Embed Size (px)
Citation preview
Oppenheimer & Co. Inc.A Member of The Poindexter GroupDavid Casso, CFP®, CTFAAssociate Director - Investments711 Louisiana StreetSuite 1500Houston, TX [email protected]://fa.opco.com/poindextergroup/
October 2018On the Road to Retirement, Beware of TheseFive Risks
Life Insurance with a Refund
When should I submit college financial aidforms?
What's so great about a college net pricecalculator?
Down the Donut Hole: The Medicare Coverage Gap
See disclaimer on final page
One of the most confusing Medicare provisionsis the prescription drug coverage gap, oftencalled the "donut hole." It may be clearer if youconsider the gap within the annual "lifecycle" ofMedicare Part D Prescription Drug Coverage.This also applies to drug coverage that isintegrated into a Part C Medicare AdvantagePlan.
Annual deductible. Prescription drug planstypically have an annual deductible notexceeding $405 in 2018. Before reaching thedeductible, you will pay the full cost of yourprescriptions, although you may receivenegotiated discounts.
Initial coverage period. After you meet theannual deductible, your plan will pay a portionof your prescription drug costs, and you willtypically have a copayment or coinsuranceamount. A 25% coinsurance amount is thestandard coverage required by Medicare, butmost plans have different levels or "tiers" ofcopayments or coinsurance for different typesof drugs.
Coverage gap. When you and your plancombined have spent a specified amount ondrugs for the year ($3,750 in 2018), you enter
the coverage gap. In 2018, you pay 35% ofyour plan's price for covered brand-nameprescription drugs and 44% of the price forgeneric drugs. The gap is closing over the nexttwo years (see chart).
You remain in the coverage gap until you reachan annual out-of-pocket spending limit ($5,000in 2018). Spending that counts toward the limitincludes your deductible, copay, andcoinsurance; the manufacturer's discount onbrand-name drugs in the coverage gap; andyour out-of-pocket payments in the gap. It doesnot include your premiums, the amount the planpays, or your payments for noncovered drugs.
Catastrophic coverage. Once you havereached the out-of-pocket limit, you receivecatastrophic coverage with much lowerpayments. In 2018, you would pay the greaterof 5% of drug costs or $3.35/$8.35 for eachgeneric and brand-name drug, respectively.
Some plans have more generous coverage inthe gap. You may be able to avoid thecoverage gap by using generic medicine, whenappropriate, to lower your drug costs.
For more information, see Medicare.gov.
Page 1 of 4
On the Road to Retirement, Beware of These Five RisksOn your journey to retirement, you'll likely facemany risks that have the potential to throw youoff course. Following are five commonchallenges retirement investors face. Takesome time now to review and understand thembefore your journey takes an unplanned detour.
1. Traveling aimlesslySetting out on an adventure without a definitivedestination can be exciting, but probably notwhen it comes to saving for retirement. As youbegin your retirement strategy, one of the firststeps you'll need to take is identifying a goal.While some people prefer to establish one biglump-sum accumulation amount — for example,$1 million or more — others find that type ofnumber daunting. They might focus on howmuch their savings will need to generate eachmonth during retirement — say, the equivalent of$5,000 in today's dollars, for example. ("Intoday's dollars" refers to the fact that inflationwill likely increase your future income needs.These examples are for illustrative purposesonly. They are not meant as investmentadvice.)
Regardless of the approach you follow, settinga goal may help you better focus yourinvestment strategy. In order to set a realistictarget, you'll need to consider a number offactors — your desired lifestyle, pre-retirementincome, health, Social Security benefits, anytraditional pension benefits you or your spousemay be entitled to, and others. Examining yourpersonal situation both now and in the futurecan help you determine how much you mayneed to accumulate.
2. Investing too conservatively...Another key to determining how much you mayneed to save on a regular basis is targeting anappropriate rate of return, or how much yourcontribution dollars may earn on an ongoingbasis. Afraid of losing money, some retirementinvestors choose only the most conservativeinvestments, hoping to preserve theirhard-earned assets. However, investing tooconservatively can be risky, too. If yourinvestment dollars do not earn enough, youmay end up with a far different retirementlifestyle than you had originally planned.
3. ...Or too aggressivelyOn the other hand, retirement investors strivingfor the highest possible returns might selectinvestments that are too risky for their overallsituations. Although you might considerinvesting at least some of your retirementportfolio in more aggressive investments topotentially outpace inflation, the amount youinvest in such higher-risk vehicles should be
based on a number of factors. Appropriateinvestments for your retirement savings mix arethose that take into consideration your totalsavings goal, your time horizon (or how muchtime you have until retirement), and your abilityto withstand changes in your account's value.Would you be able to sleep at night if yourportfolio lost 10%, 15%, even 20% of its overallvalue over a short time period? These are thetypes of scenarios you must consider whenchoosing an investment mix.
4. Giving in to temptationOn the road to retirement, you will likely facemany financial challenges as well — theunplanned need for a new car, an unexpectedhome repair, an unforeseen medical expenseare just some examples.
During these trying times, your retirementsavings may loom as a potential source ofemergency funding. But think twice beforetapping your retirement savings assets,particularly if your money is in anemployer-sponsored retirement plan or an IRA.Consider that:
• Any dollars you remove from your portfoliowill no longer be working for your future
• You may have to pay regular income taxeson distribution amounts that representtax-deferred investment dollars and earnings
• If you're under age 59½, you may have to payan additional penalty tax of 10% to 25%(depending on the type of plan and otherfactors; some exceptions apply)
For these reasons, it's best to carefully considerall of your options before using moneyearmarked for retirement.
5. Prioritizing college saving overretirementMany well-meaning parents may feel thatsaving for their children's college educationshould be a higher priority than saving for theirown retirement. "We can continue working, ifneeded," or "our home will fund our retirement,"they may think. However, these can be veryrisky trains of thought. While no parent wantshis or her children to take on a heavy debtburden to pay for education, loans are acommon and realistic college-funding option —not so for retirement. If saving for both collegeand retirement seems impossible, considerspeaking with a financial professional who canhelp you explore the variety of tools andoptions.
No investment strategy canguarantee success. Allinvesting involves risk,including the possible lossof your contribution dollars.
There is no assurance thatworking with a financialprofessional will result ininvestment success.
Page 2 of 4, see disclaimer on final page
Life Insurance with a RefundComparatively speaking, of all the differenttypes of life insurance available, term is usuallythe least expensive. Generally, term lifeinsurance provides protection for a stated ordefined period of time, usually from one year to30 years. If you die during the coverage term,your beneficiary receives the death benefit fromthe policy. But what if you outlive the term?With return of premium (ROP) life insurance,you receive the return of all your premiumpayments at the end of the policy term if certainconditions are met.
What is ROP?Variations may apply, but generally ROP isterm life insurance coverage for a specificnumber of years (term). The face amount of thepolicy, or death benefit, is paid to yourbeneficiaries if you die during the term. Butunlike straight term, if you live longer than theterm, all of your premiums are returned to youwith ROP as long as the policy was in goodstanding and in force at the end of the term.Some insurers even pay back a proratedportion of your premium if you cancel the ROPterm insurance before the end of the term. Also,the premium returned generally is notconsidered ordinary income, so you won't haveto pay income taxes on the money you receivefrom the insurance company. (Please consultyour tax adviser.)
Some particularsUnlike permanent cash value life insurance,ROP premiums generally do not earn interestor appreciate in value. Also, the premiumreturned usually does not include the return ofadded premium charges for substandardcoverage (extra premium charged for poorhealth) or costs for certain policy riders (extrapremium you pay for benefits added to thebasic term policy, such as a disability rider).
The cost of ROP can be significantly greaterthan straight term insurance, depending on theissuer, age of the insured, amount of coverage(death benefit), and length of the term. ButROP almost always costs less than permanentlife insurance with the same death benefit.While straight term insurance can be purchasedfor terms as short as one year, most ROPinsurance is sold for terms of 10 years orlonger.
Is ROP right for you?Before you buy life insurance, you should knowhow much insurance you need. Your need forinsurance is based on numerous factors, someof which include your current age and income,your marital status, the number of incomes inyour household, your number of dependents,
your long-term financial goals, the amount ofyour outstanding debt, your existing lifeinsurance, and your other assets. You shouldalso consider your overall financial, estate, andtax planning goals as part of your insuranceneeds evaluation.
Term insurance is appropriate for situationswhen there is a high need for insurance but notmuch cash flow to pay for it. For example, ayoung family with limited cash resources mayhave a great need for survivor income toprovide for living expenses and educationneeds. Also, term insurance may beappropriate to cover needs for a limited periodof time, such as coverage during your workingyears, your children's college years, or for theduration of a loan or mortgage.
Whether to consider ROP term insuranceusually revolves around a few issues. Does theadded cost of ROP fit into your budget? It'sgreat to know you can get your money back ifyou outlive the term of your life insurancecoverage, but there is a cost for that benefit.Also, if you die during the term of insurancecoverage, your beneficiaries will receive thesame death benefit from the ROP policy asthey will from the less-expensive straight term.
Some financial professionals recommend thatthe best way to provide for your life insuranceneeds is to "buy term and invest the difference."This suggestion is based on the premise thatyou know how long you will need life insuranceprotection (until your mortgage is paid off, forexample), and that you'll be able to get a betterreturn on your savings from other investments.The same rationale may apply to ROP terminsurance. Since your premiums do not earninterest while with the issuer, they likely will notkeep up with inflation. So you may want toconsider paying the lower premiums for straightterm insurance and investing the difference topotentially accumulate more savings.
When choosing between these two alternatives,you may want to think about the amount ofcoverage you need, the amount of money youcan afford to spend, and the length of time youneed the coverage to continue. Your insuranceprofessional can help you by providinginformation on straight term and ROP term lifeinsurance, including their respective premiumcosts.
The cost and availability oflife insurance depend onfactors such as age, health,and the type and amount ofinsurance purchased.Optional riders are availablefor an additional fee and aresubject to contractual terms,conditions, and limitationsas outlined in theprospectus and may notbenefit all investors.
The return of premium, aswell as any otherguarantees related to lifeinsurance, are contingent onthe claims-paying ability andfinancial strength of theissuer.
All investing involves risk,including the possible lossof principal, and there is noguarantee that anyinvestment strategy will besuccessful. There is noassurance that working witha financial professional willimprove investment results.
Page 3 of 4, see disclaimer on final page
Oppenheimer & Co. Inc.A Member of The PoindexterGroupDavid Casso, CFP®, CTFAAssociate Director - Investments711 Louisiana StreetSuite 1500Houston, TX [email protected]://fa.opco.com/poindextergroup/
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018
The content herein should not beconstrued as an offer to sell or thesolicitation of an offer to buy anysecurity. The information enclosedherewith has been obtained fromoutside sources and is not theproduct of Oppenheimer & Co. Inc.("Oppenheimer") or its affiliates.Oppenheimer has not verified theinformation and does notguarantee its accuracy orcompleteness. Additionalinformation is available uponrequest. Oppenheimer, nor any ofits employees or affiliates, does notprovide legal or tax advice.However, your OppenheimerFinancial Advisor will work withclients, their attorneys and their taxprofessionals to help ensure all oftheir needs are met and properlyexecuted. Oppenheimer & Co. Inc.Transacts Business on all PrincipalExchanges and is a member ofSIPC.
What's so great about a college net price calculator?If you're saving for a child'scollege education, at somepoint you'll want to familiarizeyourself with a college netprice calculator, which is an
invaluable tool for estimating financial aid andmeasuring a college's affordability. Available onevery college website, a net price calculatorgives families an estimate of how much grantaid a student might expect at a particularcollege based on his or her personal financialand academic profile and the college's specificcriteria for awarding grant aid. A college'ssticker price minus grant aid equals a family's"net" price, hence the name.
The idea behind a net price calculator is to givefamilies who are researching colleges a moreaccurate picture of what their out-of-pocketcosts are likely to be, rather than having themrely on a college's published sticker price. Thefigures quoted by a net price calculator aren'tguarantees of grant aid, but the estimates aremeant to be close, so running the numbers isan excellent way for parents to see what theirnet price might be at different colleges.
Keep in mind that each college has a differentsticker price and formula for determining how
much grant aid it distributes, so every calculatorresult will be different. For example, afterentering identical financial and familyinformation on three separate net pricecalculators, you might find that College A has anet price of $25,000 per year, College B has anet price of $30,000, and College C is $40,000.
A net price calculator typically asks for thefollowing information: parent income andassets, student income and assets, and thenumber of children in the family, including howmany will be in college at the same time.(Generally, the more children in college at thesame time, the more grant aid.) It may also askmore detailed questions, such as a student'sclass rank and/or test scores, how much moneyparents have saved in employer retirementplans in the most recent tax year, current homeequity, and how much parents expect to pay inhealth-care costs in the coming year.
A net price calculator typically takes about10-15 minutes to complete and is time wellspent. Typing "net price calculator" in thesearch bar of a college's website should directyou to it.
When should I submit college financial aid forms?For the 2019-2020 schoolyear, the federal government'sfinancial aid form, the FAFSA,can be filed as early asOctober 1, 2018. It relies on
current asset information and two-year-oldincome information from your 2017 tax return,which means you'll have the income data youneed when you sit down to complete the form.This is a relatively new process. A few yearsago, parents had to wait until after January 1 tofile the FAFSA and use tax data for the yearthat had just ended, which forced them toscramble to complete their tax return in order tocomplete the FAFSA.
If you have a new or returning college student,it's a good idea to file the FAFSA as early aspossible in the fall because some aid programsoperate on a first-come, first-served basis. Thedeadline for filing the FAFSA is typically Marchor April and will vary by college. But don't waituntil then. It's a good idea to submit any collegeaid forms as early as possible, too.
The FAFSA is a prerequisite for federal studentloans, grants, and work-study. In addition,colleges typically require the FAFSA beforedistributing their own need-based aid and, in
some cases, merit-based aid. Even in caseswhen you don't expect your child to qualify forneed-based aid, there may be another reasonto submit the FAFSA. All students attendingcollege at least half-time are eligible for federalunsubsidized Direct Loans regardless offinancial need. ("Unsubsidized" means theborrower, rather than the government, pays theinterest that accrues during school, the graceperiod after graduation, and any defermentperiods.) So if you want your child to havesome "skin in the game" with a small loan, you'llneed to file the FAFSA. (Loan amounts arecapped each year: $5,500 freshman year,$6,500 sophomore year, and $7,500 junior andsenior years.) What if you file the FAFSA butthen change your mind about taking out a loan?Don't worry, you aren't locked in. Your child canalways decline the loan after it's offered.
The FAFSA is available online at fafsa.ed.gov.In order to file it, you'll need to create an FSAID if you haven't done so already (follow theonline instructions). You'll need to resubmit theFAFSA each year, but fortunately you can usethe built-in IRS Data Retrieval Tool to have yourtax data electronically imported, which savestime and minimizes errors.
Page 4 of 4
