Earlier this year, policymakers made changes to the certain aspects of Medicare Advantage plans, which may make choosing a Medicare Advantage plan more enticing going forward.
That’s because beginning next year, many Medicare Advantage plan (Part C) enrollees will have access to benefits that were previously unavailable, and are still unavailable to Original Medicare participants.
New Benefits
For the first time in 2019, about 270 plans are providing nearly 1.5 million enrollees with access to the following new types of expanded health-related supplemental benefits:
adult day care services
in-home support services
caregiver support services
home-based palliative care
therapeutic massages
home safety devices and modifications
transportation to and from medical appointments
meals delivered to the home
It’s exciting to finally see these services being covered. There’s not a lot of things can be more demoralizing to a person than losing their independence and having to move into an assisted living facility.
These new benefits will hopefully increase the amount of time seniors can remain independent and in their homes!
Plan Changes and Open Enrollment
Plan costs and benefits change often and it’s worth looking at the choices available to see what will fit your current health needs. I’d recommend starting your search with Medicare’s Handbook. This is an excellent resource they provide to help you make an informed decision.
Open enrollment for 2019 ends December 7th, so you’ll want to decide soon if you want to make changes to your Medicare coverage.
I’m on an impromptu road trip this weekend to North Carolina. Unfortunately, my Grandmother passed away on Monday and the viewing is today.
I didn’t have a lot of time to plan and one of the decisions I had to make was whether to rent a car or take my own.
There are two factors to consider when deciding to drive your own car versus renting a vehicle for a road trip.
The Pure Mathematics
The first is to crunch the numbers.
If you rent you’re going to have to pay the rental company a fee to use their car. The cost will vary depending on how long you are renting and the type of vehicle you choose. The longer you will be renting and the smaller the vehicle, the lower your rate will be.
The rental car company will try to up-sell you on items like insurance, GPS, and XM radio. This can add $60 to $100 per day to your daily rate! I never take the insurance the rental car company offers.
I prefer to call my insurance company to let them know I’ll be renting a vehicle and request they add rental car coverage (specifically loss-of-use coverage) for a limited amount of time. I also decline the GPS and XM radio options. We have cell phones that can do both things for free.
But what about the cost of driving your own car? You likely own your car so it doesn’t cost anything to drive it. Even if you have a loan, I wouldn’t consider the loan payment in the cost.
Instead, you’ll need to calculate the “wear and tear” costs. This would include things like oil changes, tires, and other parts. A long road trip will speed-up the deterioration of your car’s parts that would normally only be replaced every few months or years. A good rule of thumb to calculating these costs is to multiply the total miles of the trip by $0.20.
Of course, there is the cost of gasoline. You’ll have this cost whether you rent or dive your own car. However, make sure you know how much gas the rental car company wants you to return the car with. If you’re responsible for dropping it off with a full tank, but don’t, they’ll charge you to fill it up. I’ve made this mistake before. It cost me $10 per gallon!
The Psychological
The second factor to consider are the things that are more phycological in nature and less about cold hard numbers.
For example the condition of your car. If you have a new car, you might be hesitant to put a thousand miles on it for a road trip. It’s new and you want to keep it that way!
On the other hand, if you have an older vehicle, you might worry if it’ll make the trip at all. If it broke down, you’re in for the cost of towing AND repairs. Yikes!
There’s also the WOW factor of getting to drive a different car for a few days. It’s new and it’s exciting! Especially when you’re on your way to somewhere warm and opt for the convertible!
These psychological factors are harder to substantiate because they aren’t based on fact. They’re based on our feelings. They are still important to take into account though.
The Verdict
I can’t say there is a definitive right or wrong answer. The math may say one thing but the emotional drives may say another.
Just like my trip to North Carolina. The math was clearly in favor of taking my own car. But my car is a few thousand miles shy of 100,000 and my emotions said to prolong hitting that milestone for as long as possible. Even though hitting 100,000 miles a few months earlier than planned would have zero impact on the reliability of the car.
My job as financial advisors is to help people recognize and then achieve their goals. Many people don’t realize that it rarely pays off to take on more risk than necessary to do so. In fact, it could result in failing to meet those goals at all.
How Do You Measure Risk?
A popular view is that you can measure risk by how much the markets rise and fall over time, or volatility. It’s true that volatile investments are seen as risky because they have a chance of large declines. But the measure of goal failure is really dependent on the magnitude of the loss and the timing.
Breaking Even
Imagine an investor who has $1 million in the market and experiences a loss of 50%, the investment is now worth $500,000. To get back to the $1 million starting point, they now need to generate a return of 100%. If they lose 40%, they’ll need a 67% return to get back to where they started. Yet, if the loss is contained to 20%, only a 25% return is needed to restore the $1 million.
What’s most important is the percent required to break-even after a loss. As the loss increases, the return required to make up for it also increases.
Is Time On Your Side?
Markets may generally rise over long time frames, but they spend a lot of time making up for previous losses. As can you can see in the chart below.
Real Investment Advice, 11/28/2016, The Long-Term Investing Myth, Lance Roberts
A sizable loss can be particularly devastating for those near, or in, retirement. Especially if they are already withdrawing from their portfolio for income. That’s because there usually isn’t enough time to make up for what was lost.
Even young investors who have decades before retirement need to be mindful of big losses. A negative return will negate compounding interest. This makes investing unnecessarily inefficient during the time required to recover from a large loss.
The bottom line is that not losing money is a powerful wealth building and preservation tool, no matter what age an investor is.
Imagine all the variables that have to be taken into account. The number of working years remaining. How long retirement will last. What income will be needed to live on. It’s easy to get overwhelmed in all the details and quit before even getting started.
But without a plan in place, it’s impossible to answer the question, “am I on track for retirement?”.
Follow the steps in this post to develop a simple retirement plan that you can easily track year after year — without having to think too hard about the details.
Where You Are At
The first step to establishing a plan is determining your current financial situation with a personal net worth statement.
The combination of what you own (your assets) and what you owe (your liabilities) makes up your personal net worth.
You can access a template net worth statement below.
You’ll probably notice that I distinctly separate “liquid” assets from “hard” assets. That’s because, in my opinion, liquid assets offer a more accurate representation of what can truly be used to fund retirement needs.
For example, a majority of people stay in their primary residence throughout retirement. Only selling it if absolutely necessary. Likewise, personal belongings and collectibles will most likely be handed down to family members.
For these reasons, I prefer calculating a person’s liquid net worth and using it as a reference point for measuring progress toward their goals.
Where You Want To Go
Now that you have the starting point, it’s time to think to the future.
What do you want your retirement to look like? How much annual income do you think you’ll need to fulfill your lifestyle of choice?
This number will be your Target Annual Retirement Income.
Next, you’ll need to determine how long your retirement might last. Given today’s medical advances, somewhere in the realm of 25 to 30 years isn’t out of the question.
Multiply your Target Annual Retirement Income by the number of years you expect to be retired. You’ll end up with an amount that would be needed today in order to accomplish your chosen lifestyle.
Adjust For Inflation
However, $750,000 today isn’t equivalent to $750,000 at retirement thanks to our dear friend inflation.
The next step is to adjust the needed amount for inflation in order to determine how much you’ll actually need to accumulate by retirement.
You can quickly calculate this using an inflation calculator. When using the calculator, you’ll need to have these three inputs handy:
present value = what’s needed
years from now = number of working years remaining
As we can see, $750,000 today is equal to nearly $1.8 million in 25 years if inflation averages 3.5%.
Tracking Liquid Net Worth
You have the starting point (current liquid net worth) and your inflation-adjusted goal (where you want your liquid net worth to be at retirement), now it’s time to use a graph to plot each point.
This goal line will give you a path to follow and help you know if you’re staying on track with your accumulation goal.
An easy way to track your progress is to, at the beginning of each year, log your liquid net worth — in a notebook, spreadsheet, or web app — and create a goal for where you want to be the following year.
As you can imagine, your net worth won’t follow a straight line. It will vary from your intended goal line as life ultimately happens. However, a variance of 20% to either side of your goal is still in a healthy range.
Make note of the significant events that contributed to changes in your liquid net worth (like increased savings, paid down debt, markets up and down, etc.) and adjust your savings accordingly.
Develop Your Plan
I’ve given you some tools and enough guidance to get you started on your path to retirement readiness, but nothing beats working with a financial professional who can help navigate the many potential road bumps you face along the way.
Don’t hesitate to reach out to me for guidance on retirement readiness, or anything else I write about. I’m happy to help!
It’s Thursday after work and your friend sends a text about going to Margarita Night at the local Mexican restaurant. You decide you want to unwind with some tasty arroz con pollo and a refreshing margarita or two, so you reply, “sure”. You pull up your bank’s app to check your account balance — $106.26. “Where did all my money go?!” you think to yourself.
According to a Gallup poll from 2013, only about one in three Americans actually has a household budget. I would say this statistic is still accurate because less than half of the people that come to me for help actually keep track of their cash flow. When I ask those who don’t, why they don’t, the standard response is, “I look at my online banking every day so I know how much I have to spend”.
This is partially true. Your online banking application does tell you how much you have available to spend right now (according to their records) but it doesn’t tell how you are spending your money. If you want to get a better grasp of where your money is actually going, you’re going to need to actively keep track of it.
Reasons To Track Your Expenditures.
Banks make mistakes. I worked at a bank and I saw this first hand. While it isn’t a common occurrence, it still happens. It may not even be the bank’s fault. It could be a merchant that double charged you by mistake.
Some merchants charge more or less than the actual transaction. A prime example of this is gas stations and hotels. When you select debit/credit at the pump, the gas stations will put a temporary $1 pre-authorization charge on your account. This way the vendor can verify the card is active before authorizing the total amount. So you really put $20 in your tank, but your pending transaction on your online banking will say $1. After the transaction is authorized the $1 will fall off, but that could be minutes to hours after you actually filled up. A lot can happen in a few hours.
Fraud. A thief gets a hold of your card number and proceeds with a spending spree. A lot of times a thief will charge a few small items first. If they get away with it, they go for the big time items hoping that you don’t catch it until they are scot-free.
Paper checks. Paper checks may not be used very often anymore, but we still use them occasionally. Like that $20 check you wrote to your niece six months ago for her birthday that she still hasn’t cashed. Those checks can add up and one day you may find your checking account overdrawn because your niece finally got around to cashing that check.
It will help you budget. The dreaded “B” word. I find knowing where your money is going is integral to formulating a budget. If you know that you spend $200 a month at Starbucks, you have a benchmark for how much you want to cut and spend somewhere else.
How To Keep Track Expenses.
There are multiple ways to keep track of cash flow; all the way from the basic check register to apps on your phone.
Doing it the old fashioned way of balancing your checkbook takes a little more time and effort. You will need to keep the receipts from any transactions you use your card for and write them down in a check register. If there are any outstanding checks or pending transactions, they won’t be checked off until they actually post to your account, but they still should be subtracted from the running total.
Apps like Mint, GoodBudget, or You Need A Budget are great for people who want to base their budget on their cash flow. The apps link to your checking account and help keep track of your spending by category. You will get reports on where your money was spent and how much you have left for the month based on the budget you created. They even give you reminders of when reoccurring bills are due.
Stay On Budget.
Keeping track of your cash flow is an important step in helping you create, and stay on, a budget. When you know where your money is going, it is easier to ensure you have enough money for the things you need. It’ll also help you pay off any debts you have and keep you out of debt going forward.
Living on a budget doesn’t mean giving up things you want or like. You can enjoy the occasional iced latte and still find places to cut back in order to balance your income and expenses.
