If you have a qualified high deductible health care plan, either personally or through your employer, you should have been advised to open a Health Saving Account. A high deductible health care plan requires you to absorb the expense of a large upfront deductible before the plan begins to provide benefits. This deductible will often be thousands of dollars, for example $2,000 for an individual and perhaps $4,000 for a family. The government created the Health Savings Account, HSA, as a means to help you deal with these upfront expenses.

The HSA is structured to give you three major benefits. First, you can contribute money to the account and deduct it from your current income for tax filing. Second, the account can earn interest and capital gains that are not included in income for tax filing. Third, the money in the HSA can be withdrawn tax free to cover qualified health expenses. This is kind of like taking the best features of a traditional IRA (reduce taxes) and Roth IRA (use tax free), and combining them in one plan.

Just like everything the government does through IRS tax regulations, the HSA has a number of rules that govern how much can be contributed, how much deducted, what expenses are qualified. It matters to learn about these sooner than later. I emphasize sooner because there are advantages for taking the initiatives that will maximize the value of the HSA, and there are consequences for missteps. For instance, you unintentionally begin coverage under medicare that will prevent you from making further contributions.

Here are a couple of items that I found people are unaware of. First, HSA's are not necessarily restricted to the plan custodian your employer offers. You can often select a different HSA custodian for your contributions. Second, while many HSA's are offered through banks effectively offering savings account rates. There are HSA custodians that can provide you with robust investment choices.​

If you're enrolled in a HDHP and contributing to that plans HSA, you may be able to dramatically increase your choice of investments. Feel free to give me a call if you have any questions.

We know sooner or later that we are going to face death. Planning for this inevitability is not usually on the top of our list of joys in life. But, you and I both know it will matter to our loved ones.

This is one of the conversations I have with my clients. I have found that it helps many couples talk about this in greater depth than they would have otherwise. I think that's because it is more of an intellectual exercise with me as an independent third party, rather than a potentially depressing (or scary) talk just between the couple. It's almost always enlightening for the couple. (amazing what we don't say to each other).

You can easily find a number of articles online that list the important documents you should have, as well as advice on what steps to follow in advance of death (or infirmity). So, why do many people not prepare these documents?

Because it's very human to have good intentions, and yet fail to act on them. Another reason is that I think some people discover it's can be harder work than they initially thought. And so, they put it off for another time. What these articles don't do is push you through the process. That's what I do.

Like many financial matters, the topic of wills and trusts can sometimes seem complicated. It's one of those areas that doesn't get addressed very often as we go about our lives. I can help make sense of these topics, as well as steer you through to completion. So, let's get our affairs in order before we die. Give me a call or send me an email. I'm happy to talk with you.

How many people have committed relationships but aren't married? There are young people, middle age people, and even very elderly people that have strong and committed relationships. But, for various reasons they are not married, and as a result do not have the same default protections that are automatically granted to married couples.

I bet you know some of these people. They may be your children. Or maybe a parent! While there's a lot of reasons couples may elect not to be married, this article isn't going to explore those. Rather, I want to make us aware of some of the situations that these couples need to consider. At some point, sooner rather than later, these questions should be raised.

• Who pays for what? Two people living together will have both individual and shared expenses. What complicates this picture is when they have widely different incomes.
  
  
• Insuring property and lives. Often unmarried people that live together rent rather than own. Of course, these people should have property insurance (renters insurance). The expectation is that if one person has rental insurance, all the property in the dwelling is covered. But often that's not the case. Only the policy holders property is covered.
  
  
• What happens if the couple breaks up? Or worse, what happens if one person dies? This is especially important for couples that have been committed to each other for many years. For younger couples there may be minor children involved. For older couples there may be issues surrounding social security and/or pension benefits. For everyone there is the need to consider wills & powers of attorney.
  

One option to explore would be a domestic partnership agreement that sets out the legal and financial rights and responsibilities for each partner. How they will share income, assets, hold bank accounts, own property, pay for expenses. This doesn't have to be a complicated document.

The thing is, many people are reluctant to talk about money. That includes married couples. Imagine how much more reticent unmarried couples are to discuss their financial situation. It can help to have someone independent to talk through these scenarios. A CFP ® is a good place to start.

There are a lot of people that do not work with a financial advisor. They are more comfortable as do-it-yourselfer's. Many people view decisions on financial matters as simply requiring common sense. I understand that idea, we use common sense to make many decisions. Of course, one might ask what constitutes common sense on financial matters. There are a number of commonly accepted common sense maxim's that can guide us. Spend less than we earn. Save for a rainy day. Buy low, sell high. Avoid credit card debt. Invest for the long term. Diversify investments.

The challenge I see with common sense maxims is that they are so superficial. In fact, we all need to apply far more reasoning to the myriad of financial decisions we face. Too often we don't. And that's what concerns me. What substitutes for the effort in understanding and reasoning may often be electing a simpler decision choice. Examples might be just doing what we think other people do, taking off the cuff advice from friends or family, or often just doing nothing. While these could result in good decisions, it seems to me that we are really just hoping for the best. Not exactly a good strategy for success.

Here's an example of what I observe. Recently I was talking with a person who explained they were approaching their full retirement age for social security, age 66 for this person. This person related that when discussing when to begin taking social security benefits with a friend, that friend enthusiastically counseled that is it optimal to begin social security as early as possible, age 62. When I engaged this person in further discussion of this topic, it was clear that person was well aware that amount of the benefit would be lesser or more depending on at what age the benefits began. Yet, their thinking had not progressed to actually consider what the full financial impact would be over the short and long term. I can report that the conservation proved very useful for this person as I assisted them in reasoning out the variables in this matter.​

The big difference between my guidance and the friends advice is that I wasn't attempting to apply my idea of what I think is the right decision. Rather, I was guiding the person through the thinking process that mattered for them. There are many financial decisions that matter in our lives. It makes common sense to get advice from someone that will help you reason through these decisions.  

Many people think that spending on healthcare in retirement is their biggest concern. That's because medical costs are so unpredictable. We don't know if we're going to be struck by an unknown illness or condition. Furthermore, the cost of healthcare has increased at a much greater rate than inflation. Something that happens in the future may have a much larger financial impact than we plan for.

But, it turns out that housing and transportation costs are likely to be greater costs than healthcare over your retirement years. What's different about these costs is that we don't think of them as unpredictable. Generally, rents/mortgages and automobile costs are expenses that we have managed for years and years before retirement. They are not likely to unexpectedly change (upwards) forcing us to make a dramatic withdrawal from our savings.

Just because healthcare may not be our biggest expense in retirement doesn't mean you shouldn't prepare for healthcare costs. Health insurance premiums are something we understand as predictable. While they are likely to continue increasing faster than inflation, we can project a rate of increase with reasonable expectations. Same with co-pays, co-insurance, and deductibles.

With these expenses identified, we are left to consider the most obvious unpredictable expense, long term care. These expenses are not generally covered under health insurance plans. These can impose a financial burden for ourselves and our families if they persist over the long term, like the rest of our life. I bring attention to this for one important reason. We can take the time to factor these type of expenses in our planning and therefore consider how these expenses could be managed. I do this as part of my financial planning for clients. We should all spend some time and effort planning for this. Why not address this biggest of concerns in retirement.

If you are close to retirement (or in retirement) you've probably thought about how much you can spend in retirement. And not run out of money! There are a lot of retirement calculators out there that invite you to plug in some numbers and out pops a graph along with an answer. There are two problems with the majority of these calculators. First, they usually don't factor in social security, pension, or annuity income streams. The second is that they ask you to specify your projected expenses, but only in a coarse way. There's no capability to introduce major expenses at some point in the future, e.g. healthcare or long term care expenses. They also don't deal with mortgage expenses that may end, or moving to a new retirement location. They don't even manage to consider that you may have meaningful equity in the house. There are many other deficiencies, but the above is sufficient to make us wary of the results.

The topic I want to direct your attention to is the matter of spending budgets in retirement. The typical calculators direct us to input our investment account information and declare our expense budget. The output from these calculators shows us how much money will remain in the investment accounts at the end of our projected lives (another input parameter). This is incomplete and a bit backwards. What we really need to do is to identify all of our income streams and investment accounts, accurately define our expenses for housing and medical insurance, and project healthcare and/or long term care expenses in the future. Then, have the program determine our discretionary spending budget for our projected lives. We can then best consider how to use our assets to meet a standard of living within our means.

One way to rephrase the above is this: Don't tell me what your expenses are, let's instead determine what the discretionary expense level is that you can afford and not run out of money. When we know that we can consider 1) how do we want to spend our discretionary budget, 2) would we want to vary our standard of living while in retirement, 3) finally, that we have prepared for potentially significant expenses later in our retirement (before we spend all of our savings).

Being able to identify in advance the guidelines for spending over our life in retirement is the right way to proceed. This method helps us understand how and when to use our retirement savings to meet a standard of living we can afford. We should not rely on overly simplistic calculators, or rules of thumb such as spend 4% per year of our investment savings, and expect these to adequately prepare us to determine how much we can spend in retirement. One final note, you don't need an expensive financial plan to determine these guidelines. Contact me to learn more.

Previously I had written about the sequence of returns and how investment results in the future can be dramatically different, especially if you are simply using a single “average” rate of return. In retirement we also expect to take distributions from our investment accounts to provide income. How to structure these withdrawals is a subject for future articles. What I want to do here is help us understand the need for flexibility in the unfortunate circumstance where the sequence of returns is unfavorable.

To illustrate this I put together the following table using returns for the S&P 500 for the past 15 years. To make this example meaningful, I've also set up a distribution from the account at a rate of 6% per year. Though I've set the starting value at $100,000, the example is illustrative regardless of the amount.






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​The table uses S&P 500 returns for the last 15 years going forward on the left side, then uses these same returns, only in reverse order on the right side of the table. Let's take a look at the approximate midpoint of this timeframe (see highlighted numbers). The person experiencing the returns on the left side (years going forward) is probably suffering some anxiety. In contrast, the person that experiences the returns on the right side is probably euphoric. At the end of the 15 year period both have seen some ups and downs. But the person on the right side is clearly feeling quite safe as their balance is greater than their starting point. Not so for the person on the left.

We don't have control over the returns from the market, but there are a number of things we can control. The two most important areas that we can control is our spending in years where we encounter significant downturns, and equally important how we tactically adjust our investments to minimize the effects of significant downturns. When we approach retirement we need to establish guidelines on spending that give us some confidence that we can maintain a sustainable life style over a reasonable projection of our lives. With those guidelines in place we will be better prepared to make the tactical adjustments needed throughout various market cycles.

Previously I wrote about reverse mortgages in order to make you aware of this option. In many conversations it is apparent that a lot people have little knowledge, and often misunderstanding, about this topic. Reverse Mortgages can be a very useful strategy for many people during retirement. Despite its bad reputation, it's now well regulated (by the feds) and a legitimate source of income. Especially if you are house rich and have modest investment assets.

One of the common questions I'm asked is: How can (should) a reverse mortgage be set up to provide income? While there are many options for reverse mortgages, in this article I want to outline one particular strategy, referred to as a “tenure” payment. When we hear “tenure”, we naturally think of things like a tenured professor, or someone's term in a particular position. In the case of reverse mortgages, a tenure payment program refers to the term of payments to the homeowner for the life of the owner, while they live in the home. Tenure payments are generally structured as monthly payments to the owner. This may sound a bit like an annuity (a payment for life). It's close, but not exactly the same. One difference is that tenure payments are received only while you are living in the home. Commonly, annuity payments continues as long as you live, regardless of where you live. In the case of a reverse mortgage, if you leave your home the loan will typically need to be repaid at that time. Recall that the lender has provided this loan based on the fact the home is your primary residence.

There's another difference. Many annuities stop payments when you die. Regardless of how much money you paid for the annuity, the payments stop and the insurance company keeps the rest of your money. A tenure payment program will stop as well if you die. But, the amount of the loan also stops. Which means your home, when sold, has only to pay off the loan amount plus any accrued interest and your heirs keep the rest of the sale proceeds.

Finally, there is a difference in how a reverse mortgage and an annuity are funded. To fund an annuity, we transfer money to an insurance company to buy the annuity. That's money we have ready at our disposal, such as from savings or IRA accounts. In the case of a reverse mortgage, we don't give anyone money directly. Rather, we sign a contract with a bank or some other lending institution for a specific amount of money to be provided to us, with our home as the collateral. The bank will receive payment for the loan once the house is sold or no longer occupied by the owner. The loan accrues interest just like any other loan. But, unlike most other loans, the amount due on the loan can never exceed the sale value of the house. They term this a “non-recourse” loan. The bank has no other recourse if the funds from the sale do not satisfy the loan.

Why do I draw your attention to the tenure payment program? Because there are those that have directed their income towards a highly valued home, but in doing so may have contributed less to savings or retirement accounts. Having invested so much in their home, they want very much to live there for a significant time in retirement. With less money saved in conventional accounts, the tenure payment program is an excellent option to turn their home equity into a needed income stream during retirement.

I want to re-emphasize a couple of important points for reverse mortgages. You continue to own your home. The reverse mortgage merely serves as a loan that is paid off when the home is either sold or upon death of the homeowner. You decide how long to stay in your home or when to sell it. The bank can never call the loan and demand you move. If you relocate or die, the bank’s sole recourse for the amount loaned to you is repayment of the loan from the sale of the house proceeds. Most commonly, the value of the property exceeds the amount due on the loan. Therefore, you or your heirs retain the rest of the proceeds from the sale.

There's likely a lot of questions you have in regard to this idea. I'll be glad to talk with you to see if this makes sense for you. Just call or email me.

When asked, most people will automatically state that they want to live longer. Who wouldn't? Yet many people are anxious when considering this question. A recent study on this found that 70% of the people asked were concerned about what that meant for them financially. By the way, these were people that ranged from boomers to gen x'rs.

The interesting thing was how many people stopped to think about what they would differently when considering a much longer life. Over half the gen x'rs thought they should look at non-traditional career paths. For example, take breaks from work for volunteering or return to school to pursue a different calling.

This is where the respondents also stopped to think about how much they spend and how much they save. As many of us know, its hard to fund a 30 year retirement after only working 40 years. It's challenging for many young people to appreciate the need to begin saving for retirement when they're twenty something. They can usually see five, maybe ten years ahead. The idea of locking away their money for retirement 40 to 50 years in the future is a distant and abstract time.

It turns out there is a compelling method to bring these young people on board with retirement saving. It's simply to direct attention to the idea that their peers are doing it. It's amazing how influential your peers are. This is a very human characteristic and one in which we are all governed to a large degree.

Many companies today offer 401k plans with default sign-ups. While this is good, the defaults are not going to cut it in the long run. Instead, the message to the young worker should instead advocate a much higher than default percent. The message can simply state that most of our workers think contributing 15% (or some other plausible goal) is needed. With this nudge, more young people will get on board with their peers. Left to themselves though, the default is going to seem good enough.

I have previously written about long term care, noting the first step is to look at your entire financial situation and assess what the impact of a long term care need would be. Once a model for your complete financial situation is set up, it's straight forward to test a variety of long term care scenarios, with and without long term care insurance. Let's be clear here, I see many instances where people are reasonably prepared to address this without insurance. I'll use the abbreviation of LTC for long term care for brevity.

There are three conventional approaches to providing LTC insurance.

• Traditional LTC insurance is focused solely on long term care needs. It's similar to many other insurance products you likely have, such as home insurance. If an event occurs, it provides coverage up to the limits of the policy. If you never have a need, just like your home insurance, it is an expense that we were willing to incur to mitigate the risk of a bad event.
  
• A Life insurance policy with LTC rider serves dual purposes. The life insurance policy provides a death benefit, just as you would expect. The LTC rider, an enhancement to the policy, provides the option to draw down the death benefit for LTC needs. It also expands the amount of money that the insurance company will provide for LTC needs by a multiplying factor, such as 2 or 3 times. (e.g. a $100,000 policy may provide up to $200,000 or $300,000 for LTC expenses)
  
• A Fixed indexed annuity with LTC rider is another example of insurance serving two roles. In this case you would fund a fixed income annuity, which would have a LTC rider as an enhancement to the annuity. This would enable you to draw down the annuity value for LTC needs. This product also commonly includes a multiplier of 2 or 3x the amount funded for the annuity to meet LTC expenses.
  

Separately, I wanted to mention one other alternative that, while not designed to provide LTC coverage, addresses an area that often leads to a need for long term care. This product is commonly termed a Critical Illness policy. Basically, a critical illness policy pays you a benefit when you are diagnosed with a covered critical illness. These are commonly cancer, heart attack, and stroke. In each of these cases, these events often trigger the need for long term care. The point is that this policy provides a cash benefit just when it's likely that we need money for this care. We need to acknowledge that it's only in those circumstances where the illness is covered. Importantly, that usually precludes cognitive impairments such as Alzheimer.

There are many aspects to consider for each of these alternatives, but its not overwhelming. It helps to get advice from someone knowledgeable. Though, I caution you that there are sales reps that have a (self) interest to make the exploration of these options complicated or threatening. I don't. If you have a question, call or email me.