Managing Drug Costs

Managing Drug Costs

How can households meet the challenge?   

 

Provided by Terri Fassi, CPA, MBA, CDFA

 

Are prescription drug costs burdening your finances? This problem is far too common today. Consider the price tag of some of the drugs used to treat arthritis, hepatitis C, cancer, and multiple sclerosis. A Kaiser Family Foundation study notes that the cost of medications such as Zytiga, Humira, Gleevec, and Revlimid may run anywhere from $4,000-12,000 a year. For the record, Medicare Part D’s catastrophic coverage threshold for prescription medications is currently $4,850 per year (up from $4,700 in 2015).1,2

How can a household try to manage drug costs? There are some approaches that may help.

Shop around & compare Part D plans annually. This year, the Part D recipients who were automatically re-enrolled in their plans faced monthly premiums averaging $41.46, a 13% rise from $36.38 in 2015. As you shop, keep in mind that plans with smaller premiums may have higher out-of-pocket costs. Some plans also limit monthly doses of certain drugs in their coverage, or request patients to try less costly drugs before branded drugs can be prescribed.3

Consider generics. Generic drugs represent nearly 90% of prescriptions written today and can cost 80-90% less than branded therapies. Sometimes generic alternatives are not available, but often they are.3

Stay within the plan network. If you do, you’ll discover that 85% of Part D plans offer preferred in-network pharmacies. If you go out of the network for non-preferred medications, your cost for those medications may rise. That said, shopping around at different pharmacies may yield some savings. Pharmacies located inside big-box retailers sometimes provide amazing savings on commonly prescribed medications.3

Ask a compounding pharmacy if it can make a medication for you. In such an instance, the savings could be substantial.

Ask your doctor if you can reduce your dose. If that is doable, it could mean monthly savings.

Use a pill cutter. Typically, you pay for drugs by the pill rather than the pill strength. A pill cutter (which you can usually pick up for less than $10) can be an avenue to savings. This is true for many prescription drugs.4

Try GoodRx. This app is free for your phone, and you can also visit GoodRx.com on your PC. GoodRx will give you a coupon so you can buy a prescription drug at the price it has negotiated with particular pharmacies in your area. In some cases, the discounts can be as large as 90%.4 

Health Savings Accounts (HSAs) & Roth IRAs may also be useful. If you do not yet qualify for Medicare coverage, you may have the option to create an HSA, which must be used in conjunction with a high-deductible health plan (the current IRS definition of a high-deductible is $1,300 for individuals and $2,600 for families). In 2016, individuals can put up to $3,350 into an HSA, families up to $6,750; those 55 or older may make an extra $1,000 catch-up contribution to their accounts. HSAs are funded with pre-tax dollars, so the contributions reduce your taxable income. HSA funds may be partly or wholly invested, and they can be withdrawn tax-free as long as they pay for qualified medical expenses. Accumulated HSA funds may be withdrawn and spent for any purpose once the accountholder turns 65; although, withdrawals will be taxed as regular income at that point if not used to pay for qualified health care costs.5

IRS Publication 502 defines the cost of prescription drugs (and insulin) as a qualified medical expense. Qualified medical expenses also include lab fees and the costs of eyeglasses and contact lenses, psychiatric care, and drug and alcohol rehab programs.5,6

If you are already a Medicare recipient, one unheralded approach is to use Roth IRA funds to help meet drug costs. Roth IRA withdrawals are voluntary if you are the original owner of the IRA, and they may be made tax-free if you follow IRS rules. Required Minimum Distributions (RMDs) from traditional IRAs represent taxable income, and those RMDs could put you in a higher tax bracket and even prompt a Medicare surcharge.3   

Lastly, see your doctor on a regular basis. A routine checkup could alert you and your primary care physician to what could become a chronic ailment. If treated early, that ailment could possibly be allayed, even overcome. Undetected or untreated, it could result in a long-term health problem with long-run financial impact.

 

Terri Fassi may be reached at 970-416-0088 or terri@fassifinancialnetwork.com

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – benefitspro.com/2015/12/09/seniors-face-enormous-out-of-pocket-prescription-c [12/9/15]

2 – medicare.gov/part-d/costs/catastrophic-coverage/drug-plan-catastrophic-coverage.html [8/8/16]

3 – fool.com/retirement/2016/08/07/7-strategies-to-lower-your-medicare-prescription-d.aspx [8/7/16]

4 – vitality101.com/health-a-z/8-ways-to-slash-the-price-of-your-meds [6/8/16]

5 – investopedia.com/articles/personal-finance/010516/how-effectively-utilize-health-saving-accounts.asp [1/5/16]

6 – tinyurl.com/zr2fmo7 [8/8/16]

How Stepped-Up Basis Affects a 1031 Exchange

How Stepped-Up Basis Affects a 1031 Exchange

It may make the case for replacing a property far less compelling.

  

Provided by Terri Fassi, CPA, MBA, CDFA

 

Have you inherited a home or income property? If so, you may be weighing your options: you could hang onto it, you could sell it, or you could replace it through a 1031 exchange. One major factor affecting your choice will be the property’s tax basis – the value of that real estate in the eyes of the tax collector.1

The tax basis of a property changes over time, and it can change dramatically when a property is inherited or gifted. Usually, the basis is “stepped up.” Let’s explain what that phrase means.3

When you buy real estate, your starting tax basis is known as the cost basis. The cost basis is defined as the full purchase price for the property. If you buy a home for $300,000 (with or without financing), your initial tax basis is the cost basis of $300,000.1

When you inherit real estate, your basis is not the original owner’s cost basis. Instead, it is the fair market value of the property at the time of the owner’s death. This adjustment is known as a “step-up,” and it provides many heirs with a nice tax break.1,2

As an example, say someone inherits a 12-unit apartment building. The full purchase price of the building was $300,000 in 1990, but the fair market value of the building was $600,000 at the owner’s death. The heir sells the building for $620,000. Her tax basis is $600,000, which means her total taxable profit on the sale will be only $20,000 instead of $320,000. Correspondingly, she faces capital gains tax on $20,000 of profit rather than $320,000 of profit.1

When basis is stepped up, there may be much less incentive to replace a property (and defer tax on the gain) through a 1031 exchange. Selling the property may be the better option.

A 1031 exchange – an alternative to a conventional sale – offers you a legal way to replace an unwanted property with a more desirable one, without triggering capital gains taxes in the year of the swap. These like-kind exchanges are facilitated with the assistance of a third party – a qualified intermediary who can help you complete the exchange within 180 days of the initial property transfer (and before you file your 1040 for the tax year involved).3    

If you want to quickly sell inherited real estate, the case for a 1031 exchange weakens. If your goal is to unload the property within a few months, it may not appreciate much (or at all) in that time. The taxable profit above the stepped-up basis may be small or nonexistent, so capital gains tax may not be much of a concern. If you decide to hang onto the property for a couple of years, then the case for initiating a like-kind exchange grows stronger.3

What variables factor into the decision to sell or exchange? First, the fair market value of the property has to be determined. Take the original total purchase price of the property, add the value of any improvements, and subtract any depreciation taken. That is your adjusted basis.1,2

Once you have that number, plug it into the middle of another equation: Projected Sale Price – (Adjusted Basis + Projected Agent Commission + Projected Title Fees + Any Other Probable Closing Costs) = Realized Taxable Gain.2

Now onto determining the tax due. As a simple rule of thumb, multiply the depreciation that will be taken from the realized taxable gain by 25% to estimate recaptured depreciation. Then apply federal capital gains tax, state capital gains tax, and (in some circumstances) county capital gains tax to the remaining balance to arrive at the recognized gain, or the total capital gains tax you are projected to owe. If that total capital gains tax is not burdensome to you, you may opt to just sell the property rather than exchange it.2

Before making any move, be sure you confer with a tax professional or a real estate professional to evaluate these options.

 

Terri Fassi may be reached at 970-416-0088 or terri@fassifinancialnetwork.com

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

  

Citations.

1 – nolo.com/legal-encyclopedia/determining-your-homes-tax-basis.html [9/13/16]

2 – atlas1031.com/blog/1031-exchange/bid/82182/1031-Exchange-and-Stepped-Up-Basis [2/19/13

3 – cincinnati.com/story/money/2016/05/05/property-exchange-can-defer-avoid-tax/83982782/ [5/5/16]

 

Making Decisions About Life Insurance

Making Decisions About Life Insurance

Life insurance choices can be confusing.

 

Provided by Terri Fassi, CPA, MBA, CDFA

 

Man is Mortal. That makes life insurance a little unique and interesting, doesn’t it? We purchase things like health insurance, car insurance and home insurance, then hope we never have a need to use them. Life insurance is different because it’s a widely accepted fact that, sooner or later, each one of us will die.

So many choices. When it comes to life insurance, there are many options. You may have heard terms like “whole life insurance,” “term insurance,” or “variable insurance,” but what do they all mean? And what are the differences? Well, first let me point out what they have in common: all life insurance policies provide payment to a beneficiary in the event of your death. Except for that basic tenet, the differences between policies can be major.

Whole life insurance. This type of insurance covers your entire life (not just a portion or a “term” of it). Insurance companies tend to be cautious when selecting their investments, so the benefits could be, potentially, lower than if you invested on your own. Whole life policies also tend to cost more than “term” policies. This is both because they grow what is known as “cash value,” and, after a certain period of time, you will be able to borrow against or withdraw from your whole life benefits.

Term insurance. Rather than covering your whole life, “term” insurance covers a pre-determined portion of your life. If you die within that term, your beneficiaries receive a death benefit. If not, generally, you get nothing. To put it simply, term insurance allows you to purchase more coverage for less money. Basically, you are betting on the probability of your death occurring within that specified “term.”

Variable life insurance. Variable life insurance is a permanent insurance. Unlike whole life insurance, however, variable insurance allows you to invest the cash value of your policy into “subaccounts” (which can include money market funds, bonds or stocks). Variable insurance offers a bit of control, as the value and benefit depend upon the performance of the subaccounts you select. That means there could be significant risk involved, though, since the performance of your subaccounts cannot be guaranteed.

Universal life insurance. With universal insurance, it all comes down to flexibility. It is permanent life insurance that provides access to cash values, which, over time, build up tax-deferred. You can choose the amount of coverage you feel is appropriate, and you retain the ability to increase or decrease that amount as your needs change (subject to minimums and requirements). You also have some flexibility in determining how much of your premium goes toward insurance, and how much is used within the policy’s investment element.

So, which is right for you? Many factors come into play when deciding what type of life insurance will best suit your needs. The best thing to do is speak with a trusted and qualified financial professional who can assist you in looking at all the factors and help you to choose the policy that will work best for you.

 

Terri Fassi may be reached at 970-416-0088 or terri@fassifinancialnetwork.com

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

 

 

How Millennials Can Get a Good Start on Retirement Planning

How Millennials Can Get a Good Start on Retirement Planning

Some simple steps may make a major financial difference over time.

 

Provided by Terri Fassi, CPA, MBA, CDFA

 

If you are younger than 35, saving for retirement may not feel like a priority. After all, retirement may be 30 years away; if your employer does not sponsor a retirement plan, there may be less incentive for you to start.

Even so, you must save and invest for retirement as soon as you can. Time is your greatest ally. The earlier you begin, the more years your invested assets have to grow and compound. If you put off retirement planning until your fifties, you may end up having to devote huge chunks of your income just to catch up, at a time when you may have to care for elderly parents, fund college educations, and pay off a mortgage. 

Do your part to reject the financial stereotype that the media places on millennials. Are you familiar with it? According to the mainstream media, millennials are wary of saving and investing; they are just too indebted, too pessimistic, and too scared get into the market after seeing what happened to the investments of their parents during the Great Recession.

In truth, savers of all ages were traumatized by the 2007-09 bear market. Last month, Gallup asked American households if they had any money in equity investments; just 52% said yes. That compares to 65% in April 2007. In 2014, Gallup asked Americans if investing $1,000 in equities was a good idea or a bad idea; 50% of those surveyed called it a bad one.1

A recent study from HowMuch.Net found that 52% of Americans aged 18-34 have less than $1,000 in savings. Well, guess what: another study from Go Banking Rates reveals that 62% of all Americans have less than $1,000 in savings.2

Now is the time to take some crucial financial steps. According to a poll taken by millennial advocacy group Young Invincibles, only 43% of 18-to-34-year-olds without access to a workplace retirement plan save consistently for retirement; whether your employer sponsors a plan or not, though, you can still make some wise moves before you turn 40.3

Make saving a top priority. Resolve to pay yourself first. That is, direct money toward your retirement before you do anything else, like pay the bills or spend it on needs or wants. Your future should come first.

Invest some or most of what you save. Investing in equities is vital, because it gives you the potential to grow and compound your money to outpace inflation. With interest rates so low right now, ultra-conservative fixed-income investments are generating very low returns, and most savings accounts are offering minimal interest rates. Thirty or forty years from now, you will probably not be able to retire solely on your savings. If you invest your retirement money in equities, you have the opportunity to retire on the earnings and compound interest accumulated through both saving and investing.

The effect of compounding can be profound. For example, suppose you want to retire with $1 million in savings. (By 2050, this may be a common goal rather than a lofty one.) We will project that your investments will yield 6.5% a year between now and the year you turn 65 (a reasonably optimistic assumption) and, for the sake of simplicity, we will put any potential capital gains taxes and investment fees aside. Given all that, how early would you have to begin saving and investing to reach that $1 million goal, and how much would you have to save per month to reach it?

If you start saving at 45, the answer is $2,039. If you start saving at 35, the monthly number drops to $904. How about if you start saving at 25? Only $438 a month would be needed. The earlier you start saving and investing, the more compounding power you can harness.4

Strive to get the match. Some companies reward employees with matching retirement plan contributions; they will contribute 50 cents for every dollar the worker does or, perhaps, even match the contribution dollar-for-dollar. An employer match is too good to pass up.

Invest in a way you are comfortable with. In the mid-2000s, some Wall Street money managers directed assets into investments they did not fully understand, a gamble that contributed to the last bear market. Take a lesson from that example and avoid investing in what seems utterly convoluted or mysterious.

Realize that friends and family may not know it all. The people closest to you may or may not be familiar with investing. If they are not, take what they tell you with a few grains of salt.

Getting a double-digit annual return is great, but the main concern is staying invested. The market goes up and down, sometimes violently, but there has never been a 20-year period in which the market has lost value. As you save for the long run, that is worth remembering.2

 

Terri Fassi may be reached at 970-416-0088 or terri@fassifinancialnetwork.com

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

  

Citations.

1 – gallup.com/poll/1711/stock-market.aspx [4/28/16]

2 – usatoday.com/story/money/personalfinance/2016/02/04/7-ways-millennials-can-get-jump-start-retirement-planning/78310100/ [2/4/16]

3 – marketwatch.com/story/the-real-reason-many-millennials-arent-saving-for-retirement-2016-02-17 [2/17/16]

4 – tinyurl.com/zmncqz6 [4/27/16]

An Introduction to The Stock Market

AN INTRODUCTION TO THE STOCK MARKET

What it is, how it works, and how to get started.

 

Provided by Terri Fassi, CPA, MBA, CDFA

 

Confused or unsure? You’re not alone. It’s amazing to me how many adults, many of them college grads, know practically nothing about the stock market. Many schools simply don’t offer or don’t require the classes that cover it. If you’ve been holding off on investing because you simply didn’t know enough about it … that’s probably wise. But rather than delay any longer, here’s some information to get you started:

The nuts and bolts. Basically, if you own a stock, you own a part of a company. You’ve invested in that company. If the company does well, the value of your stock rises. If the company does poorly, the value of your stock falls. That is the stock market in the simplest terms.

The market. Think of it like a flea market. Rather than travel all over town, a flea market offers you a central location where buyers and sellers can meet up. The stock market isn’t all that different. Stock markets are simply gathering places for stock owners to buy and sell stock securities.

Exchanging? Trading? These are terms you hear frequently in regard to stocks, but they can be misleading … and perhaps this is one reason there is so much confusion. You’re not actually exchanging stocks, and you’re not really trading stocks. You are buying them or selling them.

How much does it cost to buy or sell a stock? Actually, there are two costs to consider … 1) The cost of the stock, and 2) the cost of the “trade”. The price of the stock varies hugely from company to company and can change from moment to moment, so that’s a question I can’t answer for you. But there’s also a fee to buy or sell a stock (or “share”). The amount of the fee depends on which stock brokerage you use. Generally these fees can range from under $10 to $20 or even up to $100 per “trade”. Keep in mind you will pay a fee when you buy your stock, and again when you sell it.

What is a brokerage? A broker is a conduit for the buying and selling of stocks. For example, let’s say you want to buy a stock that’s listed on the New York Stock Exchange (NYSE). Well, that stock is bought and sold on the floor of the NYSE. So, unless you are authorized to trade at the exchange and want to travel to New York, you instead enlist the services of a broker to take care of your buying and selling for you. Brokerages pay fees to become members of a stock exchange and access the “floor” of an exchange for trading. They then buy and sell stocks on behalf of their clients.

So, how do you get started? There are all kinds of ways to get started and a myriad of brokerage choices, including discretionary dealing (where the brokerage chooses stocks on your behalf), advisory dealing (where the brokerage gives you advice, but leaves the decisions up to you), and execution-only brokerages (where you will be entirely self-directed). Most brokerages have a minimum deposit you must make to get started, so you’ll want to look into that as well. If you’re serious about investing and want to do it frequently and avidly, read up on the markets and consider taking a class to educate yourself.

Before you make any big decisions, though, think about enlisting the assistance of a qualified financial professional who can give you insight and perspective on the financial markets.

 

Terri Fassi may be reached at 970-416-0088 or terri@fassifinancialnetwork.com

 

These are the views of Peter Montoya, Inc., not the named Representative or Broker/Dealer, and should not be construed as investment advice. Neither the named Representative or Broker/Dealer give tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.

 

Making Retirement Savings Last

MAKING RETIREMENT SAVINGS LAST

Different ways to respond to the challenge.

 

Provided by Terri Fassi, CPA, MBA, CDFA

 

As you retire, there are variables you can’t control; investment performance and fate are certainly toward the top of the list. Your approach to withdrawing and preserving your retirement savings, however, may give you more control over your financial life.

Drawing retirement income without draining your savings is a challenge, and the response to it varies per individual. Today’s retirees will likely need to be more flexible and look at different withdrawal methods and tax and lifestyle factors.

Should you go by the 4% rule? For decades, retirees were cautioned to withdraw no more than 4% of their retirement balances annually (adjusted north for inflation as the years went by). This “rule” still has merit (although sometimes the percentage must be increased out of necessity). T. Rowe Price has estimated that someone retiring with a typical 60%/40% stock/bond ratio in their portfolio has just a 13% chance of depleting retirement assets across 30 years if he or she abides by the 4% rule. A 7% initial withdrawal rate invites an 81% chance of outliving your retirement assets in 30 years.1

That sounds like a pretty good argument for the 4% rule in itself. However, while the 4% rule regulates your withdrawals, it doesn’t regulate portfolio performance. If the markets don’t do well, your portfolio may earn less than 4%, and if your investments repeatedly can’t make back the equivalent of what you withdraw, you will risk depleting your nest egg over time. 

Or perhaps the portfolio percentage method? Some retirees elect to withdraw X% of their portfolio in a year, adjusting the percentage based on how well or poorly their investments perform. As this can produce greatly varying annual income even with responsive adjustments, some retirees take a second step and set upper and lower limits on the dollar amount they withdraw annually. This approach is more flexible than the 4% rule, and in theory you will never outlive your money.    

Or maybe the spending floor approach? That’s another approach that has its fans. You estimate the amount of money you will need to spend in a year and then arrange your portfolio to generate it. This implies a laddered income strategy, with the portfolio heavily weighted towards bonds and away from stocks. This is a more conservative approach than the two methods above: with a low equity allocation in your portfolio, only a minority of those assets are exposed to stock market volatility, and yet they can still capture some upside with a foot in the market. 

Attention has to be paid to tax efficiency. Many people have amassed sizable retirement savings, yet give little thought as to the order of their withdrawals. Generally speaking, there is wisdom in taking money out of taxable accounts first, then tax-deferred accounts and lastly tax-exempt accounts. This withdrawal order gives the assets in the tax-deferred and tax-exempt accounts some additional time to grow. A smartly conceived withdrawal sequence may help your retirement savings to last several years longer than they would in its absence.2

Keeping healthy might help you save more in two ways. Increasingly, people want to work until age 70, or longer. Many assume they can, but their assumption may be flawed. The 2012 Retirement Confidence Survey from the Employee Benefit Research Institute found that 50% of current retirees had left the workforce earlier than they planned, with personal or spousal health concerns a major factor.3

When you eat right, exercise consistently and see a doctor regularly, you may be bolstering your earning potential as well as your constitution. Health problems can hurt your income stream and reduce your chances to get a job, and medical treatments can eat up time that you could use in other ways. Good health can mean fewer ER visits, fewer treatments and fewer hospital stays, all saving you money that might otherwise come out of your retirement fund.

Fidelity figures that a couple retiring now at age 65 will spend $240,000 (in 2012 dollars) on retirement health expenses across their remaining years. That $240,000 doesn’t even include dental, over-the-counter drug and long term care costs (and as a reminder, many eye, ear and dental care costs are not even covered under Medicare or by Medigap policies). Every year you work may mean another year of health insurance coverage as well as income.4

 

Terri Fassi may be reached at 970-416-0088 or terri@fassifinancialnetwork.com

 

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – individual.troweprice.com/staticFiles/Retail/Shared/PDFs/retPlanGuide.pdf [5/10]

2 – online.wsj.com/article/SB10001424052748703529004576160693310435366.html [3/7/11]

3 – www.dailyfinance.com/2012/09/03/postponing-retirement-70-not-the-new-65/ [9/3/12]

4 – www.marketwatch.com/story/good-health-means-more-retirement-money-2012-12-06 [12/6/12]

A Caregiver’s Financial Responsibilities

A CAREGIVER’S FINANCIAL RESPONSIBILITIES

Key questions for you & your family to consider.

 

Provided by Terri Fassi, CPA, MBA, CDFA

    

A labor of love may come to involve money issues. Providing eldercare to a parent, grandparent or relative is one of the noblest things you can do. It is a great responsibility, and over time it may also lead you and your family to reflect on some financial responsibilities. Here are some questions to consider.

Q: How will caregiving affect your own financial picture? Try to estimate a budget, either before you begin or after a representative interval of caregiving. How much of the elder’s finances will be devoted to care costs compared with your finances? If you are thinking about quitting a job to focus on eldercare, think about the resulting loss of income, the probable loss of your own health care coverage, and your prospects for reentering the workforce in the future.

Q: How much will “aging in place” cost? Growing old at home (rather than in a nursing home) has many advantages. Unfortunately, over time, the cost of care provided in the home can greatly exceed nursing home services. So you must weigh how long you can manage with home health aide services versus adult day care or nursing home care.

Q: How much do you know about your loved one’s financial life? Caring for a parent, grandparent or sibling may eventually mean making financial decisions on their behalf. So you may have a learning curve ahead of you. Specifically, you may have to learn, if you don’t already know: 

– Where your loved one’s income comes from (SSI, pensions, investments, etc.)

– Where wills, deeds and trust documents are located

– Who the beneficiaries are on various policies and accounts

– Who has advised your loved one about financial matters in the past (financial consultants, CPAs, insurance agents, etc.)

– Assorted PIN numbers for accounts and of course Social Security numbers

Q: Is it time for a power of attorney? If a loved one has been diagnosed with Alzheimer’s or any form of disease which will eventually impair judgment, a power of attorney will likely be needed in the future. In fact, if you try to handle money matters for another person without a valid power of attorney, the financial institution involved could reject your efforts.1

When a power of attorney is in effect, it authorizes an “agent” or “attorney-in-fact” to handle financial transactions for another person. A durable power of attorney lets you handle the financial matters of another person immediately. A springing power of attorney only lets you do this after a medical diagnosis confirms a person’s mental incompetence. (As no doctor wants a lawsuit, such diagnoses are harder to obtain than you might think.)1

You want to obtain a power of attorney before your loved one is unable to make financial decisions. Many investment firms will only permit a second party access to an account owner’s invested assets if the original account owner signs a form allowing it. Copies of the durable power of attorney should be sent to any financial institution at which your parents have accounts or policies. Whoever becomes the agent should be given a certified copy of the power of attorney and be told where the original document is located.2

Q: Is it time for a conservatorship? A conservatorship gives a guardian the control to manage the assets and financial affairs of a “protected” person. If a loved one becomes incapacitated, a conservator can assume control of some or all of the protected party’s income and assets if a probate court allows.3

To create a conservatorship, you must either request or petition a probate court, preferably with assistance from a family law attorney. A probate court will only grant conservatorship after interviews and background check on the proposed conservator and only after documentation is provided to the court showing financial and mental incompetence on the part of the individual to be protected.3

A conservatorship implies more vigilance than a power of attorney. With a power of attorney, there is no ongoing accountability to a court of law. (The same goes for a living trust.) There is little to prevent an attorney-in-fact from abusing or neglecting the protected person. On the other hand, a conservator must report an ongoing accounting to the probate court.4

Q: If a trust is created, who will serve as trustee? As some carereceivers acknowledge their physical and mental decline, they decide to transfer ownership of certain assets from themselves to a revocable or irrevocable trust. A settlor (or grantor) creates a trust, a trustee manages it and the assets go to one or more beneficiaries. (The trustee can be a relative; it can also be a bank or an attorney, for that matter.) At the settlor’s death, the trustee distributes the settlor’s assets according to the instructions written in the trust document. Probate of the trust assets is avoided – so long as the assets have been transferred into the trust during the settlor’s lifetime.4

A trustee has a fiduciary responsibility to watch over the financial legacy of the settlor. Practically speaking, a trustee needs to have sufficient financial literacy to understand tax law, the managing of investments and the long-range goals noted in the trust document. Some families consider all this and opt to manage trusts themselves; others seek the services of financial professionals.

If the carereceiver has a living trust or another form of trust already, you may still need a power of attorney as percentages of his or her assets or income may not end up in the trust. (There is nothing from preventing a trustee from also being the agent in a power of attorney.) Additionally, while a living trust is essentially a will substitute, you will still need a pour-over will to supplement it. That is because in all probability, some of the settlor’s assets won’t be transferred into the trust during his or her lifetime. A pour-over will is the legal mechanism that “pours” those stray assets into the trust when the settlor passes away. If 100% of the settlor’s assets are transferred into the trust during the settlor’s lifetime, a pour-over will becomes superfluous.4

Q: Finally, do you understand the potential for liability? As a caregiver, you have a physical, psychological and legal duty to the carereceiver. If you neglect that duty, you could be held liable as many states have laws demanding that caregiving meets certain standards.

These laws are basically similar: a caregiver must not abuse the carereceiver in any conceivable way, and any incidents of such abuse must be reported (there are often state and local “hotlines” set up for this). The elder must have adequate nutrition, clothing and bedding, and the environment must be clean and not pose health hazards.

If you have obtained a power of attorney for finances, then appropriate amounts of the elder’s money must be spent on necessary health services and other services on behalf of his/her well-being. Failure to do so could be interpreted in court as a form of abuse or neglect.

When abuse and neglect occur, they may have roots in caregiver burnout – the caregiver is constantly cross and irritable with the carereceiver, or stress defines the experience, or an overwhelming sense of duty or anxiety prevents the caregiver from having a life of his/her own. If you ever feel you are approaching this point, it is time to call for assistance or to assign caregiving to professionals.   

Useful URLs. Some good websites can help you connect to great resources: try the U.S. Administration on Aging’s Eldercare Locator (eldercare.gov), the National Council on Aging’s online benefits checklist service (benefitscheckup.org) and the National Association of Area Agencies on Aging (n4a.org/about-n4a/?fa=aaa-title-VI).5

 

Terri Fassi may be reached at 970-416-0088 or terri@fassifinancialnetwork.com

 

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 


Citations.

1 – www.law-business.com/powers-of-attorney [4/27/12]

2 – www.kiplinger.com/article/retirement/T066-C000-S002-managing-your-parents-money.html [3/11]

3 – dhs.sd.gov/gdn/guardianshipfaqs.aspx [6/2/12]

4 – www.caregiver.org/caregiver/jsp/content_node.jsp?nodeid=434 [1/15/13]

5 – money.usnews.com/money/blogs/the-best-life/2011/07/18/10-tips-for-caring-for-aging-parents [7/18/11]

 

Saving Early & Letting Time Work For You

Saving Early & Letting Time Work for You

The earlier you start pursuing financial goals, the better your outcome may be.

 

Provided by Terri Fassi, CPA, MBA, CDFA

 

As a young investor, you have a powerful ally on your side: time. When you start saving and investing for retirement in your twenties or thirties, you can put it to work for you. 

The effect of compounding is huge. Most people underestimate it, so it is worth illustrating. We will use reasonable annual return rates to do so – we will assume an investor can earn an average of 6-7% a year on his or her portfolio.

What if you invest $500 a month at age 25 & realize a 6% annual return? Under those hypothetical conditions, you would become a millionaire at age 65. To be precise, you would need to invest $499.64 per month starting at age 25 and keep it up for 40 years.1

At age 25, saving and investing $500 each month may seem like a luxury. It is closer to a necessity. In 2055, having $1 million or more saved up for retirement may be essential. Over 40 years, inflation will make $1 million worth less than it is today. The good news is that if your investments return more than 6% in a year, you could reach and surpass that $1 million mark faster.

It need not take 40 years for compounding to make a difference for you. Shortening the timeline of this hypothetical example, after ten years of saving and investing $500 a month at a 6% annual return, you would end up with $81,939.67 compared to the $60,000 you would realize from merely saving the cash sans investment.2

The earlier you start, the greater the compounding potential. If you start saving and investing for retirement in your twenties, you gain a definite compounding advantage over someone who waits to save and invest until his or her thirties. Another comparison bears this out.

Take two investors, both contributing $200 per month into their retirement accounts. One does this for 40 years starting at age 25. The other does this for 30 years starting at age 35. Again, we assume a 6% annual return for each account. The investor who starts at 25 winds up with $402,492 at age 65, while the one who started at 35 amasses just $203,118 over 30 years.3

Just ten years of difference in the start time, yet the money almost doubles by age 65. This is a compelling argument for starting to save for retirement (and other goals) as early as possible.

Even if you start early & then stop, you may out-save those who begin later. What if you contribute $5,000 to a retirement account yearly starting at age 25 and then stop at age 35 – no new money going into the account for the next 30 years? That is hardly ideal, yet should it happen, you still might come out ahead of someone who begins saving for retirement later.

As J.P. Morgan Asset Management research notes, an investor who consistently directs $5,000 a year in a retirement account from age 25-35 with a 7% continued annual return ends up with $602,070 at age 65 even if contributions cease after age 35. The really startling part: that investor actually amasses more retirement savings than an investor who steadily contributes $5,000 a year from age 35-65 at the same rate of return – he or she realizes just $540,741.1

This is all worth noting, because many millennials seem wary of investing. This spring, a Bankrate MoneyPulse survey indicated that only 26% of Americans under age 30 are investing in equities. In July 2014, another Bankrate survey found that Americans 18-29 favored cash investments (i.e., bank accounts and bank-based investment vehicles) above all others. Student loans and child-rearing costs reduce investing potential for many millennials, but as these survey results hint, some are cynical about the whole investment process.4,5

If you were born in the late eighties to early nineties, you are old enough to remember the dot-com bust of the early 2000s and the crushing bear market of 2007-09. This may have given you an early negative view of equities; these events are clear examples of how risk plays a part in this type of investment.

The reality, though, is that most people planning for retirement need to build wealth in a way that outpaces inflation. Equity investing offers a route toward this objective, one many investors have successfully taken. Directing your savings into equities can be helpful, because broadly speaking, you will not retire merely on the contributions you make to your retirement accounts. You will retire on the compounded earnings those invested assets achieve.

 

Terri Fassi may be reached at 970-416-0088 or terri@fassifinancialnetwork.com

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

    

Citations.

1 – businessinsider.com/amazing-power-of-compound-interest-2014-7 [7/8/14]

2 – quickenloans.com/blog/investing-101-how-to-get-started [8/27/15]

3 – businessinsider.com/saving-at-25-vs-saving-at-35-2014-3 [3/25/14]

4 – cnbc.com/2015/08/24/more-millennials-say-no-to-stocks-and-advisors-adapt.html [8/24/15]

5 – bankrate.com/finance/consumer-index/financial-security-charts-0714.aspx [7/21/14]

 

Estate Planning vs Advanced Estate Planning

ESTATE PLANNING vs. ADVANCED ESTATE PLANNING

Who needs what? What’s the difference?

 

Provided by Terri Fassi, CPA, MBA, CDFA

Everyone has an estate. Rich or poor, it doesn’t matter. When you die, you leave behind an estate. For some, this can mean property, cash money, assets and more. For others it could be as simple as the $10 bill in their wallet and the clothes on their back. Either way, what you leave behind when you die is considered to be your “estate”.

Why plan? Well, even if you’re just leaving behind the $10 bill in your wallet, who will inherit it? Do you have a spouse? Children? Is it theirs? Should it go to just one of them, or be split between them? This (quite simply) is what estate planning is all about. Estate planning determines how your money and assets (property – both real and personal) will be distributed after your lifetime.

Who needs estate planning? While it is absolutely possible to die without planning your estate, I wouldn’t say it is advisable. If you die without an estate plan, your family could face major legal issues and (possibly) bitter disputes. So in my opinion, everyone should do some form of estate planning. Your estate plan could include wills and trusts, life insurance, disability insurance, a living will, a pre- or post-nuptial agreement, long-term care insurance, power of attorney and more.

Why not just a will? Did you know that your heirs may need to file a petition to probate your estate … even if you have a will? Basically, a will tells the world what you’d like to have happen, but other items (like properly prepared and funded trusts) can provide the tools to make things happen, and help your heirs to avoid probate.

So, what is “advanced” estate planning? Advanced estate planning is generally something those with a very high net worth should consider. For example, if you are single and your net worth exceeds $1.5 million dollars, or if you are married and (as a couple) your net worth exceeds $3.5 million dollars, you should consider advanced estate planning. The main purpose of advanced estate planning is to reduce taxes. The use of unified credit, gifting strategies, trusts and more can help your heirs receive the highest benefits possible under federal and state laws.

Where do you begin? Whether you need basic or advanced estate planning, I would advise you to speak with qualified professionals. A Financial Advisor can refer you to a good estate planning attorney and a qualified tax professional, and lead a team effort to assist you in drafting your legal documents. Many financial professionals have relationships with attorneys and accountants, so the advisor you consult may be able to refer you to the right specialists.

 

Terri Fassi may be reached at 970-416-0088 or terri@fassifinancialnetwork.com

 

These are the views of Peter Montoya, Inc., not the named Representative or Broker/Dealer, and should not be construed as investment advice. Neither the named Representative or Broker/Dealer give tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.

 

* As of 2006