Category Archives: December

Bipartisan Budget Act Impacts Medicare and Social Security How the Bipartisan Budget Act impacts Medicare and Social Security and who is affected by these changes.

The Bipartisan Budget Act of 2015, signed into law on November 2, 2015, ensures federal government funding through fiscal year 2017, primarily by suspending forced across-the-board spending cuts called “sequesters,” which were triggered when lawmakers failed to reach a budget agreement in 2011. Among a variety of other provisions, the law limits Medicare premium increases for 2016 and — in the biggest surprise — eliminates two potentially lucrative Social Security claiming strategies.

Mitigating Medicare Increases

Prior to the bill’s passage, about 30% of Medicare beneficiaries faced Part B (medical insurance) premium increases of 52% due to rising medical costs and a “hold harmless” provision in the Social Security Act that prevented increases for the other 70% of beneficiaries because there was no Social Security cost-of-living adjustment (COLA) for 2016.1

The legislation authorizes borrowing from the General Fund to limit the standard Part B premium to what it would be if spread among all beneficiaries. The monthly Part B premium will remain at $104.90 for those protected by the hold-harmless provision and will increase to $121.80 (as opposed to a projected $159.30) for four groups: (1) Part B enrollees who have not yet filed for Social Security benefits, (2) those who enroll in Part B for the first time in 2016, (3) lower-income beneficiaries whose premiums are paid by Medicaid, and (4) higher-income beneficiaries (who also pay an income-based surcharge).2

A $3 monthly surcharge built into the higher standard premium will help repay the loan from the General Fund.3 The law authorizes a premium subsidy in 2017 if there is no COLA, but has no provisions for future years.

Closing Loopholes

A section of the bill titled “Closure of Unintended Loopholes” ends Social Security claiming strategies that may have been unintended consequences of the Senior Citizens Freedom to Work Act of 2000. Closing these loopholes is projected to slightly reduce the Social Security actuarial deficit.4

Depending on your age, you might still be able to take advantage of certain expiring claiming options. The changes should not affect current Social Security beneficiaries and do not apply to survivor benefits.

File and Suspend

Under the previous rules, an individual who had reached full retirement age could file for retired worker benefits in order to allow a spouse or dependent child to file for a spousal or dependent benefit. The individual could then suspend his or her worker benefit in order to accrue delayed retirement credits and claim an increased worker benefit at a later date, up to age 70. For some couples and families, this strategy increased their total lifetime combined benefits.

Under the new rules, effective April 30, 2016 (or later if the Social Security Administration provides additional guidance), no benefits can be paid while the worker’s benefit is suspended. Thus, a spouse (and potentially an ex-spouse) and a dependent child can receive spousal or dependent benefits only when the primary beneficiary is receiving worker benefits, effectively ending the file-and-suspend strategy for couples and families. This also means that a worker can no longer suspend benefits and request a lump-sum payment for the period during which benefits were suspended, an option that was helpful to beneficiaries who faced a change of circumstances, such as a serious illness.

The option to file and suspend after reaching full retirement age is still available as long as no benefits are paid to anyone during the suspension. So someone who claims worker benefits could decide to suspend future benefits upon reaching full retirement age (e.g., because he or she went back to work) and restart them later at a higher amount.

TIP: If you are 66 or older before the new rules become effective, you can still take advantage of the combined file-and-suspend and spousal/dependent filing strategy.

Restricted Application

Under the previous rules, a married person who had reached full retirement age could file a “restricted application” for spousal benefits after the other spouse had filed for Social Security worker benefits. This allowed the individual to collect spousal benefits while accruing delayed retirement credits on his or her own work record. In combination with the file-and-suspend option, this enabled both spouses to earn delayed retirement credits while one spouse received a spousal benefit, a type of “double dipping” that was not intended by the original legislation.

Under the new rules, anyone born in 1954 or later will be deemed to be filing for any and all benefits to which he or she is entitled — a spousal benefit or a worker benefit, whichever is higher — and will not be able to change from one benefit to another at a later date.

TIP: If you were born in 1953 or earlier, you can still file a restricted application for a spousal benefit once you reach full retirement age.

Basic options for claiming Social Security remain unchanged. You can file for a permanently reduced benefit starting at age 62, receive your full benefit at full retirement age, or earn delayed retirement credits by waiting to file, up to age 70. Although the changes are relatively small, the bipartisan agreement may open the door to much-needed legislative action on Social Security and Medicare.

1–2) Centers for Medicare and Medicaid Services, 2015
3) Kaiser Family Foundation, 2015
4) Social Security Administration, 2015

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright 2015 Emerald Connect, LLC.

Tracking the Market with Index Funds How index funds work and why they have become such a popular investment option.

Index funds have become a popular way to invest because of their simplicity, lower fees, and tax efficiency. At the end of 2014, they accounted for 35% of all assets invested in stock mutual funds and exchange-traded funds (ETFs), up from 25% in 2010.1

Group Performance

A market index measures the performance of a specific group of securities. The most broadly referenced index is the Standard & Poor’s 500, which measures the stock performance of approximately 500 large U.S. companies and is generally considered representative of the U.S. stock market as a whole. There are many other indexes representing a wide variety of securities. Keep in mind that the performance of an unmanaged index is not indicative of the performance of any specific security.

You cannot invest directly in any index. However, you can invest in an index fund that attempts to replicate index performance by holding the securities that are tracked by the index. Owning shares of an index fund enables you to participate in the particular segment of the market represented by the index.

For this reason, index funds may provide a convenient way to diversify your portfolio, enabling you to invest in a broad range of strategies and securities through a relatively small number of funds. Diversification does not guarantee a profit or protect against loss; it is a method to help manage investment risk.

Passive Management

Index funds are passively managed, which means they typically don’t engage in frequent trading. They try to match but not outperform a market benchmark. Because of this management style, fees are generally lower than they are for actively managed funds. The lower turnover of securities in an index fund also may generate fewer and smaller capital gain distributions, which could help minimize tax liabilities and improve after-tax performance.

Some Considerations

The goals of most index funds are straightforward and relatively easy to understand. However, some investment options may have the word “index” in their names, even though they actually incorporate active investment strategies that aim to outperform broader benchmark indexes. (They are sometimes called “enhanced index funds.”) This is a fundamental difference to keep in mind as it relates to your own investment goals. Investments seeking higher returns typically involve additional risk.

The return and principal value of stocks, mutual funds, and ETFs fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. Supply and demand for ETF shares may cause them to trade at a premium or a discount relative to the value of the underlying shares.

Mutual funds and ETFs are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

1) The Wall Street Journal, April 3, 2015

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright 2015 Emerald Connect, LLC.

Feeling Powerful? Take It to the Bank A Stanford University study found that people who feel powerful are more likely to save for long-term goals.

Do you have a hard time saving as much as you should for retirement or other long-term goals? If so, you’re not alone. On average, Americans save less of their incomes than people in many other developed countries (see chart).

Research in the field of behavioral finance has suggested a number of factors that might influence an individual’s attitude toward saving, such as education, family upbringing, and self-control. These certainly play a part but can be difficult to change, at least in the short term.1

According to a 2014 Stanford University study, a more immediate change in the way an individual feels can drive savings. When a person feels powerful, even if it is just a temporary state, he or she is more likely to save for the future. By contrast, an individual who feels powerless is more likely to spend money in an attempt to compensate, which may explain why many people shop when they are frustrated or unhappy.2

The study also found that feeling powerful and saving can become a self-perpetuating cycle, because powerful people typically want to maintain their power.3

How Can You Save More?

Few people feel powerful all the time. There are typically ebbs and flows — times when they feel powerful and times when they don’t. The next time you’re feeling good about yourself, you might try taking steps to save more.

For example, getting a raise might make you feel powerful, and this could be an ideal time to increase your retirement plan contributions. The same is true for the day you pay off a car loan, student loan, or credit card. Since you’ve already been making those payments, you may be able to put the money to work as savings without a big change in your monthly cash flow.

On the other hand, you might want to monitor your “feel-good” spending. There’s nothing wrong with a treat now and then, but spending on little things can add up over time. There’s also nothing wrong with making a major purchase for something you really need. But if it’s just a “want” or a way to make yourself feel better, you might ask yourself whether you are powerful enough to save instead.

Saving for retirement is a long journey, and there are many competing priorities along the way. By considering the way you feel when you save — and taking advantage of opportunities to save more — you may be able to develop a stronger, more disciplined approach that could help you fund a comfortable retirement.

1–3) Journal of Consumer Research, October 2014

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright 2015 Emerald Connect, LLC.

The Talk You Need to Have Discussing Finances with Adult Children Tips for a successful financial conversation even if you may have a difficult time talking about personal finances.

Many people have a difficult time talking about personal finances, even with family members. It’s natural to feel uncomfortable revealing information you consider private, and it’s wise to be concerned about the security of financial accounts. However, it can be important to discuss your finances with your adult children.

You might be surprised to discover that your children are more concerned about you than they are about any potential inheritance. One study found that 56% of adult children worried about their parents’ financial security, whereas only 23% of parents were concerned about their own finances. Moreover, adult children underestimated their parents’ financial resources by an average of $300,000.1

There is also a generational disconnect about when to discuss finances. Parents generally prefer to wait until after they retire, whereas children prefer an earlier conversation, before their parents leave the workforce.2 Regardless of when you have a financial conversation, here are some tips to consider.

Plan a time and include all your children. It’s probably not a good idea to bring up the subject over a holiday dinner, but if the whole family is together during the holidays, this might be a good time to talk. Ideally, you should include all your children in the conversation so that there are no misunderstandings among them.

Control the agenda. Before the meeting, decide what you want to accomplish and what information you want to provide. If you prefer not to be specific, you might offer rough estimates or simply assure them that you have sufficient resources for your retirement years. At a minimum, tell your children where to find important documents such as your will, insurance policies, account statements, powers of attorney, titles to real property, and contacts who could help them sort through your finances.

Discuss your wishes for care and end-of-life issues. It’s not pleasant to think about being unable to care for yourself, and even less pleasant to think about dying, but clarity now could help avoid conflict and confusion during a difficult time. Almost half of adult children expect to provide caregiving duties if their parents become ill, but only 6% of parents expect such help.3 Explain your plans for any care you may need. Define your preferences for end-of-life decisions, and provide your children with copies of advance medical directives.

An initial family financial discussion may seem challenging, but once the doors are open, you and your children might feel less anxiety about the future. Be sure to continue the conversation as circumstances change over the years.

1–2) Fox Business, July 17, 2014
3) USA Today, July 9, 2014

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright 2015 Emerald Connect, LLC.

How the Cloud Can Help Meet Technology Needs About 37% of small businesses are operating in the cloud, and it’s estimated that 80% could be doing so by 2020.

“The cloud” is a popular catch phrase that refers to on-demand computing resources delivered over the Internet. An estimated 37% of small businesses are already operating in the cloud, and nearly 80% could be doing the same by 2020.1 In fact, small-business owners spend an average of four hours a day online running their companies.2

There are three different types of cloud-based services. Software as a Service (SaaS) is when a business rents or borrows online software, typically by subscription. Platform as a Service (PaaS) enables companies to build and deliver custom applications for their own purposes. Infrastructure as a Service (IaaS) involves the utilization of servers, networking, storage, data centers, and other computing capabilities on a pay-per-use basis.

Instead of buying, installing, and maintaining hardware, software, and servers, companies may be able to utilize cloud-based tools more simply and at a lower cost. Of course, this requires a speedy and reliable Internet connection, which is less likely to be a problem today than in the past.

Why the Rush

Cloud services allow businesses to scale IT infrastructure up or down quickly to help meet business demands and facilitate growth.

Cloud applications can make it easier, faster, and less expensive for small businesses to keep their technological capabilities up-to-date and take advantage of cutting-edge features.

Owners and employees can access company data with laptops or mobile devices from any location with an Internet connection.

For disaster planning and business continuation purposes, companies are able to back up some or all of their data operations in the cloud instead of paying for off-site hardware and storage.

Security Matters

When you store data in the cloud, you’re counting on a third party to keep it safe. Unfortunately, universal standards for data security have not been established.

Cloud services may offer more security than you could provide on your own, especially if your technology budget is limited. On the other hand, companies with highly sensitive data — or that must meet stringent compliance regulations — may be better off investing in a private network.

Handling some computing functions in the cloud could save you time and money. Still, it’s important to weigh the potential benefits and risks, and to consider contractual obligations carefully before committing to any major technology investment.

1) The Wall Street Journal, June 3, 2015
2) Intuit, 2015

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright 2015 Emerald Connect, LLC.

The Unpaid Army: Family Caregivers Face Challenges About 1 in 4 U.S. workers age 25 and older provide unpaid care for a loved one who has health problems or is disabled.

Roughly one in four U.S. workers age 25 and older provide unpaid care for a loved one who has health problems or is disabled. In 2014, there were about 40 million family caregivers in the United States, 60% of whom had full- or part-time jobs.

Family caregivers spend an average of 18 hours per week helping others carry out activities of daily living such as bathing and dressing, cooking meals, paying bills, driving to doctor visits, and administering medications. Sadly, the results of a recent survey suggest that the workload and stress can take a toll on a caregiver’s own health, financial situation, and mental well-being.

55% of family caregivers say they are overwhelmed by the amount of care needed by a relative.

68% have used their own money to help provide care.

39% have felt financial strain as a result of providing care.

If you are a caregiver, it’s important to consider your own needs, too. Take regular breaks to rest or enjoy a favorite activity. Ask for help from other family members and friends. Consider support groups. Don’t be afraid to seek professional help for yourself.

Does your own financial plan take the potential need for long-term care into account? If not, it may be time to evaluate your options for covering the potential costs. It’s usually much easier emotionally for families to make these types of decisions long before the need for care arises.

Source: AARP, 2015

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright 2015 Emerald Connect, LLC.