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Market Commentary - Month of February 2015

PlanningWorks Presents:

 

MONTHLY ECONOMIC UPDATE

 

 

MONTHLY QUOTE

 

“It still holds true that man is most uniquely human when he turns obstacles into opportunities.”
    

– Eric Hoffer

 

 

MONTHLY TIP

 

If you want to leave some of your IRA to your children, a Roth IRA conversion may be a great idea: the IRA they inherit could realize further tax-free growth.

 

 

MONTHLY RIDDLE

 

It begins and ends with E yet it may contain only one letter. What is it?

 

 

Last month’s riddle:
Isabella took her two children to a place where stealing was common and everyone wanted to run home. Where did the three of them spend an enjoyable afternoon??

 

 

Last month’s answer:

A baseball game.

 

February 2015

THE MONTH IN BRIEF
Assumptions of a global slowdown sent stocks further down in January. The blue chips and the small caps both fell more than 3% on the month. Gold and the dollar got off to a hot start for 2015, as did many foreign stock markets; energy and crop futures mostly extended losing streaks. Housing indicators were mixed, and the latest data on consumer spending, inflation and retail sales raised some questions. The big economic news came from overseas as the European Central Bank announced a long-awaited easing effort; stateside, the Federal Reserve seemed to hint that it was still considering raising interest rates this year.1

 

DOMESTIC ECONOMIC HEALTH
If institutional investors had felt as confident as American households last month, stocks might have performed better. January saw the Conference Board’s consumer confidence index reach an impressive 102.9, and the University of Michigan’s consumer sentiment index ended the month at 98.1.2

 

While consumer confidence was rising, consumer spending abruptly tailed off. Commerce Department data showed it retreating 0.3% in December. Retail sales also dropped 0.9% in the same month after two months of solid gains.2,3

 

On the upside, personal wages grew 0.3% in December, and the federal government announced that Q4 personal spending had advanced 4.3%, becoming the major factor in the 2.6% initial estimate of Q4 GDP released in late January.2,4

 

The latest Labor Department report showed more improvement. December saw the jobless rate dip another 0.2% to 5.6%; the overall U-6 rate, which measures the marginally employed as well as the unemployed, also decreased to 11.2%. Thanks to 252,000 more Americans finding employment in December, 2014 became the nation’s best year for hiring since 2000.5 

 

Looking at another key economic barometer, we see remarkably little inflation pressure stateside. The Consumer Price Index dipped 0.4% in December following a 0.3% retreat in November. That meant the country experienced just 0.8% inflation for 2014. The core CPI was flat in December, so its year-over-year change was 1.6%. As for the Producer Price Index, it pulled back 0.3% for December and rose just 1.1% for 2014; the core PPI rose 0.3% for December, taking its 2014 gain to 2.1%.3

 

December saw a 0.3% rise in manufacturing production and a 0.1% dip in industrial output according to the Federal Reserve, but durable goods orders slipped 3.4% (they were also down 2.1% in November). The twin PMIs maintained by the Institute for Supply Management disappointed Wall Street: ISM’s December service sector PMI came in 3.1 points lower at 56.2, and its manufacturing PMI read 55.1 for December and 53.5 for January. These readings were solid, but decidedly beneath previous editions.2,3

   

In the face of this mixed bag of indicators, the Fed sounded pretty bullish. Its latest policy statement (January 28) noted the economy expanding “at a solid pace” as opposed to the “moderate pace” noted in prior Federal Open Market Committee reflections. Nothing in the statement gave off impressions that the Fed would delay a rate hike until 2016.6 

   

GLOBAL ECONOMIC HEALTH
In late January, the European Central Bank unveiled a money-purchase program of proportions to rival QE3. The ECB announced it would buy €60 billion in bonds each month through September 2016. By weakening the euro, the central bank is aiding the economies of most eurozone countries, which are pegged heavily to exports.7

 

The ECB had to do something; annualized eurozone inflation reached -0.2% in December, the European Commission forecasts it at -0.6% for January, and it is projected to stay at +0.5% or less through 2020. For 2015, the eurozone economy is expected to expand only 1.2%; the euro area jobless rate was 11.4% in December, and that was a 2-year low.7,8

   

Did China’s economy rev up a bit in January? No. January’s “official” China factory PMI dipped 0.3 points to 49.8 (meaning contraction) and its “official” service sector PMI dropped 0.4 points to 53.7. The HSBC/Markit China PMI stayed below 50 for another month (49.7). South Korea’s key manufacturing PMI had improved 1.5 points to 51.1 in December, and Indonesia’s rose 0.9 points to 48.5; India’s factory PMI fell 1.6 points to 52.9.9

 

WORLD MARKETS
Indices in Europe and Asia mostly rose. Look at some of the progress made last month: FTSE 100, +2.79%; CAC 40, +7.76%; DAX, +9.06%; FTSE MIB, +7.84%; STOXX 600, +7.16%; Sensex, +6.12%; Hang Seng, +3.82%: Nikkei 225, +1.28%; S&P/ASX 200, +3.28%. Another glance reveals a few notable retreats – January losses of 0.75% for the Shanghai Composite, 6.20% for Brazil’s Bovespa, 6.75% for the Russian RTS, 5.09% for Mexico’s IPC All-Share.1

 

January saw the MSCI World Index fall 1.88%; the MSCI Emerging Markets Index gained 0.55%. The month saw losses of 3.32% for the Dow Jones Americas index, 1.76% for the Europe Dow and 2.41% for the Global Dow; the Asia Dow, on the other hand, improved 2.73%.1,10

    

COMMODITIES MARKETS

Gold had a tremendous month, with futures rising 8.38% on the COMEX to settle at $1,279.20 on January 30. Its ascent was mirrored by a 9.24% climb for silver, with an ounce of that commodity being worth $17.21 at January’s end. Platinum rose 2.38% on the month; copper dropped 10.91%. The U.S. Dollar Index surged north another 5.02% in January to end the month at 94.80.11,12

 

Apart from the greenback and precious metals, the commodities sector didn’t really offer much to cheer about. Light sweet crude fell further in New York: a barrel was worth just $48.24 on the NYMEX when the month ended. January also saw heating oil futures sink another 7.43% and natural gas futures give up another 8.20%. Crops mostly descended as well, with cotton losing 1.51%, coffee 3.80%, cocoa 8.12%, soybeans 5.79%, corn 7.23% and wheat 15.27%. It wasn’t all bad, as unleaded gasoline did rise 0.61% and sugar gained 1.79%.11

      

REAL ESTATE
Mortgages got even cheaper last month: the interest rate for the 30-year fixed averaged only 3.66% according to the January 29 Freddie Mac Primary Mortgage Market Survey. That was down from 3.87% on December 31. Between the two surveys, average interest rates on the key mortgage types declined as follows: 15-year FRM, 3.15% to 2.98%; 5/1-year ARM, 3.01% to 2.86%; 1-year ARM, 2.40% to 2.38%.13,14

 

New home sales soared in December: they were up 11.6% according to the Census Bureau, coming off a (revised) 6.7% drop in November. Existing home sales improved slightly in December as well – the National Association of Realtors found them rising 2.4%, much better than the (revised) 6.3% fall of a month before. NAR’s pending home sales index, on the other hand, fell 3.7% for December after a November gain of 0.6%.2,3

 

As for home prices, NAR said that the national median resale price was $208,500 in December – the best median price in six years, and up 5.8% from a year earlier. That year-over-year improvement surpassed the 4.3% gain in the 20-city Case-Shiller home price index for December.2,15

 

As for new projects, the Census Bureau noted a 1.9% decline in applications for building permits in December, but a 4.4% increase in groundbreaking which put total U.S. housing starts over 1 million for the first time since 2005. Last year saw an 8.8% increase in housing starts.15,16

 

LOOKING BACK…LOOKING FORWARD
Here was where things settled on January 30, the month’s last market day: DJIA, 17,164.95; NASDAQ, 4,635.24; S&P, 1,994.99; Russell 2000, 1,165.39 (the RUT was down 3.26% YTD when January ended). The CBOE VIX was one of the best performers in January, gaining 9.22% on the month to 20.97. Bond yields went lower worldwide after the ECB easing announcement, and investors really ran to Treasuries – look at that real yield for the 10-year note as January ended.1

 

% CHANGE

Y-T-D

2014

5-YR AVG

10-YR AVG

DJIA

-3.69

+7.52

+14.10

+6.36

NASDAQ

-2.13

+13.40

+23.17

+12.47

S&P 500

-3.10

+11.39

+17.16

+6.89

REAL YIELD

1/30 RATE

1 YR AGO

5 YRS AGO

10 YRS AGO

10 YR TIPS

0.03%

0.57%

1.30%

1.65%

 


Sources: online.wsj.com, bigcharts.com, treasury.gov - 1/30/151,17,18,19,21

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.

 

Is downside risk increasing as we get into February? Could a correction happen? Market analysts aren’t ruling it out, as U.S. stocks didn’t especially get a sustained lift from the latest Fed policy statement or the ECB’s announcement of its stimulus. Still, what happens in January does not necessarily foretell what will happen during the rest of the year. Pessimists should note that January 2014 was even worse for the blue chips: the Dow lost more than 5%, but it gained more than 13% over the ensuing 11 months. Oil prices have been rebounding of late; earnings have been decent. Those two factors alone may give investors a bit more optimism as February unfolds.20

 

UPCOMING ECONOMIC RELEASES: Here is what is on tap for the rest of February: the January ISM service sector PMI and ADP employment change report (2/4), the January Challenger job-cut report (2/5), the Labor Department’s January jobs report (2/6), January wholesale inventories (2/10), December business inventories and January retail sales (2/12), February’s preliminary consumer sentiment index from the University of Michigan (2/13), January’s PPI, industrial output, housing starts and building permits and the January 28 Fed policy meeting minutes (2/18), the Conference Board’s latest leading indicator index (2/19), January existing home sales (2/23), the Conference Board’s February consumer confidence index and the December Case-Shiller home price index (2/24), January new home sales (2/25), January’s CPI and hard goods orders (2/26), and then the federal government’s second estimate of Q4 GDP, January pending home sales and the University of Michigan’s final February consumer sentiment index (2/27).

 

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Tee Up 2015 at TopGolf Austin!

PlanningWorks hosted a special event at TopGolf Austin which included a "Scorecard" on the new year, birdies & BBQ!

IMG_2654.JPG IMG_2554.JPG IMG_2569.JPG IMG_2572.JPG IMG_2576.JPG IMG_2583.JPG IMG_2603.JPG IMG_2631.JPG IMG_2671.JPG IMG_2687.JPG IMG_2707.JPG IMG_2529.JPG IMG_2729.JPG IMG_2526.JPG IMG_2532.JPG IMG_2753.JPG IMG_2716.JPG

Value of Life Insurance Trusts

The Value of Life Insurance Trusts

An estate planning option more families ought to know about.

 

Provided by PlanningWorks

 

You may think of life insurance in very simple terms: you buy a policy so that your loved ones will have some financial assistance when you die. Its functionality doesn’t end there. If it looks like your accumulated wealth will be subject to estate taxes someday, life insurance may be a very useful tool for you. In fact, you might call life insurance the “Swiss army knife” of estate planning, especially when it is used in conjunction with trusts.

 

What does a life insurance trust do? It enables you and your family to do three things in particular. One, it provides you, your spouse and your heirs with life insurance coverage after it is implemented. Two, it allows a trustee to distribute death benefits from a life insurance policy as that trustee sees fit. Three, it gives you the chance to reduce your estate taxes.

 

When you create a life insurance trust, you are creating an entity (the trust) to own life insurance policies for you and/or your loved ones. Since the trust owns the policies rather than the insured individuals, the proceeds from the policies go into the trust when an insured party passes away.

 

As a result, the insurance proceeds aren’t subject to probate, income taxes or estate taxes. A trustee can distribute those proceeds to one or more parties as stipulated in the language of the trust. Also, if your estate ends up really large, the trust can buy additional life insurance coverage to provide additional cash to pay additional estate taxes.

 

Who pays for the insurance? As the grantor (i.e., the creator) of the trust, you have a say over that. In most cases, the trust pays the premiums; the grantor transfers enough funds into the trust to make that happen. A grantor can actually pay the premiums rather than the trust itself; this act is not defined as an “incident of ownership.” Sometimes another party pays the premiums, although this can mean flirting with gift tax issues. Some grantors just pay a lump sum for coverage – that is, they buy a single premium life policy.1,2

 

A life insurance trust must abide by three requirements. One, it needs to be irrevocable. That is, once created it is legally “set in stone,” unlike a revocable trust which can be amended or revoked later on. (You can make a life insurance trust revocable, but that destroys the estate tax benefit. Making the trust revocable makes you the owner of the life insurance policy in the eyes of the IRS, so its proceeds will be included in your taxable estate.) Two, you can’t be the trustee; it has to be someone else. Three, the trust has to be implemented (up and running, so to speak) at least three years prior to your death.3

 

Sometimes these trusts establish investment policies for the life insurance proceeds, and even timelines for who receives what when (families may want to delay an heir from legally receiving an inheritance until age 18 or 21, for example).             

 

Why don’t I just have someone else own my insurance policy? That scenario can lead to major financial and familial headaches. If that person dies before you die, the cash value of the policy will be included in their taxable estate. So the heirs (and relatives) of that person could face estate taxes, or higher estate taxes than they now anticipate. Also, if you do this, you surrender control of your policy; the loved one you trust could end up naming another beneficiary or even cashing your policy out.3

 

A decision for life. Establishing an irrevocable life insurance trust, or ILIT, is a big decision that can result in a big estate tax break for your heirs. If you’d like to know more about these trusts and their potential, talk to a qualified legal, financial or insurance professional today.

     

PlanningWorks may be reached at 512 498-7526 or info@planningworks.biz

 

Minimizing Probate When Setting Up Your Estate (Updated 2014)

Minimizing Probate When Setting Up Your Estate

What can you do to lessen its impact for your heirs?

 

Provided by PlanningWorks

 

Probate subtly reduces the value of many estates. It can take more than a year in some cases, and attorney’s fees, appraiser’s fees and court costs may eat up as much as 5% of a decedent’s accumulated assets.1

 

What do those fees pay for? In many cases, routine clerical work. Few estates require more than that. Heirs of small, five-figure estates may be allowed to claim property through affidavit, but this convenience isn’t extended for larger estates.

 

So how you can exempt more of your assets from probate and its costs? Here are some ideas.

 

Joint accounts. Married couples may hold property as a joint tenancy. Jointly titled property includes a right of survivorship and is not subject to probate. It simply goes to the surviving spouse when one spouse passes. Some states allow a variation called tenancy by the entirety, in which married spouses each own an undivided interest in property with the right of survivorship (they need consent from the other spouse to transfer their ownership interest in the property). A few states allow community property with right of survivorship; assets titled in this way also skip the probate process.2,3

 

Joint accounts can still face legal challenges. A potential heir to assets in a jointly held bank account may claim that it is not a “true” joint account but a “convenience account” where a second accountholder was added just for financial expediency (an adult child able to make deposits and pay bills for a mom or dad with dementia, for example.) Also, a joint account with right of survivorship may be found inconsistent with language in a will.4

 

POD & TOD accounts. Payable-on-death and transfer-on-death forms are used to permit easy transfer of bank accounts and securities (and even motor vehicles in a few states). As long as you live, the named beneficiary has no rights to claim the account funds or the security. When you pass away, all that the named beneficiary has to do is bring his or her I.D. and valid proof of the original owner’s death to claim the assets or securities.5

 

Gifts. For 2014, the IRS allows you to give up to $14,000 each to as many different people as you like, tax-free. By doing so, you reduce the size of your taxable estate. Please note that gifts over the $14,000 limit may be subject to federal gift tax of up to 40% and count against the lifetime gift tax exclusion, currently set at $5.34 million per individual and $10.68 million per married couple.6

 

Revocable living trusts. In a sense, these estate planning vehicles allow people to do much of their own probate while living. The grantor – the person who establishes the trust – funds it while alive with up to 100% of his or her assets, designating the beneficiaries of those assets at his or her death. (A pour-over will can be used to add subsequently accumulated assets; it will be probated, however.)7

 

The trust owns assets that the grantor once did, yet the grantor can use these assets while alive. When the grantor dies, the trust becomes irrevocable and its assets are distributed by a successor trustee without having to be probated. The distribution is private (as opposed to the completely public process of probate) and it can save heirs court costs and time.7

 

Are there assets probate doesn’t touch? Yes, there are all kinds of non-probate assets. The common denominator of a non-probate asset is a beneficiary designation. By law, these assets must pass either to a designated beneficiary or a joint tenant, regardless of what a will states. Examples: jointly titled real property, jointly held bank accounts with right of survivorship, POD and “in trust for” accounts, any asset held within a revocable or irrevocable trust and most IRA, 401(k) and 403(b) accounts. 4   

 

Make sure to list/update retirement account beneficiaries. When you open a retirement savings account (such as an IRA), you are asked to designate eventual beneficiaries of that account on a form. This beneficiary form stipulates where these assets will go when you die. A beneficiary form commonly takes precedence over a will, because most retirement accounts are legally defined as non-probate assets.8

 

Your beneficiary designations need to be reviewed, and they may need to be updated. You don’t want your IRA assets, for example, going to someone you no longer trust or love.

 

If you leave a beneficiary form blank, the account or asset in question may simply pass to your estate after you die. It will then be subject to probate, because its distribution will thereby be governed by your will and not a beneficiary designation. With a workplace retirement plan, your spouse is the default beneficiary even if you do leave the beneficiary form blank (unless he or she declines to be the beneficiary of those assets in writing). If you leave the beneficiary form for your IRA blank, the IRA balance may be distributed according to the default provision set by the account custodian (the brokerage firm hosting the IRA account).9   

 

To learn more about strategies to avoid probate, consult an attorney or a financial professional with solid knowledge of estate planning.

 

PlanningWorks may be reached at 512 498-7526 or info@planningworks.biz

 

Market Commentary - Month of January 2015

PlanningWorks Presents:

 

MONTHLY ECONOMIC UPDATE

 

 

MONTHLY QUOTE

 

“Always seek out the seed of triumph in every adversity.”
    

– Og Mandino

 

 

MONTHLY TIP

 

Own a business? The start of 2015 is the right time to schedule quarterly meetings with your CPA, so you can adjust (or establish) metrics and key performance indicators and review performance as 2015 progresses.

 

 

MONTHLY RIDDLE

 

Isabella took her two children to a place where stealing was common and everyone wanted to run home. Where did the three of them spend an enjoyable afternoon?

 

 

Last month’s riddle:
You saw me where I never was and where I could not be. And yet within that very place, my face you often see. What am I?

 

 

Last month’s answer:

A reflection.

 

January 2015

THE MONTH IN BRIEF
December certainly looked like it was going to be a trying month for the market, but then Wall Street got a little help from the Federal Reserve. In its December 17 policy statement, the central bank told the world that it would be “patient in beginning to normalize the stance of monetary policy.” That declaration helped turn stocks around. Oil prices (and retail gas prices) declined further in December; readings on fall consumer spending and Q3 GDP improved. When 2014 ended, the S&P 500 had posted another double-digit yearly gain – and while some foreign economies seemed to be slowing or sputtering, ours looked quite healthy.1

 

DOMESTIC ECONOMIC HEALTH
Three very positive indicators from the Commerce Department confirmed how well the economy was doing. Third-quarter GDP went in the books at 5.0% (up from 3.9% in the second estimate). Consumer spending rose by a very strong 0.6% in November with consumer wages also rising 0.4%. Cheap gasoline and growing consumer confidence seemed apparent factors in the impressive 0.7% November gain in retail sales.2,3

 

America’s two most-watched household sentiment gauges pushed higher in December. The Conference Board’s consumer confidence index rose 3.9 points on the month to 92.6, and the University of Michigan’s index gain 4.8 points off of its final November mark to reach 93.6.2,3

 

More good news came from the Labor Department: November had been an outstanding month for hiring. Sure, the jobless rate stayed at 5.8% (the U-6 rate encompassing unemployed and underemployed ticked down to 11.4%), but the economy added 321,000 new jobs, 86,000 of them in the professional and business sectors. Additionally, the Labor Department revised the employment gains of September and October upward – 44,000 more people found work across those two months than initially reported.4 

 

The Institute for Supply Management announced a slight November downturn in its manufacturing PMI; the 0.3% retreat took it to 58.7, still indicating strong expansion for the sector. (Overall hard goods orders also retreated in November, down 0.7%; economists polled by MarketWatch projected a 3.3% gain.) ISM’s service sector PMI jumped 2.2 points north in November to 59.3.2,3

   

Inflation pressure? There wasn’t much. The headline Consumer Price Index and Producer Price Index both saw November declines – 0.3% for the CPI, 0.2% for the PPI. Year-over-year, the CPI had only advanced 1.3%, the PPI 1.4%. (The core CPI was up 1.7% yearly, the core PPI up 1.8% in 12 months.)2,3

 

In mid-December, Congress voted to retroactively reinstate more than 50 tax breaks that had expired at the end of 2013. The extenders (which included the tuition & fees deduction, the R&D credit, the state & local sales tax deduction and many others) were all set to sunset at the beginning of 2015 barring further legislative action.5 

   

GLOBAL ECONOMIC HEALTH
December ended with more uncertainty for Greece (and the European Union). The Greek parliament dissolved, unable to select a new president; the Syriza party looked poised to win the resulting national election. It had long protested anti-austerity conditions handed down as part of the bailout offered to Greece by the International Monetary Fund, European Central Bank and European Commission, and had vowed to overturn much of those economic measures if it assumed power. Elsewhere on the continent, Russia’s economy looked headed for recession; government economists put 2014 GDP at 0.6% and projected 2015 GDP at -0.8%. By the end of 2014, the ruble had sunk 50% versus the dollar.6,7

 

As for the broad EU, its jobless rate stood at 10.0% as the year wrapped up (with unemployment in the 18-country euro area at 11.5%), and its annual inflation rate stood at just 0.3% in December. In the U.K., inflation touched a 12-year low last month.8,9

 

Important indicators on foreign factory output and GDP were mostly disappointing. As December ended, the latest HSBC/Markit manufacturing PMI for China came in at 49.5; readings below 50 signal sector contraction. China’s State Information Center put the country’s Q3 growth at 7.3% (down from 7.5% in Q2) while forecasting 7.0% GDP for 2015. The Markit Composite Flash PMI for the eurozone moved up to 51.7 in mid-December; just prior to that, it had been at 51.1, a 16-month low.9,10

 

WORLD MARKETS
European and Latin American bourses took widespread losses in December. Was it any surprise that Russia’s RTS index fell hardest? Its 18.84% monthly drop topped the 14.22% decline of Greece’s ATG. Other European losses last month: DAX, 1.76%; CAC 40, 2.67%; IBEX 35, -4.56%; FTSE 100, -2.33%; STOXX 600, -1.36%. Ireland’s ISEQ was an exception, up 3.02% last month. Europe’s best 2014 performer was Turkey’s BIST 100 index, which went +26.43%. Argentina’s MERVAL sank 12.54%, Mexico’s IPC All-Share 2.36% and Brazil’s Bovespa 8.52%; in Venezuela, the Caracas General index soared exactly 29% in December. The MERVAL was the top performer for the Americas in 2014, going +59.14%.11

 

The picture in the Asia Pacific region was somewhat better. The winner for the month and the year: the Shanghai Composite. It gained 20.57% in December and 52.87% for the year (its A Shares actually advanced 53.06%). The Sensex lost 4.16% in December, the KOSPI 3.29% and the Hang Seng 1.59%, yet the KSE 100 rose 2.99%, the Jakarta Composite 1.50% and the S&P/ASX 200 1.84%. Japan’s Nikkei 225 was virtually flat, losing 0.05%.11

 

Now to the Dow Jones and MSCI benchmarks. The Europe Dow dipped 5.30% in December, the Dow Jones Americas just 0.76%; the Asia Dow was off 2.67%, the Global Dow 2.71%. The twin MSCI indices staged December retreats – the MSCI World lost 1.71%, the MSCI Emerging Markets 4.82%.11,12

    

COMMODITIES MARKETS

Call 2014 the year of the strong dollar and weak oil. The U.S. Dollar Index gained 2.18% more in December, moving up to 90.29 on New Year’s Eve. Oil’s catastrophic 2014 ended with an 18.25% December loss; WTI crude went -45.42% on the year with a barrel worth just $53.27 on the floor of the NYMEX as the final trading day of 2014 concluded. Other major energy futures racked up big monthly losses, too. Unleaded gasoline slid 22.17% to bring its 2014 retreat to 47.03%. Natural gas fell 28.65%, heating oil 16.02%. Crops had a mixed month: sugar lost 6.50% and coffee 9.90%, but soybeans rose 0.54%, corn 5.77%, wheat 1.86% and cotton 3.16%.13,14

 

Last month was actually decent for metals. Gold ended 2014 at $1,184.10 on the COMEX with futures advancing 1.44% in December. Still, it declined 1.23% for the year. Silver rose 1.43% in December, platinum 0.58%; copper futures lost 1.12%.14

       

REAL ESTATE
The housing market lost some momentum in November, even as interest rates for conventional mortgages stayed below 4%. The National Association of Realtors reported existing home sales dropping 6.1% in that month; the Census Bureau found new home sales down 1.6%. It was just the second retreat in eight months for resales, and the first decline in the pace of new house purchases since July. November’s 20-city Case-Shiller home price index showed a 4.5% annual advance.2,3,17

 

Looking at the near future, NAR’s pending home sales gauge managed to rise 0.8% in November, which was its best performance in 14 months. Groundbreaking tailed off for the first time in three months in the eleventh month of the year: housing starts fell 1.6%, with the issuance of building permits down 5.2%.15,16

 

Freddie Mac’s last 2014 Primary Mortgage Market Survey (December 31) showed the average interest rate for the 30-year FRM at 3.87%, a tenth of a percent below where it was in the November 26 edition of the survey. Between those two dates, mean rates on 15-year FRMs declined from 3.17% to 3.15% and mean rates for 1-year ARMs declined from 2.44% to 2.40%. Average rates on 5/1-year ARMs were unchanged at 3.01%.17

 

LOOKING BACK…LOOKING FORWARD
The Dow, S&P 500 and NASDAQ all posted slight December declines. Closing values from December 31 for the big three: DJIA, 17,823.07; NASDAQ, 4,736.05; S&P, 2,058.90. Oil’s winter tumble helped the CBOE VIX advance hugely – it ended the year at 19.20, with a monthly gain of 44.04% and a yearly gain of 39.94%. The Russell 2000 settled at 1,204.70 on December 31, rising 2.68% on the month and gaining 3.53% for 2014.11

 

% CHANGE

2014

1-MO CHG

5-YR AVG

10-YR AVG

DJIA

+7.52

-0.03

+14.18

+6.53

NASDAQ

+13.40

-1.16

+21.74

+11.77

S&P 500

+11.39

-0.42

+16.93

+6.99

REAL YIELD

12/31 RATE

1 YR AGO

5 YRS AGO

10 YRS AGO

10 YR TIPS

0.49%

0.80%

1.48%

1.68%

 


Sources: online.wsj.com, bigcharts.com, treasury.gov - 12/31/1411,18,19,20

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.

 

For the last couple of years, stocks have surpassed expectations. Will they do so this year? Will corporate earnings be strong enough to generate another double-digit advance for the S&P? If the Fed times its moves right, the bull market could hold up nicely. Oil and Russia present two wild cards for the coming quarters. What if the world’s need for oil has peaked, and demand is never as high as it once was? What if the plummeting ruble and the seeming freefall of oil futures send Russia (in the worst-case scenario) toward a debt default? Can U.S. equities adequately withstand such potential shocks? Major questions, but it is worth reflecting on the major economic and geopolitical question marks confronting stocks in the past few years – all of which the bulls eventually ran past. Perhaps 2015 will surprise the analysts once again.

 

UPCOMING ECONOMIC RELEASES: 2015 kicks off with the following slate of economic announcements and reports: the December ISM factory PMI (1/2), December’s ISM service sector PMI and November factory orders (1/6), ADP’s employment change report for December and the December 17 Federal Reserve policy meeting minutes (1/7), December’s Challenger job-cut report (1/8), the Labor Department’s December employment report and November wholesale inventories (1/9), a new Fed Beige Book, November business inventories and December retail sales (1/14), the December PPI (1/15), the initial January consumer sentiment index from the University of Michigan, December industrial output and the December CPI (1/16), December housing starts and building permits (1/21), the Conference Board’s December leading indicator index and December existing home sales (1/23), the November Case-Shiller home price index, December hard goods orders, the Conference Board January consumer confidence index and December new home sales (1/27), a Federal Reserve policy statement (1/28), December pending home sales (1/29), and lastly the University of Michigan’s final January consumer sentiment index and the federal government’s first estimate of Q4 GDP (1/31).

 

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News Flow from PlanningWorks

Financial Key Points

·         Falling oil prices are causing near-term uncertainty but should benefit economic growth over time.

·         The Fed may signal this week that it is getting ready to begin increasing interest rates.

·         Economic growth continues to improve, which should act as a further tailwind for equity prices.

The dominant financial story last week was the concern over the continued slide in oil prices, which have dropped close to 40% so far this year.1Worries about the growing power of the Greek opposition party Syriza, and the potential effect on European policy should it assume control over the government, also contributed to investor unease. For the week, the S&P 500 Index fell 3.5%, snapping a seven-week winning streak and suffering its largest one-week pullback since May 2012.1 Energy stocks led the decline, while some defensive sectors such as utilities fared better.1 High yield bonds also sold off and investors poured money into Treasuries as risk aversion spread.1

The Benefits of Lower Energy Prices Outweigh the Risks

Falling oil prices do present risks. Lower prices hurt energy producing companies and regions and, as we saw last week, any sudden or sharp moves in financial markets can spill over onto other asset classes. Overall, however, we believe lower oil prices will help economic growth. Consumers should benefit most, as money spent on gasoline and heating costs can be redirected to other areas.

Weekly Top Themes

1.    This week’s Federal Reserve meeting may mark an important shift in tone. Specifically, we expect the Fed could drop the phrase “considerable time” when discussing how long it intends to keep the fed funds rate near zero. This would mark the beginning of a multi-month process of preparing the markets for the first rate hike, which we believe could occur in mid-2015.

2.    Strong retail sales figures act as additional evidence of improving economic growth. Sales climbed 0.7% in November, the strongest gain we have seen in eight months.2 These results should help assuage any concerns about a weak holiday shopping season.

3.    Small business confidence is rising, which should help employment gains. November’s Small Business Optimism Index rose to its highest level since 2007.3Since small businesses typically drive jobs gains during economic expansions, this bodes well for the future of the labor market.

4.    Inflation remains low, and there is little sign that expectations will rise. Despite a months-long trend of economic data that have been exceeding expectations, inflation levels remain subdued. Lower oil prices and a stronger U.S. dollar are helping to keep downward pressure on inflation.

5.    The history of the presidential cycle suggests equities could benefit in 2015. Next year will mark the third year of the presidential cycle. Since 1950, the S&P 500 Index has averaged a 16.5% annual return during those third years.4 In particular, January has been a strong month, showing a 4.3% average return with only one decline during that period.4

Section 105 Plans

Section 105 Plans

Medical reimbursement plans to benefit the smallest businesses.

 

Provided by PlanningWorks

 

Some businesses start small and stay small, by design. You may own such a business. Perhaps things begin and end with you, or maybe you employ one other person – your spouse. If this is the case, you should know about Section 105 plans.

 

Being self-employed, you already know that you can deduct 100% of your healthcare premiums from your federal and state taxes. The tax savings needn’t stop there. A properly structured Section 105 plan may let you deduct 100% of your family’s out-of-pocket medical expenses from federal, state and FICA/Medicare taxes.1,2

 

That’s right – all of them. TASC, a major provider of microbusiness employee benefits administration services, estimates that a Section 105 plan saves a family an average of $5,000 in taxes a year.2

 

How does this work? Section 105 of the Internal Revenue Code permits a self-employed person to set up a health reimbursement arrangement (HRA) for tax-free repayment of major qualified medical expenses not covered under a health plan. Alternately, that self-employed individual may hire a salaried employee (read: his/her spouse) and offer that employee an HRA.1,3

 

If the latter choice is made, the benefits offered will not only cover the employee, but also his/her spouse and dependents. So if the new hire is the business owner’s spouse, what results is effectively a family healthcare expense account.1

 

Most solopreneurs need to hire someone to get this perk. Can you set up a Section 105 plan without hiring an employee? Yes, if your business is a C-corp, an S-corp, or an LLC that files its federal tax return as a corporation. In a corporate structure, the corporation is defined as the employer and the business owner is defined as a salaried employee.1,3  

 

Otherwise, hiring an employee is a precondition to implementing a Section 105 plan. You don’t necessarily have to hire your spouse – the new hire could be your son or daughter, a more distant relative, or even someone to whom you aren’t related.1

 

Did the Affordable Care Act restrict the implementation of these plans? Not for microbusinesses. When the IRS issued Notice 2013-54 as a follow-up to the Affordable Care Act, most businesses lost the chance to offer a discrete medical reimbursement plan. One-employee HRAs are still allowed under Section 105 using group or individual insurance coverage.2

 

Look at all you can potentially deduct. A properly designed Section 105 plan allows eligible employee(s) and their family/families to deduct all health and dental insurance premiums, all life and disability insurance premiums, all premiums for qualified long term care coverage, all Medicare Part A and Medigap premiums, all out-of-pocket medical, dental, and vision care expenses, psychiatric care, orthodontics ... anything stipulated as a qualified medical expense in Section 213 of the Internal Revenue Code. Section 105 plans can even be structured so that if an employee doesn’t max out his/her yearly deduction, the unused portion can be carried over to subsequent years.1 

 

To keep up the plan, keep the paper trail going. A business owner and a financial or tax professional should collaborate to put a Section 105 plan into play. The IRS does look closely at these plans to check that the other spouse is legitimately employed – salaried, working a set schedule of hours, and hired per a written agreement. In addition, appropriate tax forms must be filed with the IRS, including Form 940 if the employee is unrelated to the business owner.1

 

If you want to lessen your tax liability and create an expense account to meet unanticipated medical costs, do what other microbusiness owners have done: set up a Section 105 plan.

   

PlanningWorks may be reached at 512 498-7526 or info@planningworks.biz

Market Commentary - Month of December 2014

PlanningWorks Presents:

 

MONTHLY ECONOMIC UPDATE

 

 

MONTHLY QUOTE

 

“It is wise to apply the oil of refined politeness to the mechanisms of friendship.”
    

– Colette

 

 

MONTHLY TIP

 

Make sure you take your 2014 RMD in time. The deadline is December 31; if you will be taking your very first RMD, it can be delayed until April 1. Remember that all of your IRAs need to be considered when calculating the RMD.

 

 

MONTHLY RIDDLE

 

You saw me where I never was and where I could not be. And yet within that very place, my face you often see. What am I?

 

 

Last month’s riddle:
An elephant manages to drink water from a puddle 26' away, but how does the elephant do this with an 18' chain around his left hind leg?

 

 

Last month’s answer:

The chain isn’t attached to anything.

 

December 2014

THE MONTH IN BRIEF
November brought a dizzying plunge in oil prices, confirmation of a recession in Japan and distinct hints of one in the euro area, and declines in the pace of manufacturing activity in America, Europe and China. Even so, the month was remarkably placid on Wall Street – unlike October, we didn’t see a lot of days marked by triple-digit Dow swings. The Dow, in fact, rose 2.52% on the month; many overseas benchmarks posted nice gains as well. Losses plagued the commodities sector. The latest GDP estimates out of Washington suggested our economy was in better shape than some analysts thought.1

 

DOMESTIC ECONOMIC HEALTH
By the estimate of the federal government, the second and third quarter of 2014 amounted to the best six months for the U.S. economy since 2003. The Commerce Department revised Q3 output up to 3.9%, complementing 4.6% growth for Q2.2

 

Another key economic indicator improved further. The jobless rate had ticked down to 5.8% in October, with the U-6 rate (encompassing part-time workers, jobseekers and those out of the job hunt) falling 0.3% to 11.5%. Labor Department data showed companies adding 214,000 new hires to their payrolls in that month.3,4 

 

While economists certainly found this encouraging, households weren’t feeling so upbeat. The Conference Board’s consumer confidence index fell to 88.7 from its October reading of 94.5; the University of Michigan’s consumer sentiment index did better, finishing November 1.9 points higher at 88.8.5

 

The Consumer Price Index was flat in October, and up just 1.7% year-over-year. Still, the tenth month of the year brought only modest gains for consumer spending (0.2%) and retail sales (0.3%). Total Black Friday sales were down 11% from 2013 levels, according to National Retail Federation estimates; this could have reflected online sales growth and more stores having deep discounts on Thanksgiving Day.5,6

   

Declining gas prices across the month effectively put more money in consumers’ pockets, a factor that may lead to greater personal spending for November. By December 1, AAA’s Daily Fuel Gauge Report showed regular unleaded averaging just $2.77 a gallon.7

 

U.S. manufacturing activity cooled a bit in November, but our factory sector was still hotter than many others worldwide. The Institute for Supply Management’s November manufacturing PMI came in with a reading of 58.7, down from 59.0 in October. (ISM’s service sector PMI had slipped 1.5 points to 57.1 in October.) Overall durable goods orders rose 0.4% in October, but core durable orders fell 0.9%. The headline Producer Price Index was up 0.2% for October, but only 1.5% annually.5,8,9 

   

GLOBAL ECONOMIC HEALTH
Unexpectedly, Japan fell into a recession in Q3. Analysts surveyed by Reuters thought its economy would expand 2.1%; instead, there was a 1.6% contraction following a 7.3% reversal in Q2. This affirmed and underscored the Bank of Japan’s decision to ease for the foreseeable future.10

 

The euro area hadn’t slipped back into recession yet, but it was coming perilously close in the eyes of many economists. Its yearly inflation measured just 0.3% last month and its jobless rate was at 11.5%. European Central Bank President Mario Draghi said that ECB leaders would consider exceptional moves (such as buying sovereign debt) to ward off deflation. The Markit manufacturing PMI for the eurozone barely showed expansion for November with a 50.1 mark.10,11,12

 

Word came that China’s economy had grown 7.3% in Q3, putting it on pace for its worst year since 1990. China’s official factory PMI came in a half-point lower in November at 50.3, and the HSBC/Markit PMI for the PRC showed no expansion for the sector at all with a reading of 50.0 that represented a 6-month low. Markit manufacturing PMIs in Indonesia and Japan also fell, but India’s rose to a 21-month high in November.12,13

 

WORLD MARKETS
Generally speaking, November was a good month with many consequential indices advancing. Some of the gains in the Asia Pacific region: Sensex, 2.97%; KOSPI, 0.83%; Shanghai Composite, 10.85%; Nikkei 225, 6.37%; KSE 100, 2.70%. The Hang Seng was flat (-0.04% to be precise) while Australia's ASX 200 suffered a 3.86% retreat. Elsewhere in the Americas, the Bovespa had a flat month (+0.07%) while the TSX Composite rose 0.90% and the IPC All-Share lost 1.86%.1

 

Major European indices saw the following November gains: CAC 40, 3.71%; DAX, 7.01%; IBEX, 2.80%; FTSE MIB, 1.17%; FTSE 100, 2.69%. Russia's RTS was the big November loser, retreating 10.74%.1

 

As for multinational and regional benchmarks, the Global Dow rose 1.72% in November, the Europe Dow 2.71% and the Dow Jones Americas 1.91%; the Asia Dow lost 0.53%. Europe’s STOXX 600 bourse advanced 3.10% for the month. The MSCI World Index gained 1.84%, but MSCI’s Emerging Markets Index lost 1.12%.1,14

    

COMMODITIES MARKETS

On November 28, OPEC ministers made no move to reduce oil output from their respective nations. That cemented an awful monthly loss for NYMEX crude – prices fell 18.23% for November to a settlement of $66.15 a barrel. Heating oil (-12.60%) and RBOB gasoline (-12.54%) were also crushed last month. The same couldn’t be said for natural gas; it rose 5.72% in November. Cold weather was not only a boon to natgas futures, but also an aid to wheat futures: they rose 8.74% for November, standing out in a field of losses among crops. Corn did advance 0.27%, but coffee dipped 0.90%, cocoa 0.69%, cotton 5.16%, sugar 2.87% and soybeans 2.59%.15  

 

Gold didn’t fare too badly in November, losing only 0.54% and settling at a COMEX price of $1.175.20 an ounce at month’s end. Copper fell 6.43% on the month, platinum 1.35% and silver 3.24% (it wrapped up the month at $15.49 an ounce). The U.S. Dollar Index tacked on another 1.43% to its YTD gain and ended November at 88.16.15,16

       

REAL ESTATE
The month’s last Freddie Mac Primary Mortgage Market survey (November 26) found the average interest rate for a 30-year FRM at 3.97%, down 0.01% from the October 30 survey. Rates on other types of home loans moved appreciably during the month. On November 26, the mean rates for the 15-year FRM, 5/1-year ARM and 1-year ARM were respectively at 3.17%, 3.01% and 2.44%; compare that with 3.13%, 2.94% and 2.43% on October 30.17

 

Home sales (new and existing) again improved to minor degree. The National Association of Realtors found resales up 1.5% in October – but most importantly, October brought the first year-over-year gain in sales (2.5%) seen in 12 months. Across a year of data, distressed sales had fallen to 9% of the market from 14%. (Not all the news from NAR was good; its pending home sales index fell 1.1% for October.) New home purchases increased in October as well – the Census Bureau measured a 0.7% gain, marking a third straight month of increasing sales volume.5,18

 

NAR stated that the median existing-home price was $208,300 in October, down from $209,700 in September. September’s S&P/Case-Shiller Home Price Index showed only a 4.9% annualized gain (this was across the full 20-city index).5,18

   

As for new projects, the Census Bureau also noted a 4.8% gain in building permits in November, with the indicator reaching a 6-year peak. A drop in multi-family projects sent overall housing starts down 2.8% in October, though single-family starts rose 4.2%.19

 

LOOKING BACK…LOOKING FORWARD
While the Russell 2000 had a flat month (actually losing 0.02% to 1,173.23), other major U.S. indices fared well in November, with the S&P 500 rising 2.45% to 2,067.56, the NASDAQ gaining 3.47% to 4,791.63 and the DJIA advancing 2.52% to 17,828.24. The CBOE VIX ended November at 13.33, sliding 4.99% for the month.1

 

% CHANGE

Y-T-D

1-YR CHG

5-YR AVG

10-YR AVG

DJIA

+7.55

+10.83

+14.58

+7.02

NASDAQ

+14.73

+18.02

+24.81

+12.74

S&P 500

+11.86

+14.49

+18.03

+7.54

REAL YIELD

11/28 RATE

1 YR AGO

5 YRS AGO

10 YRS AGO

10 YR TIPS

0.39%

0.60%

1.15%

1.74%

 


Sources: online.wsj.com, bigcharts.com, treasury.gov - 11/28/141,20,21

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.

 

The fall earnings season, the waning fears about Ebola invading the U.S. and the ease with which Wall Street accepted the end of QE3 were factors in a very positive November. Will stocks continue to rally in December as energy investors wait for a point of capitulation? One view says cheap oil is good for the consumer, the broad economy and the stock market. Another view sees an extended lack of demand not only hurting energy shares, but also breeding unemployment and deflation. Eyes will also be on the Fed – as we are on the cusp of 2015, its December policy meeting might be a moment at which some clues emerge about the timing of an interest rate hike. Still, stocks don’t seem too beset by obstacles as we head toward the New Year, and with any luck, the December 31 close for the S&P 500 just might be a record one.

 

UPCOMING ECONOMIC RELEASES: Here is a roll call of the important stateside reports and releases in the year’s final month: November’s ISM services PMI, a new Federal Reserve Beige Book and the November ADP employment report (12/3), November’s Challenger job-cut report (12/4), the November jobs report from the Labor Department and October factory orders (12/5), October wholesale inventories (12/9), November retail sales and October business inventories (12/11), the preliminary December consumer sentiment index from the University of Michigan plus the November PPI (12/11), November industrial production (12/15), November housing starts and building permits (12/16), a Fed policy statement and November’s CPI (12/17), the Conference Board’s leading indicator index for November (12/18), November existing home sales (12/22), the final estimate of Q3 GDP, the final December consumer sentiment index from the University of Michigan, and November new home sales, personal spending and hard goods orders (12/23), October’s Case-Shiller home price index and 2014’s last Conference Board consumer confidence index (12/30), and then finally NAR’s report on November pending home sales (12/31).

 

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Women & Money - Moving from the Moment to the Future (Updated 2014)

Women & Money: Moving from the Moment into the Future

Shifting the focus from the short term to the long term.

 

Provided by PlanningWorks

   

How many short-term financial decisions do you make each week? You probably make more than a few.

 

They may feel routine. They may demand your attention, day in and day out. Yet in managing these day-to-day issues, you may be drawn away from making the long-term money decisions that could prove vital to your financial well-being.

 

How many long-term financial decisions have you made for yourself? How steadily have you saved and planned for retirement? Have you looked into ideas that may help to lower your taxes or preserve more of the money you have accumulated?

 

As Nielsen notes, women are the financial decision-makers in their households – they not only make the lion’s share of the nation’s consumer purchasing choices, they also influence or handle many buying decisions on durable goods such as cars and houses. Fleishman-Hillard Inc. forecasts that women will control 2/3 of consumer wealth between now and 2023, and will be predisposed to inherit the bulk of the biggest generational transfer of wealth the U.S. has ever known in the coming decades.1

 

While many women feel adept at making money decisions for today, some are less confident about making financial decisions for tomorrow. That anxiety may be unwarranted, however.

 

University of California professor Terry Odean has spent more than 20 years breaking down stock market investing behavior by gender, and believes women are better investors. He has numbers to back this up: as the Washington Post noted, he studied male and female investors over seven years and found that women got 1.4% better overall returns than men did. Across the length of the study, the investment returns achieved by single women exceeded those of single men by 2.3%. Investment groups populated by women got a 4.6% better return versus investment groups made up of men.2

 

Odean feels that men suffer from overconfidence in investing, while women invest more pragmatically, turning away from opportunistic day trading and taking more of a buy-and-hold approach. A bit controversial, this assertion? Perhaps. The statistics certainly get your attention. The bottom line is that women may be more adept at investing than they think.2

 

Even if you feel you need more financial or stock market literacy, you may fundamentally have the temperament to be a good long-term investor.

 

Where do you stand financially? Start by taking an inventory of your investments and savings accounts: their balances, their purposes. Then, take an inventory of income sources: yours, and those of your spouse or family if applicable. Consider also your probable or possible income sources after you retire: Social Security and others.

 

This is a way to start seeing where you are financially in terms of your progress toward a financially stable retirement and your retirement income. It may also illuminate potential new directions for you:

 

*The need to save or invest more (especially since parenting or caregiving may interrupt your career and affect your earnings)

*The need for greater income (negotiate for a raise!) or additional income sources down the road

*Risks to income and savings (and the need to plan greater degrees of insulation from them)

 

Devoting even just an hour of attention to these matters may give you a clear look at your financial potential for tomorrow. Proceed from this step to the next: follow with another hour devoted to a chat with an experienced financial professional.

     

PlanningWorks may be reached at 512 498-7526 or info@planningworks.biz

 

Moving Into a Nursing Home Facility

MOVING INTO A NURSING HOME FACILITY

 

What you and your loved ones need to know.

 

Presented by PlanningWorks

 

At some point, someone you love may make the transition from living at home to residing at an assisted living or nursing home facility. When should that transition occur, and what factors must be considered along the way? And what don’t these facilities tell you about?

 

When is it time? If an elder is a) safe and content at home, b) in reasonably stable health, c) can draw on personal or family resources for in-home care, d) has a sufficient “rotation” of family or professional caregivers available so as not to exhaust loved ones, then there may be no compelling reason for that elder to enter a nursing home or assisted living facility.

 

If, on the other hand, an elder’s health notably worsens and caregiving strains your own health, relationships and/or resources, then the time may have arrived.

 

If it is time, is a nursing home really necessary? It may not be. Keep in mind that long term care insurance will often pay for home health aides, adult day care, and forms of at-home nursing. This is called respite care, and perhaps 10-15 hours of these services per week will do. Even without LTC coverage, this level of care may fit into your budget.1

 

Trying to provide the equivalent of 24/7 nursing home care at home is much more expensive. Round-the-clock skilled nursing care delivered to a private residence can easily cost more than $100,000 a year.1

 

Will an assisted living facility suffice? If an elder is ambulatory and reasonably healthy, it might. Assisted living (allowing an elder to have their own space plus quality care) costs much less than nursing home care, usually tens of thousands of dollars less annually. Most people pay for it using a combination of long term care insurance and private funds; in recent years, Medicaid has even begun to pick up the tab for select assisted living costs in some states.1

 

Is an assisted living facility several steps above a nursing home? Its marketing will tell you so; truth be told, many assisted living facilities are comparatively brighter, more comfortable and cheaper than nursing homes.

 

Keep in mind, however: assisted-living facilities are not exactly remedies to the nursing home “problem.” Many of these facilities do not offer their residents 24/7 medical attention and costs may climb if your loved one needs or wants more than the basics in terms of care or comfort.

 

How do you fund nursing home care? According to Genworth’s 2012 Cost of Care Survey, the median yearly cost of nursing home residency is now about $75,000. How much of that cost will a long term care policy absorb? Well, the benefit is usually a fixed dollar amount per day; $150 is a common figure, with benefits available for three years. If the daily benefit is $150, it means that LTC coverage can pick up 70-80% of typical annual nursing home expenses.2,3

 

Are insurers raising premiums for LTC policies? Yes, significantly. As Money Magazine notes, the average annual premium that a healthy 55-year-old paid for a policy with a 3-year, $150-a-day benefit, 90-day deductible and 5% compound inflation protection was $1,524 in 2007. In 2012, it was $2,269; 49% higher. Money also notes that three years of LTC coverage is sufficient for 92% of elders.3

 

Is long term care insurance worth the cost, and the possibility that the benefits may go unused? It may be if you are in the middle class. A recent report from the Society of Actuaries expresses the belief that households with $2 million or more in assets may not need LTC coverage at all, while those with savings of less than $250,000 may get much of the help they need from Medicaid when the time comes.4

 

What isn’t said? Nursing homes and assisted living facilities are not predisposed to tell you about the downsides to their communities. So what isn’t usually expressed on the tour or in the brochure?

 

First, let’s talk about nursing homes. Genworth’s 2012 survey notes that the national median price for the typical shared room at a nursing home is $200 per day. Imagine handling that without help from LTC insurance or Medicaid. (Medicare will only help you meet nursing home expenses for less than a month.)2

 

The Centers for Disease Control and Prevention state that an elder is twice as likely to suffer a fall in a nursing home as he or she is in the community. In fact, the CDC says that the average nursing home patient suffers 2.6 falls per year and that physical restraints do nothing to reduce the risk. If you have ever visited a nursing home and noticed a preponderance of residents in wheelchairs, it may be a response to liability as much as disability. A corollary to this: if residents are discouraged from being ambulatory, their leg strength may quickly diminish.5

 

If your parent or grandparent has known and trusted a family doctor for decades, there is a risk that the relationship may wane or end after a move to an eldercare facility. Nursing home residents are placed under the care of one or more staff physicians who more or less become their primary doctors.

 

The rules and regulations governing care at assisted living facilities can vary greatly among states and counties, and while nursing home ratings are relatively easy to find online, reviews of assisted living facilities are not.

 

It is worth noting that 82% of assisted living facilities are for-profit businesses; on average, they draw about 19% of their incomes from Medicaid. In contrast, 68% of nursing homes are non-profits, and about 70% of their revenues come from Medicaid recipients.6

 

You may know someone whose parent or grandparent was asked to leave a nursing home or assisted living community. This circumstance isn’t all that rare, especially if an elder copes poorly with the advance of Alzheimer’s disease. If a resident is particularly difficult, the possibility of eviction may come up; in most states, an eldercare facility doesn’t need to go to court for this.6

 

When the time comes, stay involved. Our lives are often busier than we want them to be, but our elders count on us to be visible and engaged in their lives after they enter assisted living facilities or nursing homes. Your vigilance and support can make a difference in the experience for the one you love.

 

PlanningWorks may be reached at 512 498-7526 or info@planningworks.biz

 

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