retirement plan

How to Handle the Coming Inflation

One topic on economists, advisors and investors’ minds of late is how to invest in a way that benefits from inflation. To answer this question we first have to make an assumption – that we will in fact experience an inflationary cycle. That is not something I can answer with certainty, but my personal belief is that we’ve had inflation for a very long time and all the reports about little or no inflation or even deflation is nonsense. That said, should president-elect Donald Trump be successful implementing some of his policy pledges, we could have a period of greater than normal inflation. I am sure you have heard that Mr. Trump wants to reduce the tax rates on both businesses and individuals while simultaneously embarking on an infrastructure spending package upward of one trillion dollars. If these pledges turn into reality wages and prices could rise. So where do you put your money to take advantage of this potential reality?

One innvestmet avenue is real estate. If you have the means, the knowledge and the desire, you could purchase investment property. This investment could be something such as a one bedroom condominium that you rent out. Or if you have more money and experience perhaps an apartment complex, office building, or industrial property. Investment real estate can make excellent investments. If done right, you will collect rents that increase with inflation together with a property value that will also increase with inflation. At the same time, you can get very nice tax advantages from real property investments.

What if you don’t have the money or the desire to become a landlord? You can take advantage by investing in Real Estate Investment Trusts, or REITs. A REIT is an investment vehicle that trades shares much like a stock. You buy and sell shares on the open market through your broker whenever you desire. This strategy allows for much more flexibility than owning an actual piece of property and you have no maintenance to deal with or tenant vacancies to fill. REITs are also required to pay out at least 90% of their annual income to shareholders so they are generally good vehicles for income investing.

Before you invest a dime, however, do you homework and understand the risks and the possible rewards.

Inflation

retirement plan

Social Security and Medicare Part B Increases

Monthly Social Security and Supplemental Security Income (SSI) benefits will increase 0.3 percent in 2017.  The 0.3 percent cost-of-living adjustment (COLA) will begin with benefits payable to more than 60 million Social Security beneficiaries in January 2017.  Increased payments to more than 8 million SSI beneficiaries began on December 30, 2016.  The Social Security Act (“Act”) ties the annual COLA to the increase in the Consumer Price Index as determined by the Department of Labor’s Bureau of Labor Statistics.  The Act provides for how the COLA is calculated.

In the new year, the standard Medicare Part B premium amount will be $134 (or higher depending on your income).  However, most people who get Social Security benefits will pay less than this amount.  This is because the Part B premium increased more than the cost-of-living increase for 2017 benefits.  If you pay your Part B premium from your monthly Social Security payment, your monthly premium can go no higher than the increase you receive to your monthly benefit.  Social Security will tell you the exact amount you will pay for Part B in 2017.

Most beneficiaries will not see a reduction in their 2016 monthly benefit amount because of the increase in the Medicare Part B premium.  This is because the Act contains a “hold harmless” provision that protects most beneficiaries. The amount of the benefit payable between 2016 and 2017 will stay the same even though the Medicare Part B premium increases.

social security

To learn more about Medicare Part B costs go to https://www.medicare.gov/your-medicare-costs/part-b-costs/part-b-costs.html at the Medicare webpage.

retirement plan

Companies Create First Sheets to Prevent Bedsores

Bedsores can be deadly for people on bed rest.  Precision Fabrics and Standard Textile have combined to create DermaTherapy, a bed sheet that actually prevents bedsores.  Originally Precision Fabrics tested a synthetic silk sheet to determine if a new fabric would wick away the moisture and heat of hot flashes to allow women going through menopause to sleep better.  Then the sister of a Precision Fabrics corporate manager became ill with cancer and developed several bed sores.  The manager “saw the ravage that they created, knew what we did and said, ‘We have to advance this technology.’  The product focus expanded from menopause and overall better, deeper sleep to an application in acute health care, long-term care and home healthcare.  After 11 clinical trials at several hospitals showed incidences of pressure ulcers were reduced by 65 percent to 80 percent, the Food and Drug Administration certified DermaTherapy as a medical device in June of this year.  It’s a first for a bed sheet, and it flips conventional thinking on its head:  Instead of sheets and pads protecting the mattress, they protect the patient.  What the company found during the trials is that so-called pressure ulcers aren’t caused by pressure at all but rather by what happens when moisture, friction and shear of bed linens interact with skin.  The short fibers of cotton break down with use and become abrasive.

The Centers for Medicare and Medicaid Services estimate that hospital-acquired pressure ulcers add about $11 billion to the nation’s health care bill each year.  CMS will not reimburse hospitals for treating bed sores since they are considered avoidable.  These wounds generally occur on patients who are in frail health and can lead to rapid decline and death.  Precision’s patented fabric has carbon channels and antimicrobial characteristics to reduce odor and static, and a treatment to repel stains.  With the FDA approval, the company hopes that it can change the mindset of hospital and nursing home managers to view bed sheets as part of patients’ treatment rather than as housekeeping items.

retirement plan

Longevity Planning – Are you ready?

Longevity Planning is important. Proper longevity planning will allow you to maintain a high quality of life in your retirement years, avoid the dreaded nursing home, maintain and protect your assets and avoid being a burden on your family members. Not planning can be catastrophic.

Let’s be realistic. Right now, and for the next decade, Baby Boomers are retiring at the rate of 10,000 per day!! At the same time people are living longer than ever before. Many individuals are living well into their 80s and 90s. Recent studies show that one in four people over age 65 will need long term care; and, one out of every two people over age 85 will need long term care.

Uncovered medical bills, basically long term care costs, are probably the greatest threat to your retirement, quality of life and your assets. Medicare and other health insurance coverages generally protect you from expensive hospital and doctor bills. However, this insurance coverage does not help with long term care costs.

Whether you need help at home, in an assisted living environment, in an adult family home or nursing home, those costs are not generally covered by insurance. These costs are severe. In home care costs can range between $20,000 to $50,000 per year; an adult family home can run between $50,000 to $100,000 and skilled nursing care often exceeds $100,000 per year.

Sadly that’s just the cost of a room, care and meals. The cost of hearing aids, walkers, hairstyling, clothes, trips, etc. are all on top of those costs.

How do you address these costs?

It is best to work with a qualified Elder Law attorney. An attorney that merely drafts basic Wills and Powers of Attorney is not sufficient. Why? This area of discipline is extremely complex and requires a thorough understanding of Medicare, Medicaid, Veteran’s Benefits, Wills, trusts, and fiduciary duties. Additionally, the attorney must have an understanding of investments, investment products, how they function, and how those products affect your overall situation. This includes an understanding of IRAs, Roth IRAs, annuities, real estate, business investments, 401K and 403B accounts, reverse mortgages, and more.

If that is not enough, a good attorney can also help with your living arrangements. For many, remaining in your own home is the best option. However, if your residence is multiple stories, has steps to get into the house, has narrow hallways, has the washer and dryer in the basement, etc., the home may no longer be the best location unless modifications are made.

It is also important the attorney have an understanding of how your physical and cognitive health impacts your situation. Issues such as how much and what level of care is or may be needed have to be addressed. A knowledge of how benefit providers interpret medical assessments is important as well as coordinating the resources available to you to challenge an incorrect assessment.

And, if all that is not enough your attorney needs to understand the tax implications of, among other things, setting up trusts, making gifts, selling assets, cashing in various accounts, and deductions for out of pocket medical expenses.

With all these obstacles to navigate you can see why you should not try to navigate all these obstacles on your own. Nor should you rely solely on an attorney who just does “estate planning”; you cannot rely solely on your financial advisor; you cannot rely solely on your medical professionals or hospital social workers; and you cannot rely solely on residential placement agencies that get paid from a nursing facility or adult family home only when you become a resident.

When should you begin this planning?

There is no right or wrong age to undertake longevity planning. However, for most people age 60 or above longevity planning is critical. Additionally, there are vastly more planning options available for married couples than for single individuals. And, what are you after your spouse dies? Single.

Who will benefit from this type of planning?

Generally everyone can benefit from longevity planning. However, the most affluent among us probably need this planning the least. While we all have different views about who is “affluent”, I would say any person or couple with a “taxable” estate in Washington, which is $2,054,000 or more in assets, meets this criteria.

For everyone else, longevity planning is important. And for those with estates of less than $1,000,000, including your house and other resources, this planning is critical.

What will I accomplish with longevity planning?

First and foremost, you will enable yourself to enjoy the highest possible quality of life available In retirement. You may be able to avoid institutional care, otherwise known as nursing home care. You can avoid becoming a burden on your children and other loved ones. You will be able to structure your assets and income to maximize your resources to accomplish a comfortable, quality retirement. And, you will be able to protect your assets and income to provide for you and your loved ones.

So how much will all this cost?

That is different for everyone because everyone’s situation is different. You should be prepared to make an investment of several thousand dollars. However, you can be reasonably certain planning will cost a lot less than one year of even the most affordable care.

Contact us to today to see how we can help you. Hugg & Associates, PLLC

retirement plan

Bonds Beware – Do Your Research

Own bonds? In case you don’t closely follow the markets, bond yields recently reached the lowest level in decades. When yields drop the price of a bond rises. Conversely, when yields rise, the price of a bond decreases. Central bankers around the world have kept interest rates low for a very long time under the belief that low rates would spur investment activity. These low rates have led to years of rising bond prices. It now appears that the long bull market in bonds has either ended or is very near the end. The U.S. Federal Reserve just raised rates a quarter point in December 2016 and indicated as many as three more possible rate hikes in 2017. Rising interest rates will mean that existing bonds, paying out at lower rates of interest, will decline in value. This is due to investors wanting the newer bonds paying higher rates.

If president elect Trump is successful with his tax cuts and infrastructure spending, inflation could rise. Interest rates should follow suit to keep inflation under control, and bond prices will continue to drop. All of this sounds pretty bad if you are a long term bond holder. What should you do? First, steer clear of bonds with maturities longer than 3-5 years. Second, consider alternatives to bonds when investing for income: certain real estate investment trusts, Treasury Inflation Protected Securities, or TIPS, may be a good place to park some funds, as would be preferred stocks. Lastly, consider investing a little more in equities, preferably those whose prices are below a company’s intrinsic value.

Be sure to do your research and understand what you are investing in.