catches. First, they can do so in different amounts, that is, they can offer different co-pays, coinsurance, and deductibles for their services. With MAPs, you continue to pay Medicare’s Part B premiums ($170.10 in 2022), except for high incomes folks who pay more), and then you may pay an addition premium. MAPs commonly offer services Medicare does not, such as: prescription drug coverage, vision coverage, health club memberships, and even limited dental care. Drug coverage, common in MAPs, eliminates the need to buy a separate Plan D prescription drug plan. In fact, the Center for Medicare Advocacy indicates it’s possible to have lower out-of-pocket costs with MAPs.

     Nevertheless, there are serious caveats with MAPs. Some plans add benefits that may have little value (e.g., health club memberships), while paying less than traditional Medicare for hospital stays or nursing care. Hospitalizations and nursing care expenses represent the real financial risks you face later in life. Unfortunately, MAP coverage limits can be obscure or be buried in footnotes not readily apparent. Therefore, it’s imperative to scrutinize carefully the deductibles and co-pays for doctor and hospital care and compare these with traditional Medicare (together with MAPs).

     Medicare Supplemental Plans used in concert with Traditional Medicare are portable, that is, a plan holder may receive care from any Medicare authorized provider. In contrast, MAPs typically run like HMOs or preferred provider organizations, with networks of providers. If you want the freedom to see any provider (or if your current providers don’t participate), you should probably consider a MSP rather than a MAP. Likewise, if you expect to travel a lot (or spend time outside the service area), you should likewise think twice before enrolling in a MAP. In the recent past, aggressively marketed MAP private fee for service (PFFS) plans were said to offer the freedom of choice of providers while providing the savings of MAPs. Sometimes, these freedoms can be illusory, as providers can refuse to accept patients in such plans, and recent legislation has further restricted their use.

     MAPs present other problems as well. If your doctor leaves the plan during the year, you could be faced with higher medical charges, as the doctor would then be considered an out of network provider. Another option would be to find a new “in network” doctor. Also, a serious illness could prompt you to seek care from non-participating specialists or hospitals. These could be at potentially much higher charges, or you may leave you with the entire cost of the covered service. So, a MAP’s seemingly lower premium may come at the price of less flexibility in seeking and paying for needed care. Likewise, if you are on a prescription drug regimen, it’s a good idea to check the formularies (prescription drug protocols) offered by the MAPs you are considering. If a MAP charges significantly more for the drugs you require, the lower premiums may be offset by your higher out-of-pocket prescription costs.

     You can join a MAP or other plans when you first become eligible for Medicare, called your initial enrollment period. You may also enroll during prescribed enrollment periods. Likewise, you may only switch plans during certain time periods. For example, each year an Annual Election Period (AEP) occurs from October 15 to December 7, and the plan you elect becomes effective January 1. MAP open enrollment periods (MA-OEP), Jan. 1 to March 31, are also available to allow you to switch plans. There are restrictions on what changes you’re allowed to make among plans during MA-OEPs. For example, you can’t add or drop Medicare prescription drug coverage during OEPs unless you already have Medicare prescription drug coverage. Refer to for other change limitations during MA-OEPs. In addition, there are special enrollment periods (SEPs) which allow you to switch MAPs if:

-they move out of the plans service area
-they move to an area that has new MAP or Plan D options available
-their plan leaves the Medicare program, and other special situations

     Medicare websites tool: The Medicare Options Compare ( displays the MAPs in your area. By clicking on estimated annual cost, you receive out of pocket estimates based on your general medical condition. Two other excellent websites with tips for comparing plans are: Medicare Rights Center ( and Medicare News Watch ( This latter site also displays estimates of out-of-pocket estimates for MAP HMOs and MAP preferred provider organizations (PPOs). Your State Health Insurance Assistance Program (SHIP), easily accessed through, can provide access to no cost health insurance counselors who can offer guidance on selecting MAPs available in your state.

Key: Currently, only four states (Maine, Massachusetts, Connecticut, and New York) allow you to switch from an Advantage Plan to a Medicare Supplemental Plan without demonstrating evidence that you’re in good health. This could lead to a situation that if you develop a serious health issue, you could be prevented from seeing the best providers available for your condition if they are outside your MAP network. Therefore, Medicare Supplemental Plans are nearly always a better choice than MAPs unless you are unable to afford what may be a higher premium of a traditional Supplemental Plan, or you live in a Northeastern state mentioned above.

     As with many areas of financial planning and retirement planning, retire health care planning is dynamically changing. Health care and how its financed remains a major challenge facing the USA, and new plans and approaches will no doubt emerge. Therefore, you must remain informed on this changing landscape as you plan for your health care needs in retirement.

– 12/23/2021

Filed under: Musings-Articles, Uncategorized

Credit Scores: Myth versus Reality

    Credit scores are increasingly important to our financial lives and yet many of us don’t realize it. Our financial transactions are closely monitored by the credit bureaus and used to determine our credit risk, otherwise known as our Credit Score.

    A credit score affects how much interest we pay on mortgages, consumer loans, credit cards and more. The difference between a good score and a bad one can be tens or even hundreds of thousands of dollars over our adult lives. A credit score can also affect your ability to get a job, a cell phone contract, rent an apartment, or even how much we pay for insurance.

    All of us must becoming an educated consumer about our credit score. A bad credit score can block you from buying a home or a car, or finding a job. And yet, the credit scoring system seems such a mystery because there’s so much confusing information out there (bad and good) that it’s hard to sort what’s real from the myths.

Facts about Credit Scores:
1. All credit scores are not created equal.
2. Pay attention to the credit score called the FICO score.

    Major lenders use the FICO score and about 90% of the top 100 financial institutions in the U.S. The score, based on a formula developed by the Fair Isaac Corporation, is the gold standard for measuring credit risk. FICO scores range from 300 to 850, the higher the better

    The best place to get our FICO score is directly from the company at If you have applied for a loan your lender can give it to you. Under federal legislation, every credit bureau is required to give consumers one free credit report per year (visit, but not a free credit score. The major credit bureaus sell credit scores based on their own models. The closest to FICO of the three is Equifax.

    Check Your Credit Score. Lenders will obtain your FICO score which rely on the credit reports from each of the big three bureaus. Your credit reports may vary somewhat with each bureau as they may not have identical data. Also, 85% of credit reports have errors, with many serious enough to affect your credit score. Unless you find these errors and take action to remove them from your credit reports, they will remain there.

    That’s why its wise to check your credit reports annually because you never know when you might have to borrow money and it’s best to be prepared. If you aim to buy a house in the near future, it’s vital. By the way, it can take months to raise your credit score.

    For most of us, buying a home is the most expensive purchase we will ever make. Getting a preferred interest rate will make a huge difference over the mortgages life. Here’s an example from a past year that shows how a credit score impacted the interest rate available on a 30-year fixed rate mortgage:

Credit Score

Interest Rate
4.500% (options are very limited for people with scores in this range)

4.750% (and likely not able to be done)

Other Impacts of Your Credit Score:
    To get the best terms from a credit card company, you need a high credit score. Likewise, a bad credit score can get you turned down from renting an apartment or force you to pay more money up front to the landlord. Now, only seven states restrict the use of credit scores to screen job applicants. States that restrict this practice are: California, Hawaii, Oregon, Connecticut, Illinois, Maryland and Washington.

    In addition to credit card records, consumer loan and mortgage payments, and collections, charge-offs and bankruptcies are also tracked by the major credit bureaus. Many of our financial dealings that used to go under the radar are now being captured by a fourth credit bureau: CoreLogic. CoreLogic tracks evictions, child support payments, payday loan applications and property tax liens. It’s being offered to mortgage and home equity lenders to screen applicants for credit risk.

    How do you maintain a good credit score? The single greatest factor is payment history, which makes up 35 percent of a credit score. So pay your bills on time. The amount of debt you have is the next most important factor, making up 30 percent of a credit score. Work to keep credit balances at zero. But if that’s not possible try to keep the balance owed at no more than 30 percent of what’s available.

The other factors include length of credit history, which makes up15 percent of your credit score, types of credit (10 percent), and inquiries for new credit (also 10 percent).

A few pitfalls to avoid:

♦Don’t close an inactive credit card account as it could raise your overall debt-to-credit ratio and lower your   credit score.
♦Don’t co-sign a loan unless you are prepared to risk lowering your credit score should the other person default.
♦Don’t max out or exceed credit card limits.
♦Understanding and tracking your credit score doesn’t have to be difficult. But it can reap great rewards for your financial life.

    Like many other aspects of your financial life, your Credit Score needs to be monitored annually and managed as needed. It’s a “snapshot” of how Lenders (and others) rate your financial worthiness. Make sure yours is the best it can be.

Filed under: Musings-Articles, Uncategorized