2022 was a year for the record books.

From an investment standpoint, it was pretty bad. Almost every asset class was down, and most of them were down double digits. 

We saw the Russian invasion of Ukraine leading to the complete removal of Russian stocks from Emerging Market Stock Indices. 

The UK bond market came unhinged and had to be bailed out by the Bank of England after threatening to create massive defaults in British pensions.

The Pound and the Euro saw the sharpest declines against the US Dollar ever.

US treasuries, which are usually considered safe havens during market declines weren’t spared either, as the fastest rate hikes in history raised interest rates from near zero in January to about 4% before the end of the year.

Mortgage rates doubled from 3.5% at the beginning of the year to nearly 7% at the end. The real estate housing market is frozen for now, but prices are softening across the board.

After decades of absence, inflation finally popped up and proved anything but transitory. The much-hyped Treasury Inflation-Protected Bonds (TIPs) didn’t provide as much of an inflation hedge as expected and were still down, although they performed slightly better than equivalent Treasuries.

The only positive asset class was commodities, being up about 30% as a group. In the face of the strengthening US Dollar, this outperformance is quite remarkable.

But even Gold, considered the ultimate safe haven, was about flat for the year.

And we saw the collapse of cryptocurrencies and the speculative tech trade. 

Here are the returns for the most common asset classes, and their accompanying ticker symbol:

The worst performers were Speculative Tech stocks and Bitcoin, both of which were crushed in 2022 after seeing eye-popping triple-digit returns in 2020 (150% and 290% respectively).

High-flying stocks of yesteryear such as Tesla, Peloton, Rivian, NVIDIA, Netflix, and Zoom Video Communications all got crushed as their astronomical valuations finally caught up with them.

The more overvalued a stock was, the larger the losses.

That’s one inescapable fact of investing. Prices need to match valuations. When you ignore valuations and chase price performance, it eventually ends in tears and large losses.

Luckily, my portfolios are designed with value in mind. My clients and I weathered the storm with average losses between 12% and 15%. 

Hedging our sensitivity to interest rates, and overweighting high-quality stocks with real earnings and cash flow helped prevent major losses. Exposure to commodities and gold helped offset our losses from real estate investment trusts. And further hedges helped buffer some of the losses in foreign markets.

Losing money is always painful, but all in all, it wasn’t as bad as it could have been.

And remember, the math of returns is geometric. 

The more you lose in a bear market, the harder it is to catch up to breakeven.

It’s much easier to make 10% a year than it is 50%. The more you lose, the more risk you need to take in order to get back to breakeven.

Unfortunately taking more risk doesn’t guarantee a higher return – just a higher variance in the outcome. While you might make more money, you could also lose more money. This became painfully apparent to all the spec-tech & Bitcoin traders of the past few years.

This is why I prefer clients go through the financial planning process before we actually invest their money. Once you understand how much money you actually need to achieve all your goals in life, and we’ve qualified and quantified those goals, we should take the least amount of risk needed.

Yes, risk and return go hand in hand. There is no return without risk.

But the nature of risk is such that sometimes the return doesn’t show up when we need it. So, one should always focus on the potential risks, and not the potential returns.

Managing risk is much easier than managing returns.

Going into 2023, calls for a recession are rampant. Anytime I turn on CNBC, someone is calling for a recession. 2/3rds of surveyed economists predict a recession this year. 

If this comes true, it will be the most widely expected recession in the history of mankind!

If you think everyone is extremely pessimistic on TV, you’re better off tuning them out.

Excessive pessimism makes you sound intelligent and making outlandish claims gets you more airtime on TV. After a while, no one remembers your claims so there’s no one to hold you accountable. But you do get a lot of free publicity, which leads to more recognition and interviews, and this eventually leads to more clients and more money. 

But if you’re always pessimistic, your returns will be lackluster.

Personally, I think recession fears are overblown.

Despite all the talking heads on CNBC who keep shouting that the Federal Reserve will trigger a recession with too many rate hikes, and a recession is mandatory to curb inflation, I think the underlying economy has shown it’s quite resilient and a recession is not guaranteed.

Any recession we might see could likely be short-lived and mild.

That being said, I think inflation is likely to stay higher than the targeted 2%.  Probably closer to the 3-4% range for the next decade. That’s a bigger concern to me than a mild recession.

There are 3 major inputs in inflation calculation: goods, housing, and services (or labor).

The prior 30 years saw peak globalization, with just-in-time inventory and cheap overseas labor putting a lid on inflation in the cost of goods. A strong dollar also helped with this, especially in the last decade. These trends are reversing, and the current focus is on reshoring or bringing manufacturing back to the US, resulting in higher costs. 

There is currently a massive shortage of housing across the US. With interest rates at 7%, affordability has tanked and resulted in a sharp decline in home sales. This will likely trigger a recession in the housing sector. But the lack of supply will provide a floor under this, unlike the 2008 recession where supply far-exceeded demand. Once interest rates stabilize later this year, it’s likely mortgage rates will come down to a more manageable 5%, and home building and sales will pick up again. But the sub-3% rates are gone for good, so expect a resetting of home prices at some point in the near future.

The cost of services is driven by wages, and they’ve seen a sharp rise in the past year. Especially at the lower levels of society. While tech companies are announcing layoffs at the corporate level, many blue-collar jobs are seeing a shortage of workers and commanding top dollar. 

I recently paid an electrician $100/hour for work around the house. He was the 5th person I’ve tried to hire. The previous 4 either never showed up, or ghosted me after the initial contact. Tradesmen are busy and have more work than they can handle.

Why is inflation a bigger concern than a mild recession?

If inflation is 4% over the next 10 years, the value of your savings drops 34%. Based on the past 20 years of historical data, where inflation ranged under 2%, the value of your savings only dropped 18%. A lot of online models still use this low 2%, which means there will be a shortfall retirement savings.

On the flipside, a mild recession is likely to be short-lived and have less of a financial impact.

Despite the chance of recession and higher inflation, I will be lightening up on my hedges this year. There’s no free lunch in investing. Hedging comes at a cost. When you hedge excessively, you pay a heavy price in the form of lower returns over the long term.

Lower returns are the price you pay when you hedge against volatility.

If you can’t accept volatility, then you must accept lower returns. 

Otherwise, you can lower your risk by buying undervalued assets and avoiding overvalued or speculative assets.

After a decade of underperformance, I think foreign stocks will finally start to outperform US stocks. They are at historically and relatively low valuations and provide excellent entry points.

Bonds are also finally seeing a relatively high yield and are no longer a “returnless risk” asset.

Regardless of whether this year sees a continuation of 2022 or a rebound in asset prices, remember price is what you pay, value is what you get. If your investment horizon is long, and you are still in the accumulation phase, you will want stock prices to be cheap for as long as possible. 

I wish you all a very happy and prosperous new year!

And, as always, keep calm and stay invested.

Regards,

Nirav

Did you know you can use tax loopholes to save $100k on taxes and get the government to kickstart your real estate empire?

Yes, it’s true.

This is going to be a part of a series of posts on millionaire tax secrets. These are very widely known in real estate investment circles, but not common knowledge among high-income earners like physicians, attorneys, or sales or tech professionals.

Let’s start.

Every so often I meet prospective clients that meet a certain profile.

They’re a couple in their mid-30s to late-40s. One of them is successful in his or her career and earns $400-500k a year in earned income. The other spouse is a stay-at-home spouse with no earned income. They have invested most of their after-tax savings in real estate. They often own about $2-4 million worth of real estate in California, with $1-2 million in mortgage indebtedness. And they always complain about taxes.

Let’s look at some rough numbers to get a better idea of the situation:

2021 Income: $450k
Itemized Deduction: $35k
Federal Marginal Tax Bracket: 32%
Federal Tax: $97.2k
CA State Marginal Tax Bracket: 9.3%
CA State Tax: $32.7k
Total Tax: $129.9k

Federal Marginal Tax Bracket: 32%

Federal Tax: $97.2k

CA State Marginal Tax Bracket: 9.3%

CA State Tax: $32.7k

Total Tax: $129.9k

Amount left after taxes: $320.1k (actually a little less because there are always other taxes)

If they spend $240k, they’re left with roughly $80k a year to invest.

Let’s assume they saved up for a few years and bought a $1 million rental house with 20% down. Also, assume the value of the land is $400k and the value of the building structure (and structural improvements) is $600k.

At 5% mortgage interest (yes, these rates, or lower, were available up until the beginning of 2022), their monthly total all-in cost, called PITI (Principal, Interest, Taxes & Insurance) is $5,461, of which approximately $4,400 is deductible on his taxes as an expense. Let’s assume it rents for $4,500 a month so it’s basically providing $100/month or $1,200/year as cash flow.

Normally, this $1,200 would be taxed as ordinary income, or at his highest marginal rate of 41.3%.

But real estate investors get to claim a phantom loss called depreciation. To calculate depreciation, you take the value of the improvements and divide it by their expected lifespan. For residential buildings, this is 27.5 years, and for commercial buildings its 39 years.

We take the $600k in this example and divide it by 27.5, giving us $21.8k in annual losses for the next few decades. So the $1,200/year in cash flow is more than offset by this $21.8k in losses, resulting in a tax-free income of $1,200! This results in $20.6k in unused depreciation losses.

Any unused depreciation loss is carried forward indefinitely until you use it against other passive income, or you sell the property. (Once you sell the property, this depreciation is recaptured at 25% federal tax level plus state taxes, but there are ways to avoid this, so we’ll ignore this for now.)

This all sounds great until you realize this couple has been missing out on a large tax break.

Instead of just having the non-working spouse be a homemaker if you designate them as a real estate professional, you open up a lot of potential tax breaks.

For real estate professionals, instead of carrying the $20.6k in unused depreciation losses forward to the future, we get to deduct this against the working spouse’s W2 income. This results in immediate tax savings of $8.5k.

 It gets better.

Due to the changes enacted in the 2017 Tax Cuts & Jobs Act, you can claim 100% bonus depreciation on section 179 deductions.

What this means is we can conduct a Cost Segregation study, where an appraiser goes through the property and lists out all the appliances, fixtures, carpeting, irrigation, landscaping, etc. that might have a life expectancy of 5,7 or 15 years and assigns a dollar value to it.

On $600k of improvements, it can be possible to claim $200k or more in section 179 deductions. Claiming 100% bonus depreciation on this means you get to claim $200k in losses instead of the $20.8k we claimed above.

In a 41.3% marginal tax bracket, this can save you $83k in taxes, or about 40% of your down payment. If you’re in a 37% federal tax bracket and 12.3% state tax bracket, the benefit is even larger, and you’ll save nearly $100k in taxes or almost 50% of your down payment!

When the government is refunding 50% of your down payment, this can really help accelerate your property acquisition cycle.

So what’s the catch?

• You need to get a cost segregation study done, which costs a few thousand dollars.

• 2022 is the last year you can take a 100% bonus depreciation on section 179 expenses. In 2023, it drops to 80% and continues to drop 20% a year until gone. But keep an eye open for tax loopholes like these, which resurface periodically.

• One spouse must qualify as a real estate professional. This means getting a real estate license or working 750 hours in real estate, and deriving 50% or more of your income from real estate. This is usually difficult to do if you have a full-time job and is best suited to non-working spouses, or those that actually work in real estate.

That’s great, but what if both spouses work? Is there a way to benefit from this?

There is! But it relies on a different set of rules, one that applies only to short-term rentals. I’ll address that in a future post. (Sign up to get notified of new posts).

 Bear in mind I am not a CPA and this is neither tax nor financial advice. However, I run these types of analyses for my financial planning clients.

Also, all investments need to stand on their own as solid investments and not just tax breaks. This is getting harder to do when mortgage rates are 7%.

If you need help calculating the returns on a real estate investment, or other aspects of retirement and investment planning, click here to book an appointment.

The past two weeks have seen a steep decline in the stock market on the fear of rising rates and an impending recession.

It’s still higher than the lows of June, but after a brief rally over summer the stock market has again turned downward.

The Consumer Price Index (or CPI) numbers, a standard measure of inflation, came in at 8.3%. Everyone was expecting 8.1% and the fact that they were a smidgen higher means the Federal Reserve isn’t succeeding at curbing inflation. This means that Jay Powell, chairman of the Fed is likely to announce another 0.75% to 1% rate hike next week.

This spooked the market.

If that wasn’t enough bad news, FedEx revised its earnings estimates significantly downwards for the rest of the year, citing a global slowdown in demand. It’s closing 90 offices worldwide and likely will be laying off staff.

Many people view FedEx as an indicator of the global economy. If FedEx is slowing down, it must mean the global economy is also slowing down.

As scary as these sound, neither of these things is set in stone.

Even though inflation isn’t as transitory as we originally thought, it seems to have peaked and is declining, even if quite slowly. Oil and commodity prices have subsided, supply chains are opening up, demand is softening, used car prices have started to come down, and asking rents have started to drop as well.

And FedEx’s track record of predicting its annual earnings is terrible.

Over the past decade, it has lowered its forecast at least once in 9 of the years, sometimes soon after raising it. It also runs a dual delivery network consisting of both employees and contractors, unlike UPS which only hires employees. This makes for inefficient and complex scheduling, especially during times of high employee turnover, such as we now face. Compared to its competitors, FedEx is more dependent on global trade for growth. Considering we’re now past peak globalization, FedEx’s best days are likely behind it. This speaks to operational issues, and not necessarily macroeconomic ones.

Also, we know that the pandemic brought forward future demand as consumers sat at home and spend all their discretionary income on home goods, furnishings and renovations. And now the world has opened up again, the consumer has replaced goods with services. They are spending more money on restaurants, concerts, and travel.

As a confirmation of this trend AirBnb’s CEO recently reiterated they are having a record year. Bookings and Average Daily Rates have exceeded pre-pandemic levels. They are generating billions of dollars in free cash flow and have even instituted a share-buyback plan.
This sentiment was shared by airlines like SouthWest and Delta as well.

But while the prices of goods and energy are declining, the cost of services is not.

If inflation doesn’t get under control, the Fed will continue to raise interest rates. At the current rate of decline, inflation won’t get under 4% until March and under 2% until May.

We can expect the Fed to continue to raise interest rates over the next 6-8 months. It already raised 0.75% this week and I anticipate a few more rate hikes after that.

If you are worried and confused by all these conflicting data points you are not alone.

All major banks have differing views on what the next 6-12 months hold for the economy. They are split between a severe recession, a mild recession, and no recession, but instead a period of very slow growth. Between them, they’ve covered all the outcomes.

Bank of America is projecting a recession beginning of 2023.

Goldman Sachs is currently projecting GDP growth for 2022 at 0% and for 2023 at 1.1%. They are in the mild growth camp.

Regardless of what happens to the economy, the stock market is likely to stay extremely volatile over the next 6 months.

So what happens if we see a recession? How do invest in such an environment?

First of all, remember the stock market is forward-looking. We don’t know if it has already priced in a recession and has bottomed out already. If so, the market might not revisit its June lows regardless of what happens to the economy.

The last time investor sentiment was this negative was in April 2020 and March 2009. In both cases, the stock market had already bottomed and traded higher after that.

S&P500 is already down 20% year-to-date and the Nasdaq is down 30%. Even if the stock market drops further from here, it’s unlikely to fall more than 10% or 15%. In order words, the worst of the decline is behind us.

The strong US Dollar has hurt foreign stocks. As foreign countries start to raise their interest rates, those currencies and consequently their stock markets will see a rebound. Foreign stocks are already quite cheap, trading for 10-11 times earnings, and sporting a 4% dividend yield. With a 4% dividend, we’re getting paid to wait for the eventual rebound.

These are much cheaper valuations than US stocks, which trade for 17-18 times earnings with a 1.8% dividend yield.

We continue to maintain our global diversification, focusing on companies with low valuations, healthy balance sheets, and strong cashflows. These will weather a recessionary environment.

If you’ve been buying speculative technology companies with high valuations and poor cashflows, you’re already down 35-70% over the past year and it’s time to start seriously reconsidering your investment strategy.

Rising interest rates cause bond prices to decline. They have already declined 13% this year. Long-term bonds have lost a whopping 26% this year.

On the bright side, yields on Treasuries and CDs are now higher than they have been in over a decade. Three-month Treasury bills now yield 2%, and I just saw a 10-month CD yielding over 4%.

Properly positioning your portfolio with short-term bonds that are less affected by rising interest rates will provide a buffer against declining stock prices.

Other than that, you should use a stock market decline to do these five things:

1. Reevaluate your holdings and restructure your portfolio
2. Use tax loss harvesting to save on your taxes
3. Exchange out of concentrated stock positions
4. Perform Roth Conversions
5. Exchange mutual funds for tax-efficient ETFs

As always, keep calm and stay invested. The worst is likely over despite the volatility of the next several months.

If you want to discuss your portfolio or any of these five topics, feel free to drop me a line or book a meeting.

Regards,
Nirav

Retirement is a dream for most Americans. Sure, there are people like Warren Buffett who love to work. Most people do not. If you’re one of those people who want to retire, the question arises of when a good time to retire might be. Some people will be fine retiring next week while some should wait for a few more years. 

Can You Do Without Income?

If you’re working a job that pays well, it’s unlikely you’ll be able to bring in as much money when retired. There are exceptions to this rule. If you’ve routinely saved half of your income over a few decades, you might have enough stashed away to approximate your working income. If your ability to draw down your nest egg is limited by its size, you might want keep working. Additionally, it’s important to remember that most people cannot draw down from 401(k) and IRA accounts without penalty until age 59 1/2. If you’re worried about having enough to tide you over until you hit this magic age, staying in the workforce for a few years might be a good idea. 

You Need Insurance

Health insurance can be very expensive, and the older you get, the more likely you are to need it. Going without insurance means taking a big financial risk. If your employer offers health insurance for retirees and you have enough money to maintain your standard of living, you can probably hand in your notice and leave the workforce. On the other hand, you might want to stick around for a few years if your employer does not offer retiree health benefits. Medicare doesn’t come into play until age 65 so you’ll want to make sure you have health insurance until that point in your life. 

You Don’t Know What You Want to Do

Unless you have health issues that require you to retire early, it’s a good idea to wait until you know what you want to do during retirement. Many people who have no plan for what to do during retirement find they are bored after pulling the plug. You’ll want to retire to something rather than just retire from your job. Travel is fun, but you could run out of new places to visit. Playing the same golf course three times a week will eventually get old. Having a hobby that brings value to your life before retirement will help you navigate your retirement without getting bored. If you don’t have such a pursuit and you still have good health, it might be a good idea to keep working for a while. 

You Can Cut Your Hours

If you merely want to cut back on the time that you spend at the office, you might be able to get your boss to adjust your schedule. This will likely only work if you’re a great employee. Your boss may want to keep you around for a while and offer you the opportunity to work a part-time schedule to make sure that you wait to retire. Even if your boss wants you to work a full-time schedule, he or she might offer to let you work from home a few days each week. If you have a more advantageous work schedule, the additional money you bring in might make it worth sticking around for a few months or a few years.
Retirement is a goal most people have. However, not everyone should retire as soon as possible. There are some reasons you might want to keep working. On the other hand, if you’re set up for retirement in terms of your income, your life’s purpose and your health insurance, go ahead and retire. You’ve earned it.

The possibility of being targeted for a scam or a malicious scheme is well-known, and you may be aware of some of the more common or outdated scams. Today’s criminals, however, are increasingly devious. They know that many people are onto their efforts, so they can go to great lengths to trick consumers like you into providing vital personal or financial details to them. This may include everything from your bank account or credit card account info to your Social Security number, account password and other details. These are some of the more advanced schemes that you should aware of.

Delivery Confirmation Scam

Most e-commerce companies will send a delivery confirmation email to the recipient as soon as a package is delivered. Scammers can send a bogus confirmation that may look almost identical to a real confirmation. When an unsuspecting person receives a delivery confirmation for an item that they do not recall ordering, their inclination may be to click on the link in the email and to review the order. This link is part of a phishing scheme that will collect your user ID and password for the account. If you receive a delivery confirmation email like this, avoid clicking the link. Always check on the order status through the app or by directly typing in the company’s URL before logging in.

Special Events Ticket Scam

Another scam involves special events tickets, such as for a concert or a major sporting event. This is a type of phishing scam as well, but it will collect your payment information rather than a user ID and password. If you receive an offer that seems too good to be true, it may be a scam. Rather than clicking on any link provided to you in an email, open a new screen or use your app to explore the legitimacy of the offer. In addition, never call a phone number listed in an email. Always research the phone number independently.

Payment Declined Phishing Scam

Some scammers attempt to collect financial details or your account login credentials via an email stating that your payment has been declined. Upon receiving this type of email, you may initially feel a sense of dread or concern since you may not recollect making a payment. This may motivate you to click on links in the email so that you can research the problem.

Fake Mobile Banking Apps

You do not need to click on bogus links in an email to fall victim to a scam. Some criminals have developed apps that look similar to those of major financial institutions, and they collect personal and financial data through their fake app. Conduct due diligence before downloading a banking app. This also applies to apps for investments, stock trading, credit cards and more.

We value your business and actively safeguard your data. Rest assured that we will never ask for your Social Security number, account number or bank info over the phone. We encourage you to take security precautions on your end as well. For example, never share your password, and change it periodically. Also, do not provide your financial details via email or to an untrusted and unverified party. 

Criminals are increasingly savvy, stay updated about the latest scams going forward so that you can take necessary precautions.

Maintaining the trust and confidence of our clients is a high priority. That is why we want you to understand how we protect your privacy when we collect and use information about you, and the steps that we take to safeguard that information. This notice is provided to you on behalf of Qubera Wealth Management Inc.

Information We Collect: In connection with providing investment products, financial advice, or other services, we might obtain non-public personal information about you, including:
• Information we receive from you on account applications, such as your address, date of birth, Social Security Number, occupation, financial goals, assets and income;
• Information about your transactions with us, our affiliates, or others; and
• Information received from credit or service bureaus or other third parties, such as your credit history or employment status.

Categories of Information We Disclose: We may only disclose information that we collect in accordance with this policy. Qubera Wealth Management Inc. does not sell customer lists and will not sell your name to telemarketers.
Categories of Parties to Whom We Disclose: We will not disclose information regarding you or your account with us, except under the following circumstances:
• To entities that perform services for us or function on our behalf, including financial service providers, such as a clearing broker-dealer, investment company, or insurance company;
• To consumer reporting agencies,
• To third parties who perform services or marketing on our behalf;
• To your attorney, trustee or anyone else who represents you in a fiduciary capacity;
• To our attorneys, accountants or auditors; and
• To government entities or other third parties in response to subpoenas or other legal process as required by law or to comply with regulatory inquiries.

How We Use Information: Information may be used among companies that perform support services for us, such as data processors, technical systems consultants and programmers, or companies that help us market products and services to you for a number of purposes, such as:
• To protect your accounts from unauthorized access or identity theft;
• To process your requests such as securities purchases and sales;
• To establish or maintain an account with an unaffiliated third party, such as a clearing broker-dealer providing services to you and/or Qubera Wealth Management Inc;
• To service your accounts, such as by issuing checks and account statements;
• To comply with Federal, State, and Self-Regulatory Organization requirements;
• To keep you informed about financial services of interest to you.

Regulation S-AM: Under Regulation S-AM, a registered investment adviser is prohibited from using eligibility information that it receives from an affiliate to make a marketing solicitation unless: (1) the potential marketing use of that information has been clearly, conspicuously and concisely disclosed to the consumer; (2) the consumer has been provided a reasonable opportunity and a simple method to opt out of receiving the marketing solicitations; and (3) the consumer has not opted out. Qubera Wealth Management Inc. does not receive information regarding marketing eligibility from affiliates to make solicitations.

Our Security Policy: We restrict access to nonpublic personal information about you to those individuals who need to know that information to provide products or services to you and perform their respective duties. We maintain physical, electronic, and procedural security measures to safeguard confidential client information.
Closed or Inactive Accounts: If you decide to close your account(s) or become an inactive customer, our Privacy Policy will continue to apply to you.
Complaint Notification: Please direct complaints to: mail@quberawealth.com
Changes to This Privacy Policy: If we make any substantial changes in the way we use or disseminate confidential information, we will notify you. If you have any questions concerning this Privacy Policy, please contact us at: mail@quberawealth.com

If you are approaching the age of 65 or already an eligible beneficiary, open enrollment for 2020 Medicare health benefits starts soon. For new enrollees over 65 or turning 65 and don’t have medicare, you can sign up from October 15th to December 7th of this year. Existing enrollees will receive information including a notice of annual changes and evidence of coverage the beginning of October. Whether you are an existing or a new enrollee, it is better to prepare yourself for Medicare Open Enrollment. First, learn what Medicare means if you are a new enrollee, how to change existing plans, and how to get insurance coverage.

Medicare is a health insurance for individuals turning 65, or the age of 65 and older. People with a disability under 65 or end-stage renal disease are also eligible. The healthcare program offers Medicare Part A and Part B plans for hospital and medical insurance coverages.

The costs in premiums vary based on the net income of eligible enrollees. This year, the changes to Medicare applied to high income earners resulting in new and increased premiums for Part A and Part B. There was a small increase in Part B premiums for most plan participants. For an example, an enrollee with a net income of $499,999 pays $433.40 in monthly premiums, in 2019. If the income is over $500,000, monthly premium costs is $460.50.

Changing Existing Medicare Plans

The only time you can change your existing medicare plan is from October 15th, to December 7th. From October 1st to the 14th, you should have an Annual Notice of Change and Evidence of Coverage from your plan providers of Medicare Advantage and Medicare Part D. You can change healthcare and prescription drug coverage plans during the annual enrollment time frame mentioned above.

When you receive your Annual Notice of Change, make a note of any changes. If dissatisfied with your plan and you want to change your Medicare plans, do it before December 8th. An enrollee can switch from Medicare Advantage to Original Medicare from January to the end of March in 2020.

People who didn’t enroll by December 2019 can sign up for Part A and Part B Medicare plans from January to March 31st. There are penalties of 10 percent of the yearly premiums you were eligible for and did not enroll in Medicare Part B. Part A is normally free for individuals or their spouses who contributed to Medicare taxes during employment, but there is a late enrollment penalty.

Qualifying for Medicare

New enrollees can sign up for Medicare benefits through Social Security Administration (SSA) if you are not receiving benefits. SSA will process your application after reviewing your information and let you know if you qualify for Medicare. You can sign up online or visit your local Social Security office.

Medicare Coverage Plan Options

The two medicare coverage plans are Original and Advantage. Original Medicare includes Part A and Part B plans which allows you to use any physician or hospital accepting Medicare. You have the options of getting drug coverage and a supplement insurance plan. For drug coverage, you will have to get Medicare Part D Prescription Drug Plan.

If you need help with additional costs in the Original plan, Medigap is an option for supplemental insurance. To get full coverage, Medicare Advantage is the best solution for health insurance. It includes Part A, Part B, and/or Part D which provides extra benefits for dental, hearing and vision.

Now that October is approaching, you have time to prepare for Medicare open enrollment. If you are a new enrollee, learn more about enrollment and changes to Medicare visit Medicare Resources today.

September is Life Insurance Awareness Month which gives us a reason to talk about a subject that some try to avoid.  Life insurance can conjure up dark images.  Many people are jarred into realizing the importance of buying life insurance after a close friend or family member has passed away or even after hearing a news story about a tragic death that hit close to home. The reality is that we are all mortal, and there will very likely come a time when your loved ones will be left to fend for themselves without you. Consider these important questions to determine your need for life insurance.

How Will Your Loved Ones Live Without Your Income?

Many households are run on a paycheck to paycheck basis. Some people may have a modest amount of savings, but it may take two incomes to pay the monthly bills. Your spouse and children may quickly run out of money without your income to support them. Life insurance benefits are most commonly used to supplement lost wages and to eliminate debts after an income-producing adult passes away. By eliminating debts with insurance proceeds, your loved ones will need less money to live off of each month. Some people will purchase enough insurance to pay off all outstanding debts including the home mortgage. The surviving spouse may even be able to support the family through his or her income alone after the debts have been eliminated. Others will purchase enough coverage so that the proceeds can be invested to generate supplemental income.

How Will Your Spouse Be Able to Retire?

While some life insurance is needed to help your loved ones to survive on a monthly basis, you also need to think about the future. Your income may currently be instrumental in your spouse’s ability to fund a retirement account. Without your income, your spouse may be forced to work for many years past the traditional retirement age. this can create an unnecessary hardship on him or her. It is wise to purchase extra coverage to fund a retirement account.

Do Your Kids Need Financial Assistance Getting Their Adult Lives Started?

If you have kids, you may be well aware of their financial dependence on you, and this will often not simply evaporate when they turn 18. Many children need financial assistance buying their first car, paying for their wedding, paying for college and more. Some parents will purchase additional death benefits so that their kids’ lives are not financially impacted by a death.

How Much Coverage Do You Need?

Life Insurance, It’s Not For You!

This is a complicated question that often requires you to create a solid financial plan for the future. Funds can be used strategically in different ways, such as to purchase income-producing assets, to pay off debts and more. Your current lifestyle, debts and assets all must be taken into account. It is wise to work with an experienced life insurance expert to review your financial needs.

Death is something that can unfortunately happen at any time. Some people will live well into their 90s or beyond, but others have a life that is cut short far too soon. Because you cannot predict what will happen or when life insurance benefits will be needed, it can be a smart decision to purchase coverage as soon as possible. 

There has been a lot of chatter recently by economists and news outlets using the word “recession”.  Understanding that it could happen and understanding how to handle it are different matters.   If you are one of those nearing retirement or in retirement that has no strategy, you may be right to worry.  Planning for a recession involves making a plan for other financial eventualities. If you prepare, you can face the future with more confidence. When the threat of a recession exists, recall there are two retirement variables within our control. How long we work and how much we save. Within this framework, there are several other things to consider about recessions and retirement.

The first point to remember is to live within your means. Depending upon your lifestyle going into the recession, it might require preparation and practice. Spending as much as your income needs to stop. This may require figuring out exactly where your money goes. When you know this, easier to trim your budget. Less spending might not be fun, but spending is always in your control. This is important as you head into a recession and your income will be less.

A second element is to potentially reduce your budget. Once you have trimmed the obvious low hanging fruit, you can focus on bigger ways to reduce your spending if need be. You need not make these bigger cuts now. For instance, could you cut out your Starbucks excursions once per week? Twice per week? Could you also cut other nonessential services such as eating out or buying that new television or entertainment center? Could you lower transportation expenses? These will no doubt require sacrifice. Ensure that your spouse or other partner agrees and will work with you.

A third item to remember during or to prepare for a recession is to devise a plan to accumulate cash reserves. The point of building up cash reserves is to keep you from having to liquidate your stocks. I am sure we can all recall the advice of well-meaning investment planners: have an emergency stash with several months of expenses. This stash should carry us through losing our job or another financial emergency. In retirement, more cash reserves are necessary to ensure against an economic downturn. Remember that regardless of what financial markets do, you still have the responsibility of food, housing, transportation, and healthcare. You do not want to decrease your savings and outlive your money.

A fourth point to remember is to be patient with the market. It is tough to see losses on paper. But, remember that the loss is only on paper and that it is not gone until you withdraw it. Realize that the market comes back, so if you sell, you will not see the benefits of the recovery. Know the market is cyclical and will (eventually) recover.

A fifth factor to consider is to work a few extra years before retirement or work a part-time position during retirement. Crunch the numbers and determine what benefits you could receive if you worked a year or two longer. Consider that any work you do before/in retirement increases your retirement money.

Last, consider that an annuity combats recession. Annuities are referred to as “protected lifetime income”. Annuities are insurance that pays a set amount regardless of the market’s performance. Annuities can also give comfort because one can keep his/her current lifestyle through their life expectancy.

We are here to help you plan for your retirement, regardless of the market or economy.  Let’s focus on your savings and your goals.

Sources:

https://www.usatoday.com/story/money/personalfinance/retirement/2018/08/27/ways-protect-yourself-market-downturn-early-retirement/37588541/

https://www.washingtonpost.com/business/2019/08/26/three-financial-experts-address-retirees-five-most-pressing-worries-about-recession-their-retirement-funds/?noredirect=on

https://www.investopedia.com/articles/retirement/08/retire-in-a-recession.asp