Welcome to the Future (2015 Version)

Welcome to 2015. As we witness the confluence of the U.S. stock market at or near all-time highs and geopolitical events unfolding around the world at a torrid pace many of us have never seen before, closer to home, we can fill our gas tanks for about $40 again!!

The arrival of a new year affords an opportunity to review various aspects of one’s financial situation and ask questions such as: Is my strategy the best way to solve the problem or manage the risk?  This article looks at several aspects of planning and provides some insight we sometimes bring into our conversations with clients.

For those who own long term care insurance (LTC) policies, insurers are battling an excessive volume of claims, which are much greater than anticipated and the result is likely to be some “re-pricing” down the road.  LTC insurance was designed to prevent low volume (probability) claims but high impact (financial) risk.  The reality has been just the opposite – high volume and low impact.  Some 20 years ago, it was estimated that 27% of men and 44% of women would need nursing home care.  However, more recent studies indicate the probability of such care for a 60-year-old is nearly 50% and most existing policies are probably not priced to reflect these figures!1

One way to mitigate the inevitable premium increases would be to review your policy and consider a longer elimination period on the policy.  If your policy is based on a 90- or 180-day elimination period (elapsed time before policy pays out any claims), a longer elimination period could reduce your premiums or allow you to maintain the same daily benefit coverage, if the premiums are eventually increased.

In reviewing the coverage, give some consideration to resisting the urge to file a claim while in your 60s or 70s and hold off until your later years.  Remember, long term care insurance is designed to not only protect assets but to insure against the risk of catastrophic financial loss, as well.  If you can pay out-of-pocket expenses with existing assets, you or your spouse may benefit more with a claim at a later date.

According to a recent blog article in Bank Investment Consultant magazine, 70% of Social Security recipients claim their benefit early (age 62), rather than waiting for the larger benefit at full retirement age (FRA)2.  Our typical response to the question of when to claim benefits is to ask: Why, under the premise that life expectancies continue to increase would one do this and potentially reduce benefits by as much as 30%?  Even if one decides to file early (perhaps based on family medical history), if you are married – consider your spouse who will benefit in the long term if you can resist the shorter term temptation to start benefits early.

Part of the reason so many people file early is prior to beginning benefits, they visit the local Social Security Administration (SSA) office to review benefit options.  Individuals at SSA are trained to answer specific questions regarding benefits to be paid at different retirement ages, such as 62, full retirement age (66-67) or at age 70.   It is obviously important to know the differing dollar amounts of benefit available at each age.  However, in financial planning it is even more important to know how the infusion of this new cash flow is of the most benefit to the client(s), given their respective ages, health, resources and other family dynamics (e.g., legacy wishes, ability to provide assistance with care).

Another worthwhile exercise is to review your estate planning documents.  We are constantly reminding clients to review primary and contingent beneficiary designations on all retirement accounts and insurance policies.  Reflecting the times in which we live, second and third marriages combined with a variety of investment, retirement accounts and different types of insurance policies can be very confusing and hard to track.   Current beneficiary designations control who receives the assets regardless of the fact that you have divorced your spouse. We store these documents electronically for our clients, which makes organizing them much easier.

For clients with revocable trusts, please review your documents and account statements to make sure the assets intended for the trust have been included in the trust.  Re-titling accounts can take longer than one might think, so it might be prudent to begin that process sooner rather than later.

If you are planning to make annual exclusion gifts (2015 limit is $14,000 per person and per beneficiary, why not complete the gift early in the year and move this amount of assets outside your estate?  Also, check with your particular state as some have estate tax levels that are much lower than the current federal exemption limit ($5,430,000).3

Since we are in the midst of tax season we encourage you to take a look at your 1040 Form:

Line 32 – If eligible, are you contributing the maximum amount for an IRA deduction and isn’t this a great way to reduce taxes and save additional money for retirement?

Line 15 – If you are taking distributions from IRAs, are you taking too much or too little each year?  Too little (below the required minimum distribution if over 70 ½) could result in a 50% penalty; too much could impose an ordinary income tax burden and prematurely deplete these assets.

Line 8a – Do you have many assets providing taxable interest in a bank CD or savings account?  Not only are the yields low on these assets, the after-tax yield can be miniscule.  Is it time to find a better yield in a municipal or taxable bond fund?4

This is one of the many reasons we ask our clients for previous year’s tax returns, so we can review them with you.  In our view, it is our responsibility to help you in every way possible!

Do you have a family member who is disabled?  In late 2014, Congress approved the Achieving a Better Life Experience Act, allowing one to create a 529A account and provide tax advantaged benefits for disabled individuals.  This legislation is modeled after the 529 college savings plans and can provide tax advantaged accumulations and distributions, covering many different expenses for the disabled beneficiary.

To take advantage of these plans, the expenses must be qualified and can include housing, education, transportation and wellness.  Annual contributions to these accounts are capped at $14,000 per beneficiary and as long as the account total is under $100,000, this type of account does not impact any Supplemental Security Income or Medicaid benefits.  Should the account exceed the $100,000 limit, benefits would be suspended until the account value was back under the $100,000 threshold.5

2015 is upon us and the New Year brings many planning opportunities for you and your family.  While we’ve covered several different topics, focusing on a few at a time can make the tasks a little bit easier to manage.  Please don’t hesitate to take action and let us know if we can help!


  1. https://www.kitces.com/blog/can-increasing-the-long-term-care-insurance-elimination-period-make-coverage-appealing-again/ 
  2. http://www.bankinvestmentconsultant.com/blogs/social-security-with-ssa-overwhelmed-advisors-can-provide-much-needed-help-2691733-1.html
  3. http://www.financial-planning.com/blogs/estate-planning-checklist-5-things-to-do-now-2691779-1.html
  4. http://www.financial-planning.com/webonly/7-client-secrets-revealed-by-a-1040-form-2691864-1.html
  5. http://www.nerdwallet.com/blog/finance/advisorvoices/whats-529a-account/