Provise Bullets

There is a big debate within the financial services industry regarding who should be required to be a fiduciary. Basically a fiduciary puts their clients’ interests ahead of their own, a philosophy ProVise has espoused since our founding in the mid-80s. The Department of Labor has proposed a rule which would require ALL who give advice on retirement plans to do so at a fiduciary standard of care. Ray recently had the opportunity to testify in favor of this proposal before the DOL.

· So what makes Americans happy in retirement? Is financial security the first thing that came to mind? Certainly money is important, but it is not close to being the only thing. Maybe it is getting away from the frozen North and buying that retirement home in Florida, Southern California, Texas or another sunny place. According to a report compiled by Gallup and Healthways which measured daily well-being from about 114,000 people ages 55 and above, there is much more than money and sun involved in feeling good about retirement. The study suggests that access to good health care, exercise, a support system of family and friends, educational opportunities, and a sense of purpose are also right up there and perhaps ahead of white sand beaches. Based on their criteria, Gallup and Healthways found the top 10 states that should be most desired by retirees are: 10) Connecticut; 9) New Mexico; 8) Oregon; 7) Utah; 6) New Hampshire; 5) Iowa; 4) Alaska; 3) South Dakota; 2) Montana; and 1) Hawaii. What is your favorite place?

· When a state needs new revenue it looks for ways to tax its citizens. Needless to say, the citizens can be very vocal in opposition as many think governments, in general, waste money and if they were just more efficient they wouldn’t need to raise taxes. But Connecticut has come up with a way to raise revenue where there is no vocal opposition…from those who have died. Until recently, Connecticut had a cap on probate fees at $12,500 for even the largest of estates. Now Connecticut has lifted the cap and raised the cost by charging 0.5% of the assets going through probate with no limit. As an example, a $5 million estate will now cost $25,000, not $12,500. These fees are paid to the court system, not the lawyers. It is anticipated that other states will follow. Total costs of probate can often run as high as 3% of the estate. Another cost for larger estates is the inheritance tax imposed in most states which is on top of the federal estate tax. One of the major advantages of having a living trust is the avoidance of probate on those assets that are held inside of the trust. There are many additional advantages to a living trust. If you have not visited your estate plan within the last five years, it might be a good time to discuss the advantages of a living trust if you do not have one. As Ben Franklin said, “In this world nothing can be said to be certain except death and taxes”.

· Only about 10% of Baby Boomers have already retired. That leaves almost 70 million people to retire over the next 15 to 20 years. Sixty percent of these retirees expect to work, and when they do, 79% of that 60% expect to make as much per hour as they did when they were in full time employment according to a recent survey conducted by Banker’s Life Center for a Secure Retirement. A companion survey found that reality is much different as 53% work for less money. Our experience is that retirees want to maintain the same cash flow in retirement that they enjoyed during their working years and this frequently necessitates some form of additional work. Often, maintaining the lifestyle does not require replacing 100% of pre-retirement income. As an example, let’s take the Baby Boomer employee who makes $100,000 per year. About $7,500 of this income is lost to Social Security and Medicare taxes. Additionally, an average of $6,000 is being saved in a 401k plan. Thus, the cash flow needed to maintain the lifestyle isn’t $100,000 per year but something closer to $86,500. Further, income taxes are likely to be lower and commuting and business wardrobe costs are reduced or eliminated.

· Some think that traditional television will continue to decline as it gives way to the internet. Don’t tell that to those who are running for President next year. The presidential election is expected to net television a cool $4.4 billion in advertising which is a 16% increase over the $3.8 billion spent in 2012. The big states and large metropolitan cities will see the bulk of the ads which can drive all of us to the refrigerator during commercial breaks. (Source: Kantar Media)

· When it comes to retirement it seems that the affluent households are just as concerned about accumulating savings as are the less affluent, according to a recent report from Merrill Edge. Of those who are already retired, 73% think they have enough money to maintain their lifestyle in retirement, while only 57% of the non-retiree group feels the same way. Looking at it in a different way, the retired group doesn’t feel as much stress as the non-retired group. What are most people concerned about? At the top of the list is a concern that Social Security will be different in the future than it has been in the past. We would agree, but it is unlikely that those who are already retired or within a few years of retirement will see much of a change. There is also a concern among those who have a pension that it will change or suffer from inadequate funding. We too are concerned as this has happened in the past to both corporate and government plans. Many corporations have abandoned the traditional pension plan in favor of a 401k approach, but most governmental organizations have not and it is putting a huge stress on them. In addition, the Pension Benefit Guaranty Fund, which is set up as a back stop for pension plans that go bankrupt, is running out of money. Finally, there is concern about the rising costs of medical care and the solvency of Medicare. We have reported on this many times in the past as the cost of medical care has risen much faster than inflation over the past decade. Although it has slowed down, it is still rising faster than overall inflation.

· It doesn't seem that seniors, especially wealthy ones, can catch a break when it comes to Social Security and Medicare. Although it won't be official until sometime this fall, there is likely to be little or no increase in Social Security benefits in 2016 as inflation has been relatively tame, primarily due to lower oil prices. On top of this, the Medicare trustees have projected some significant increases to Medicare premiums for 2016. For some it could be as much as 50% for Part B (doctors) and D (drug). This double hit could become a triple hit if deductibles and co-pays also change. When things are finalized we will let you know who is affected and by how much. In the meantime, plan on paying more.

· So what was all the fuss about? Sixty days ago the front page of almost every newspaper in the country, the lead story on the evening news, and the “BIG” story across global economies was the Greek financial crisis. But on the day the bailout of Greece was approved by the finance ministers of Europe, the story was buried inside most newspapers and an afterthought on the evening news. The Greeks have agreed to massive reforms and spending cuts and they got the first $29 billion of a three year $93 billion bailout. As we are seeing more and more with these type of events, the 24/7 news cycle builds them into a crisis with only dire outcomes. The resolution is frequently much more anti-climactic and investors must get through the noise to get a proper view of the landscape.

As always, we encourage you to give us a call if you would like to discuss anything further. We will visit again soon. Proudly and successfully serving our clients for over 29 years.

RAY, ERIC, KIM, BRUCE, LOU, NANCY, TINA, JON, STEVE, DOROTHY and PAUL

© 8/31/15 ProVise Management Group, LLC

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