Protect your credit and minimize the risk of ID theft

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All three credit bureaus (Equifax, Experian, TransUnion) have sensitive information on us. Their customers are the banks, credit card companies, mortgage lenders, auto lenders, cell phone companies, insurance companies, etc who inquire about our credit-worthiness. So, even though we don’t have any interaction with them, they still have sensitive information about our financial picture (social security number, credit card and mortgage details, name, date of birth). This information, when stolen, can be used by identity thieves to make fraudulent charges in your name. Because Equifax did not adequately protect consumer information, 143 million people have had their sensitive information stolen.

I strongly recommend you check your free annual credit report with all three credit bureaus by going to www.annualcreditreport.com. You will be able to see just what information all three companies have regarding your financials, and confirm everything is accurate as well.

After you get your free credit reports, I recommend you put a credit freeze in place with all three credit bureaus:

 Read up on it first. You don’t need any sort of monitoring or monthly fee programs, but a credit freeze provides a great deal of protection. You would need to freeze your credit with each agency. If you get a new cell phone plan or an auto loan (or other activities that trigger a credit report), you would ask which company they use to run their credit report and you would need to temporarily lift the freeze.

If you decide against the credit freeze, at least run your free annual credit report annually so that you can verify no one has opened any credit in your name/social security number/etc.

Health and Education Updates

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It’s Veterans Day, and before I touch on the financial topics, I must send my thanks to all those who have risked their lives to protect our world – not just my fellow armed forces veterans, but police and firefighters as well. And to my father (and all you Army veterans out there), you have my deepest sympathy regarding the crushing defeat of the Black Knights by the Falcons last Saturday – Go Air Force! Beat Army.

Medicare Part B Premium Changes  Medicare Part B premiums may rise 52% in 2016 for some Social Security Recipients. Are you part of the 30% of Social Security Recipients who will be hit with the 52% increase in Part B costs? If you pay standard Part B premiums and have them deducted from your Social Security check, then you do NOT need to worry about this increase. Those who do face the increase include:

  • People who pay higher-income Part B premiums
  • People enrolled in Part B but pay premiums directly to Medicare (perhaps because they’ve delayed Social Security benefits)
  • People who pay permanent penalties because they signed up late for Part B
  • Those who are not yet enrolled in Part B, but will sign up in 2016

There are several great articles on the ironically titled “Medicare Hold-Harmless Provision.” Just google ‘Medicare 2016 premium increase’ and read the stories from Kiplingers, AARP, or other news sources.

Education Planning – FAFSA UPDATE  The FAFSA (Free Application for Federal Student Aid) filing timeline is changing next year. Students will be able to file a 2017–18 FAFSA as early as Oct. 1, 2016, rather than beginning on Jan. 1, 2017. The earlier submission date is a permanent change which will allow students to complete and submit a FAFSA as early as October 1 every year. (There is NO CHANGE to the 2016–17 schedule, when the FAFSA will become available January 1 as in previous years.)

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Year-End Tax Planning

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As the end of the year approaches, it is a good time to think of planning moves that will help lower your tax bill for this year and possibly the next. Factors that compound the challenge include turbulence in the stock market, overall economic uncertainty, and Congress’s failure to act on a number of important tax breaks that expired at the end of 2014. Some of these tax breaks ultimately may be retroactively reinstated and extended, as they were last year, but Congress may not decide the fate of these tax breaks until the very end of 2015 (or later). These breaks include, for individuals: the option to deduct state and local sales and use taxes instead of state and local income taxes; the above-the-line-deduction for qualified higher education expenses; tax-free IRA distributions for charitable purposes by those age 70- 1/2 or older; and the exclusion for up-to-$2 million of mortgage debt forgiveness on a principal residence. For businesses, tax breaks that expired at the end of last year and may be retroactively reinstated and extended include: 50% bonus first-year depreciation for most new machinery, equipment and software; the $500,000 annual expensing limitation; the research tax credit; and the 15-year writeoff for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements. Read more

Social Security Optimization to become less optimal

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If the current budget legislation is passed into law later this week, big changes will occur in the world of Social Security optimization. The impact of this legislation: No more restricted applications and no more file-and-suspend strategies. (Survivor benefits can still be optimized and voluntary suspensions will still be available).
In English: If you are 62 or older as of the end of 2015, these changes will not apply to you. If you are younger than 62 and have considered optimization strategies, they will likely not be applicable. Why “likely”? Because the legislation has not yet passed and because there may be a 6 month grace period for the file-and-suspend strategy.
What this means for Clarus clients: We will reevaluate your claiming strategy at our next review and we are adjusting our Social Security assumptions to take into account these upcoming changes.

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What to do when the market corrects: Remain patient, invest cash, harvest losses

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The investment roller coaster is in motion, but hopefully it’s not making anyone nauseous or nervous. This is a natural part of the market cycle, so please remain patient, focus on your long-term goals, and stay the course with your investment allocation.  This is not the time to shift investment dollars to cash.

If you happen to have excess cash on hand, however, this is a very good time to invest it. Likewise, if you happen to have investments in taxable accounts that are in the red, you should think about harvesting those losses for tax purposes. If you are harvesting losses, remember to stay invested in the market and maintain an appropriate asset allocation. Please let me know if I can be of assistance in either scenario.

Remember: Avoid the urge to shift your investment dollars to cash. People who sell out of the market at a low point will invariably re-enter the market at a much higher level. It is a losing endeavor. If this market is making you rethink your cash reserve target, your risk tolerance, or your asset allocation, please contact me so we can discuss your situation personally.

An Inside View of Financial Planning Fees

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I’ve worked in the financial services industry since 1997.  I worked for two brokerage firms and an independent investment advisory firm before opening Clarus in 2005.  Over these many years, I’ve met hundreds of advisors and seen nearly as many pricing models.  It’s no wonder there is confusion as to what financial advisory services cost, so I will sum it up:  too much!

Many brokerage firms, banks, and some investment advisory firms charge commissions. If you have a friend who believes they don’t pay for their investments, they’re likely working with this type of pricing model. They likely paid 3-5% on their initial investments and have ongoing fees of .75 – 1%, but they didn’t write a check (hence their belief that it’s free) – the fees came from investment performance. A $1 million portfolio cost them $30,000 – $50,000 initially, and $7,500 – $10,000 annually. In addition to the investment advice, they may also receive retirement planning advice, at no additional charge.

Most investment advisory firms charge an annual percentage fee based on the amount of assets they manage. Typically, this fee is 1% for the $1 million portfolio ($10,000/year).   I’ve seen some banks and brokerage firms charge up to 2.5% per $1million invested ($25,000/year).  Internal investment costs may bump the total fees up by an additional 0.1 – 1% per year. Read more

2015 Social Security Increase – Another Reason to Delay Benefits?

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Monthly Social Security and Supplemental Security Income (SSI) benefits will increase 1.7 percent in 2015, the Social Security Administration announced last week. This historically small adjustment for the third straight year translates to about an extra $20 per month for the average recipient.

If you’re thinking of delaying benefits, you’ll like these statistics:  Social Security benefits begun at age 70 are 76% greater than benefits taken at age 62.  Spousal benefits at 66 are 43% larger than those taken at age 62.

Clients with PIMCO or Vanguard products, here’s a quick update:

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PIMCO – Expect choppy waters in the near-term as investors shift to other bond funds in the wake of the departure of PIMCO co-founder Bill Gross.  If you don’t want to stick with PIMCO during this turbulence, contact me quickly so that I can recommend appropriate changes to your portfolio.

Vanguard – Great news on the Vanguard front:  Their brokerage accounts can now hold Vanguard mutual funds.  Before this change, Vanguard clients who owned Vanguard mutual funds and non-Vanguard mutual funds (or stocks, ETFs, etc) would have had a mutual fund account for Vanguard funds and a brokerage account for other fund families, stocks, ETFs, etc.  Now (finally!), Vanguard clients can consolidate both accounts to their brokerage account.  Three cheers for an improvement that will simplify life for many. Read more

Robo-Advisors & The Investment Manager Search

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At Clarus, we offer specific investment advice for those who want professional guidance and are at ease with implementing rebalancing instructions.  However, we recognize that some people reach a point where they are more comfortable delegating than implementing the investment changes each year.  When that time comes, a thoughtful, deliberate review of investment managers, including “Robo-Advisors,” is in order.

Robo-Advisors are online investment management firms which provide portfolio management at a fraction of the cost of the typical investment manager.  For clients who are looking to delegate their portfolio management, robo-advisors such as Wealthfront or Betterment should be considered alongside the traditional investment management firms.

In order to determine the best investment management firm for your needs, we start by considering what is most important to you as we compare the following: Read more

Long Term Care Policy to Provide Less for More

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A client recently purchased LTC insurance after two years of thinking it over.  Whew, I thought, just in time!  Genworth’s newest policy becomes available next week, complete with 30% higher premiums and the following reduction in benefits:

  • Maximum Daily Benefit amount changed from $400 to $300
  • Maximum Monthly Benefit amount changed from $12,000 to $9,000
  • Minimum issue age will now be 40
  • Benefit multiplier options no longer include 6, 8 or 10 years
  • 2% compound inflation protection option added
  • Future Purchase Option changed from 5% to 3% compound
  • Home care services require an Agency, if available
  • The following riders are no longer available: Transition Benefit, Restoration Benefit and Refund of Premium Benefit

I suspect the other carriers will follow suit over the next year.  If you’ve procrastinated on reviewing Long Term Care policies, don’t delay any further!  If you’ve recently received a quote from an insurance provider for LTC, make sure you’re comparing Genworth to other coverage options.