Newsletter March - 2016 · market in history. For those of you who have accounts in our FFMS Defensive Growth model, the vast majority of ac-counts were moved to cash positions on

Registered Representative offering securities through First Allied Securities, Inc. A Registered Broker/Dealer, MemberFINRA/SIPC. Investment Advisor Representative offering services through First Allied Advisory Services, Inc.

Are You Emotionally Prepared to Retire?

Put simply, the beginning weeks of2016 were the worst start for the stockmarket in history. For those of you whohave accounts in our FFMS DefensiveGrowth model, the vast majority of ac-counts were moved to cash positions onJanuary 7th and the remainder on Janu-ary 21st. I didn’t like what Iwas seeing, especially after adisappointing end to De-cember, and felt it would bebetter to move to the side-lines. Now I am looking for acatalyst to get back into themarket. For some time nowthe market has moved upand down within a tradingrange, which makes it difficultto feel confident about its intermediate-term prospects. I’d rather see the mar-ket break out of the top end of the range,or move below the bottom of the rangebefore making a decision to move backin, at least partially. Of course this mar-ket is very volatile and I could miss the

perfect opportunity to get back intostocks, despite my best intentions. The Federal Reserve raised its “Fed-eral Funds Rate,” the rate used for over-night lending to Federal Reservemember banks, on December 16, 2015.The Federal Funds Rate is how the Fed-

eral Reserve is able to influ-ence overall interest rates.Basically the Federal Re-serve controls SHORT-terminterest rates in an ultimateattempt to encourage long-term interest rates to movesimilarly. Long-term inter-est rates are set by marketparticipants, and the Fedraising short-term rates is

just one of a myriad of inputsthat traders use to determine

the interest rate that clears the market. So, has the Fed’s move had its intend-ed affects, thus far? No - not at all. The10-year US Treasury closed at 2.29% onDecember 16th and as of March 2nd, itclosed at 1.84%. The (See Jeff on page 10)

Jeff’s Market Watch: Monitoring the Trading Range

Retirement is much more than a datecircled on the calendar or the amount ofmoney you’ve saved. Have you everquestioned if you are emotionally pre-pared for retirement? Experts agreethat you should consider these ques-tions while planning for retirement: What am I going to do all day? Nolonger getting up to the alarm clock isgood but having no destination or pur-pose is not. Once you’ve binge-watchedsome serial television, visited thegrandkids, cleaned the attic and maybetaken that dream trip, now what? It’simperative that you have a plan to beinvolved in something with purpose.Many retirees enjoy having more timeto volunteer or join social clubs, but theimportant thing is to have a little daily

structure to prevent mourning the lossof responsibility and routine. Slowlycreating your new identity before youretire will help ease this transition. Retirees who had supervisory roles orpowerful positions might welcome theend of work stress, but adjusting to afulfilling routine outside the workplacewill prove challenging. Spouses with nooutlet for their controlling behaviorcould be resented for bringing thoseactions into the home. Spare your part-ner and find channels for your authority– go to the gym, explore local politics, orvolunteer somewhere to feel appreciat-ed and fill the void. And for heaven’ssake, never ask your spouse, “What areyou making us for lunch?”

(See Family on page 10)

Announcements

Don’t forget: The deadline formaking 2015 contributions toIRAs and other qualified plans isMonday, April 18th. Contact ouroffice as soon as possible as thedays leading up to the deadlineare hectic.

Required minimum distribu-tions reminder: If you turned70½ in 2015, you have until April1, 2016 to take your RMD for 2015(but you still need to take anotherone for 2016 by December 31).

Please remember to let us know ifyou have any changes to yourcontact information, includingaddresses, phone numbers, andemail addresses.

Happy Easter! Our staff got to-gether and made Easter basketsfor a local shelter. Check out thephotos on page 9! We’d also liketo wish all mothers a very happyMother’s Day on May 8th.

There’s a very happy DenverBroncos fan in our office thesedays!

Taxes and the ACANew DriverSocial Security ChangesRecord Keeping GuidelinesMedicare Under 65Where Do Our Taxes Go?Tax ReportSpring SectionJustin’s Corner

Information for your financial life

PerspectivesFirst Financial Associates Quarterly Newsletter - Spring 2016

Jeffrey B. Snyder, CFP®President

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Inside this issue:


Spring 2016Perspectives - Page 2

Taxes and the Affordable Care Act

Healthcare and Taxes. The pas-sage of the Affordable Care Act (com-monly known as Obamacare) instituteda few tax return filing wrinkles thatmany of us are still getting used to.While we all navigated our way throughthe new rules last year, it can’t hurt toreview how the ACA impacts your taxreturn: The Individual Mandate. At theheart of the ACA is the individual man-date for coverage requiring you to havehealth insurance coverage from an em-ployer plan, a government plan such asMedicare, veteran’s coverage, TRICAREfor active duty members and their fami-lies, or individual plans purchased on afederal or state exchange. While a few exemptions exist for a fewgroups (incarcerated individuals, mem-bers of religious groups whose beliefsprohibit health insurance benefits), thevast majority of Americans are requiredto prove they have health insurancecoverage or pay a financial penalty.This penalty is assessed as either a flatfee or a percentage based on income,whichever is higher. This year the flatfee penalty is $325 per adult and $162per child, up to a family maximum of$975, or 2% of the household’s income(again, whichever is higher). Next yearthe flat fee penalties will more thandouble, and the household income per-centage will increase to 2.5%. It is important to note that the penal-ties are assessed on a pro rata basis: ifyou didn’t have coverage for 2 months,then you will only owe one-sixth of thepenalty. The Advance Premium Tax Cred-it. In an effort to lower the monthlycost of health insurance for many Amer-icans, the ACA allows you to apply afuture tax credit to the current monthlypremium. For example, if you are eligi-ble for a $1,200 tax credit, the federalgovernment will pay that credit to theinsurance company directly and yourmonthly premium would be reduced by$100. Please keep in mind the amountof the credit that is then advanced isbased on your estimate for income. Ifyour estimate was incorrect, or if yourincome changed over the course of2015, it is possible that when you file

your return that you will discover thatyou received too much of a credit(which will then reduce your refundamount). Form 1095. This form should havebeen sent to you as evidence of yourhealth care coverage for 2015. Thereare three versions of the form: A, B, andC. Form 1095-C will be sent if you re-ceived coverage from an employer withmore than 50 employees and Form1095-B will be sent if you received cov-erage from a smaller employer or a gov-ernmental program. Form 1095-A will be sent to you if youpurchased health insurance on an ex-change. If you bought coverage througha health insurance exchange then youneed Form 1095-A to file your tax re-turn and receive a tax credit, or recon-cile the Advance Premium Tax Creditmentioned previously. Medical Expense Deductions.You can only deduct qualified medicalexpenses in excess of 10% of your ad-justed gross income (7.5% for individu-als 65 or older). So if you are 50 yearsold, had qualified medical expenses of$5,000 in 2015, and had an adjustedgross income of $45,000, you would beable to deduct $500 on your tax return($45,000 x 10% = $4,500, $5,000 -$4,500 = $500). If you want to deductmedical expenses you will have to item-ize your deductions instead of takingthe standard deduction. What are qualified medical expenses?Payments for treatment, preventativecare, surgeries, doctor visits, dentalcare, vision care, psychiatrists and psy-chologists, and prescription medica-tions are all deductible. What isn’t deductible? Anything youwere reimbursed for by your insurancecompany or employer. Also not deduct-ible: cosmetic procedures, nonpres-cription drugs (except insulin), generalhealth purchases such as toothpaste,vitamins, or health club memberships. For more information and to ensurethat you are both minimizing your taxburden and fully complying with the taxcode, we strongly recommend that youseek the assistance of a tax professional.If you’d like a referral, Jeff would behappy to provide you with one.

Tax Return Fraud

While exact figures are elusive,fraudulent tax returns filed by identi-ty thieves are more of a problem thanever. In 2013 the IRS paid out anestimated $5.2 billion to identitythieves, and according to a new esti-mate by H&R Block, that amount hasroughly doubled since then. Unfortunately under the currentsystem an identity thief only needs aname, date of birth, and social secu-rity number. All too often we hearabout yet another major data breachthat potentially adds to the tremen-dous amount of personal informa-tion that is available to criminals forpurchase. Identity thieves can thenfile for a and receive a refund in yourname. You only find out when youtry to file your correct return. The IRS is trying to be proactive inidentifying these scams before theyissue the refund, and claims from2011 to 2014 they were able to block19 million suspicious returns totaling$63 billion. These proactive mea-sures have had unintended conse-quences: in 2015 36.2% of returnsflagged as suspicious were incorrect-ly flagged. This means that hundredsof thousands of legitimate filers hadto wait an average of 4 months toreceive their refund. What should you do if yourreturn is rejected when you file?First, file a paper return and includeForm 14039 (Identity Theft Affida-vit). Once those are filed, you willreceive an acknowledgement letterfrom the IRS informing you that yourcase has been referred to its specialIdentity Theft Victim assistance or-ganization. The IRS estimates a 120-180 day wait period for your refund,but according to a USA Today article,the average has been 278 days. While the IRS and the federal gov-ernment are slowly working to estab-lish preventative measures to protectyour data and cut down on fraudu-lent tax refunds, your best defensemay be filing your taxes as early aspossible. That way if an identity thiefattempts to file a fraudulent return, itwill be their return that gets rejected,and not yours.


Spring 2016Perspectives - Page 3

When Filing, Don’t Overlook Potential Deductions

Traditional IRA Contributions:IRA contributions are an excellent wayto lower your tax bill while doing some-thing that you know you should do any-way. Currently you can deduct acontribution of $5,500 ($6,500 if youare 50 or older) if you or your spouseare not covered by a retirement plan atwork. If you or your spouse are coveredby an employer’s retirement plan (lookto your W-2 to find out if you were, seeif the box for “Retirement Plan” ischecked), then there are household in-come limits on how much of the contri-bution can be deducted. Remember: You can make a contribu-tion to a 2015 IRA until April 18, 2016.Please call us today! Earned Income Tax Credit (EI-TC): One out of five eligible taxpayersmisses out on this tax credit that is de-signed to assist low to moderate incomehouseholds. According to the IRS, 27.5million filers received an average of$2,400 in 2014 under this credit, yetmillions more missed out. Some peoplemiss out because they are newly eligibleand aren’t aware of the credit, others

because their income falls under theminimum income threshold for filingand they don’t file a return. Who is eligible? American citizensover the age of 25 (or have qualifyingchildren) who do not file “married filingseparately” and have earned incomefrom employment (unemployment ben-efits do not count). There are incomelimits that vary by filing status – mar-ried or single – and by number of quali-fying children. How Many Dependents Do YouHave? If someone lived with you forthe entire year, earned less than$4,000, did not file a joint income taxreturn with someone else, and you pro-vided over half of his support, then hecould be a dependent. That person doesnot have to be a child, or even a bloodrelative as long as he meets all the qual-ifying criteria. If you have been provid-ing a home and financial support to aparent, a significant other, or closefriend, then it is worth looking intowhether they qualify as a dependent. Ifthe individual didn’t live with you theentire year, then the nature of the rela-

tionship is more important as the IRSwill only allow you to count blood ormarriage relatives to count as depen-dents. Bought a House? Home ownershipallows you certain tax benefits regard-ing mortgage interest and property taxdeductions, but sometimes taxpayersoverlook their ability to deduct pointspaid on the mortgage. Points paid for anew mortgage have to be deducted inthat year, while points paid during arefinance are deducted proportionallyover the life of the loan. Moving Expenses Tied to a NewJob: You can deduct moving expensesassociated with the start of a new job aslong as the new commute is more than50 miles more than your old commute.For example, if your old commute was 5miles and your new job is 50 milesaway, you would not qualify becauseyour new commute is only 45 mileslonger. You are also required to work aminimum of 39 weeks at your new jobduring the next year. The 39 weeksdon’t need to be consecutive or even atthe same employer.

GETTING A NEW DRIVER IN THE HOUSE?

Few moments can make a parentmore anxious than when their teenag-er asks to get their driver’s license.Having a new driver brings mixedfeelings - eventually less driving foryou but non-stop worry about cost,preparedness, and safety in the mean-time. If your child is ready and you’reapproaching this territory, here are afew things to consider.

The DMV - Go online early to bookthe permit test appointment. Thereare long wait times in some CT DMVlocations for various reasons. Locateyour child’s proof of identification(birth certificate, Social Security card,etc.) and re-read the DMV’s instruc-tions. Don’t lose your appointmentbecause you didn’t bring proof of resi-dency. Once your child has their per-mit, they must wait a minimum 120-180 days (driving school versus no

driving school) before being eligible totake the road exam. Print your state’s online driver’shandbook and utilize websites that of-fer state-specific sample permit tests.Fair warning – the DMV uses ques-tions on tests that are only found intheir handbook.

Getting in the Car - Students shouldhave at least 40 hours of practice driv-ing. Consider at least twice thatamount to help instill good habitswhile you still have control. Also keepin mind that your new driver will likelymimic your driving behavior. There

are many professional driving schoolsavailable - check their reviews andpass rate. The average cost is $500,but insurance companies usually givea discount for taking these classes.Some offer pick up at home for yourchild’s driving lessons as well as DMVroad tests at their location, althoughyou will pay extra for that privilege.Reschedule if you believe your child isnot emotionally prepared for the driv-ing test. Examiners fail students ontechnical skills as well as demeanor.You will face your teenager’s tears ei-ther way. Insurance - Call your insurancecompany to determine cost for cover-age. Be sure to be seated when youmake this call, especially if you have amale driver. Some companies auto-matically designate the newest driverto the oldest car.

(See Driver on page 10)

Perspectives - Page 4


Spring 2016

We hear lots of stories about whatpeople believe retirement will be like.Here are a few myths we’ve come acrossover the years: Medicare will pay for all yourhealth care costs. Medicare will covermost of your healthcare expenses in re-tirement, but it won’t pay for all of themso it is in your best interest to factorhealthcare spending into your retire-ment plan. The Employee Benefit Re-search Institute (EBRI) suggests that a65-year-old man should accumulate$68,000 to have a 50/50 chance of cov-ering all healthcare expenses in retire-ment. For a 90% chance of meeting allcosts, that same 65-year-old manshould have $124,000 saved. The fig-ures for a 65-year-old woman are evenhigher - $89,000 for a 50/50 chance ofcovering health care expenses in retire-ment and $140,000 for a 90% chance. You will lose Social Security ben-efits if you work while collecting.This myth is born out of confusion, andunderstandably so. If you start yourSocial Security benefits before your full

retirement age (between 66 and 67 formost people still working), then yes, youcan have your current Social Securitybenefits reduced by a formula based onincome. But even then you don’t reallylose out on your benefits because whenyou do reach your full retirement ageyour benefit will be readjusted based onyour previously withheld benefits. Andonce you are at your full retirement age?You can work as much as you wantwithout any impact on your benefitamounts whatsoever. People only work in retirementbecause they don’t have enoughmoney. According to a survey fromFidelity Investments, 61% of olderworkers replied that they like their workand 48% said having a job makes themfeel valued. Depending on your re-sources, plan, and personal desires, re-tirement can mean never working againor it can mean working in a job that youtruly enjoy. Your taxes will be lower. Mostretirees believe that they will spend lessin retirement and

Retirement Myths

In the summer issue of Perspectiveswe discussed a few Social Security max-imization strategies such as filing andsuspending or filing a restricted appli-cation. Information about these strate-gies has always been a popular requestbecause everyone wants to know theiroptions and best way to increase futureSocial Security payments. Unfortunate-ly the recent budget deal eliminatedmost of these strategies, but there arestill exceptions worth exploring: File and Suspend: Previously ahigher earning spouse could file forbenefits at his full retirement age andthen suspend them, allowing his spouseto file for her spousal benefits based onhis work record. He could then laterclaim his now higher benefit at age 70.Beginning in May of 2016, if yoususpend your benefit it will also sus-pend the benefits of anyone collectingon your work record, rendering thisstrategy ineffective.

Claim Now, Claim Later: Previous-ly if both spouses applied for benefitsand at least one of them was full retire-ment age, one spouse could restrict herapplication to only receive a spousalbenefit while waiting for her own bene-fit to grow. Now, unless you are age63 or older in 2016 (and thereforegrandfathered into the old system) youwill have to permanently choose eithera spousal benefit or a benefit based onyour work record. Without the ability toswitch, this strategy is also ineffective. With the elimination of these morecomplicated strategies, the decision tofile for benefits is much simpler: thelonger you delay taking benefits (up toage 70), the more your future benefitwill increase. The decision on when tostart benefits is a uniquely personal onethat must account for the many vari-ables in your life. Jeff can offer insightsinto this decision and would love to dis-cuss it with you at your next meeting.

Social Security Changes

Most of us don’t love maintaining,organizing, or purging life’s importantdocuments. We can come up withhundreds of things we would rather dothan go through old statements andtax returns. But with a little effort eachspring, you can feel better knowingthat you are organized and ready toprovide the documentation you mayneed in the future. Spring is the perfect time to under-take this ritual: we are accustomed tospring cleaning and we often have toaccess many of these documents dur-ing tax season. Many people are hesi-tant to dive in because they don’t knowwhat they should keep and what theyshould shred. Here are a few guide-lines to help: Anything associated with yourtax returns: keep copies of all taxreturns, associated statements, docu-ments, and receipts for at least 3 years.The IRS can audit you randomly for upto 3 years after filing. But if there is achance that you misreported income,or if you claim a loss for a worthlesssecurity or write down bad debt, holdon to tax records for 7 years. Tax records associated with any pieceof real property or real assets shouldbe kept for as long as you own theproperty and for 7 years after you sellit. This also includes records of homeimprovements for tax purposes. To be safe, we recommend thatyou keep all tax-related docu-mentation for 7 years. For the rest of these guidelines, it isassumed that any of these records arenot needed to support a tax return. Ifthey are, then refer to the above rec-ommendation. Keep for one year: paycheckstubs, utility bills, bank statements,quarterly investment statements (onceyou have your annual statement, youcan get rid of quarterly statements),credit card receipts, and canceledchecks. Keep for five years: medical re-cords, medical insurance. Keep while active: contracts, in-surance documents, property records,vehicle titles, loan documents, house

(See Records on page 5)

Record Keeping



Spring 2016

Financial Mistakes to Avoid at All Ages

20’s = IndependenceDon’t live on plastic. Those first

paychecks encourage you to “live large”before realizing just how far that moneyhas to stretch. Your salary might notcover a new car, rent, monthly bills,debt payments, a Caribbean vacation,and weekly entertainment. If you useplastic to support that lifestyle, you willbe in debt for a long time.

Do save a small portion of your pay-check each payday. This will providedecades of compound interest.

Do educate yourself on finance.There’s no shame in not knowing how amutual fund works, but there’s no ex-cuse for overlooking free information.Find a good financial advisor who iswilling to work with you when you havelimited money and build that relation-ship. At First Financial Associates wehave no investment minimum and haveno initial consultation costs, so pleaselet the young people in your life knowthat we are here to help. It’s never tooearly to plan your retirement.

30’s = Married with MortgageDon’t buy a house you can’t afford,

even if the bank says you can. Whenlending terms are relaxed, too manyhomeowners max their mortgage. Thiseliminates the wiggle room needed

should you get downsized or temporari-ly lose an income for child rearing.

Do continue to save and fully partici-pate in office retirement plans. Takefull advantage of any match available.You will hardly miss the extra incomeand your tax burden will be reduced.These years are complicated and it mayseem hard to find extra money, but ifyou started a good savings habit in your20’s, your account is building.

Do consider life and disability insur-ance. The younger and healthier youare when you purchase life insurance,the lower the premiums will be. Seekout a financial advisor and tax accoun-tant if you haven’t already. Their servic-es will prove invaluable.

40’s = Living, not ExistingDon’t get caught in the rat race. It’s

all about big vacations, bigger homes,and better cars. But are you disciplinedenough to pay yourself first? If youmust choose between funding chil-dren’s college accounts and your retire-ment, always choose your retirement.Better yet, save for both and drive oldercars. Step up savings and investing andbe sure to work with a financial advisorto keep your dollars working as hard aspossible. Review and make necessaryadjustments to your retirement plan.

Do protect your family. Be sure tocreate a will (or trust), medical direc-tives, and purchase life insurance.These are your prime earning andspending years – protect your moneyand the lifestyle of your family.

50’s & 60’s = Retirement in SightDon’t raid your savings to pay for

children’s educations. If you don’t havethe money, your children will find af-fordable options. Don’t co-sign loansfor children. If they default, you areliable for all of it.

Do pay attention to your estimatedSocial Security options, consider possi-ble retirement ages, and understand on-going health-care costs and Medicarecoverage choices. Be realistic with yourfinancial advisor about retirementgoals, including income streams, livingarrangements, and legacy expectations.Finally, make sure your investments aremore conservatively allocated to mini-mize risk as you age. We enjoy making new acquaintancesand meeting potential new clients. Wewould love to meet any of your friendsor family members, regardless of theirage or net worth, to offer our advice andprofessional services. Please contact usif you’d like to schedule an appointmentor make the introduction.

hold receipts and warranties. Never dispose: Estate planningdocuments (wills & healthcare prox-ies), marriage licenses, divorce de-crees, military discharge paperwork,birth & death certificates, Social Secu-rity cards, adoption papers, annual in-vestment statements. Annual investment statements can beimportant for many reasons includingproving a cost basis in an investmentto avoid paying too much tax, and toalso avoid taxes on a non-deductiblecontribution in an IRA. So while itmight sound like overkill to never dis-pose of these annual statements, youcan avoid significant future headachesby holding on to them (especially whenmany of these companies get bought

out or merge in the future, furthercomplicating your ability to ask forhistorical records).

One final note: the recommenda-tions above are general and might notapply to every situation. One specificsituation that can change these recom-mendations would be if an individualwas applying for Medicaid. When ap-plying for Medicaid there is a five year“lookback” period where you will needto prove that you didn’t give awayfunds or assets from any bank or in-vestment account in the previous fiveyears. In this instance, if you thinkthere is a chance that you might applyfor Medicaid in the next ten years, itwould be in your best interest to startkeeping copies of everything and onlydisposing of certain items after 5 years.

Just always remember, if you areuncertain about any documents, playit safe and keep them.

(Records from page 4)



Spring 2016

Imagine this scenario: You wereresponsible and conscientious enoughto go through the whole estate-plan-ning process - a will, health-care direc-tive, powers of attorney, you set up atrust, and even some final wishes andinstructions. You put in all that effortand expense and believed that you dideverything you could to help your fam-ily cope with their loss and ensure thatyour final wishes are carried out. But when the time came, no one wassure where to find the documents. Orsome loved ones had some of the doc-uments and a vague awareness thatyou had an attorney or financial advi-sor that they should track down. Ormaybe you thought you were doing theright thing by placing these docu-ments in a safe deposit box only to findout that once you died the bank wasforced to block access to the box. Regardless, if the right people don’thave access to these important docu-

ments then a lot of your efforts couldbe wasted. So how do you avoid thispotential mess? Use an online service: there aremany online services that are designedspecifically for this scenario. For ex-ample, DocuBank will store your doc-uments securely online, allow you toshare documents, and provide youwith a card for your wallet that in-structs medical professionals howthey can access your healthcare direc-tive directly. Another site called Doc-Safe offers similar storage servicesincluding secondary user names thatyou can give to loved ones so they canaccess your documents at a moment’snotice. Home safe: Online services pro-vide the most convenience but overtime you will pay annual subscriptionsthat can drive up the cost. Plus somepeople will always have privacy con-cerns no matter how much security a

site uses. An alternative would be ahome safe – but not your average fire-proof box that you slide under the bed.Instead you should invest in a propersafe that is bolted to the floor and isboth fireproof and waterproof. Youwill need to give a copy of the combi-nation to someone you trust in caseyou are either incapacitated or die. One final note: now that many of ushave switched to paperless billing, inthe event we become incapacitated itis important that your designatedloved ones have the current user-names and passwords to access andpay your bills. So whether that infor-mation is provided in a documentthrough your online storage accountthat you’ve shared, or in a documentinside your bolted-down safe, don’tforget to include any online accountinformation that loved ones will needto either carry on or conclude youraffairs.

Make Sure Your Loved Ones Are Able to Carry Out Your Wishes

While most of us know that we areeligible for Medicare at age 65, manydon’t know that approximately 9 mil-lion Americans under the age of 65 arealready eligible. If you are disabled andhave received Social Security DisabilityInsurance for more than 24 months youare automatically enrolled in Medicare.Also, if you have End-Stage Renal Dis-ease or kidney failure, you are also eligi-ble for Medicare. While millions of Americans under theage of 65 are eligible for the same Medi-care benefits as everyone else due todisability, their age can become a com-plicating factor when considering Medi-care supplemental insurance, alsoknown as Medigap policies. Medigapinsurance can help pay for costs thatMedicare doesn’t cover including coin-surance and deductible costs. Almostone in four Medicare beneficiaries has aMedigap policy. Federal law leaves the states responsi-ble for determining if people youngerthan 65 are eligible for Medigap. Con-necticut is one of the states that requirecompanies to offer Medigap policies to

beneficiaries under the age of 65. In 20states and the District of Columbia,more than 2 million people are eligiblefor Medicare due to a disability but areunable to purchase Medigap policiesdue to state law. Other states have re-strictions or allow companies to chargehigher premiums, often making themunaffordable. In California, Massachu-setts, and Vermont, insurers are re-quired to sell Medigap policies toMedicare beneficiaries under the age of65 unless they have End-Stage RenalDisease. This crazy patchwork of regulationsthat vary from state to state can have asignificant impact on the cost and qual-ity of care for Medicare beneficiariesunder the age of 65. A Kaiser HealthNews investigation relayed the story ofDanny Thompson, a 53-year-old Cali-fornian with kidney failure. Thompsonis eligible for, and has, Medicare cover-age but because he can’t purchase Medi-gap coverage due to California state law,he doesn’t have enough money for thekidney transplant and follow-up drugs.Medicare typically covers 80% of medi-

cal costs, but when according to theAmerican Kidney Fund a kidney trans-plant costs an average of $262,000, thatleaves a major financial burden for thepatient. That figure doesn’t include the$2,000 - $4,000 in monthly costs forfollow-up drugs. Thompson is unable to get a differenttype of health insurance policy becausehe is eligible for Medicare, which auto-matically makes him ineligible for in-surance policies on the exchange. Hismoderate household income preventshim from qualifying for the needed as-sistance. Sadly, he could qualify if hedivorced his wife but has no plans to doso. Thompson’s case is a powerful re-minder that rules, laws, and regulationshave real consequences. With up to 2million Americans living in states thatdon’t require insurers to offer Medigappolicies to Medicare beneficiaries underthe age of 65, there are even more peo-ple caught in similar situations. If youor a loved one is struggling with compli-cated Medicare and Medigap rules,please don’t hesitate to ask us for a re-ferral.

Medicare for Those Under 65: Medigap Eligibility Varies State-to-State



Spring 2016

According to the non-partisan Con-gressional Budget Office (CBO) the fed-eral government spent $3.7 trillion onrevenues of $3.2 trillion in 2015, lead-ing to a deficit of $439 billion. Everyyear that the federal budget runs a defi-cit, that number is then added onto theexisting national debt which currentlysits at just over $19 trillion. Federal Revenues Before discussing where tax dollars go,let’s look at where federal revenuescome from. The obvious answer is fed-eral income taxes, of which $1.5 trillionwas collected in 2015 and was 47% of allrevenues. The next largest componentwas payroll taxes such as Social Securityand Medicare with almost $1.1 trillion,followed by corporate income taxes of$344 billion. Various other revenuessuch as excise taxes, estate taxes, cus-toms duties, Federal Reserve earnings,etc. comprised the remaining $299 bil-lion. Federal Spending So where did the $3.7 trillion go? $2.3trillion, or 62% of all federal govern-ment spending, went to what is techni-cally considered “mandatory spending.”“Mandatory spending” programs in-clude Social Security ($882 billion or24%), Medicare ($539 billion or 15%,after accounting for premiums that off-set the cost), Medicaid ($350 billion or9%), and then $350 billion (or 14%) for

other programs such as tax credits,SNAP, unemployment, federal civilianand military retirement, veterans’ bene-fits, and supplemental security income.All of these programs are consideredmandatory spending because they donot require an annual appropriationsbill but are instead instituted throughexisting laws. Another $1.2 trillion, or 32% of allfederal government spending, went to“discretionary spending” programs.These programs require an annual ap-propriations bill to fund and includedefense ($582 billion or 16%) and non-defense spending ($583 billion or 16%).Non-defense spending includes a widevariety of programs including education($89 billion or 2.4%), transportation($88 billion or 2.4%), veterans’ benefitsnot part of mandatory spending ($68billion or 1.8%) and so on. The final $224 billion is interest on thenational debt. That’s right, 6% of allfederal government spending in 2015was spent on interest on the nationaldebt. This portion of the federal budgetbears watching in the future as interestrates rise on an ever increasing debtamount. Deficits and the National Debt As we already mentioned, every yearthat the federal government runs a defi-cit, they are forced to borrow moneyand that amount is then added to the

national debt. That means the nationaldebt grew by at least $439 billion in2015 and is currently a number so largethat it is difficult for us to comprehend:$19 trillion. A deficit of $439 billion seems huge,and it is, but it is useful to keep it inperspective. $439 billion today is dif-ferent than $439 billion thirty yearsago. Also, the economy has grown overtime as well. Therefore, if you want to find outwhere our current deficit compares his-torically, it is useful to calculate the def-icit as a percentage of the national GrossDomestic Product (GDP), which one ofthe figures used to estimate the value ofthe U.S. Economy. The CBO calculated 2015’s deficit tobe 2.5% of GDP which is slightly lowerthan the 2.8% average of the past 50years. This is after several years ofabove-average deficits which helped in-crease the national debt. Since9/30/2000 the debt has increased from$5.7 trillion to the current $19 trillion. That includes both a Republican ($5.7trillion to $10 trillion) and Democrat($10 trillion to $19 trillion) president,and both parties controlling congress.Despite all the noise and finger-point-ing, it seems like deficits and debt are anon-partisan (or maybe bipartisan?) is-sue.

Where Do My Tax Dollars Go? Breaking Down the Federal Budget



Spring 2016

While we already covered a wide vari-ety of tax topics on pages 2 and 3, wethought it would be fun to highlight afew obscure or interesting tax deduc-tions: In another article we mentioned thatclub memberships (or for that matterexercise equipment for your home) arenot a qualified medical expense that canbe deducted on your taxes, but there isan exception if your doctor has docu-mented that your health is in jeopardydue to your physical condition. Somepeople have taken this exception evenfurther to deduct the cost of a swim-ming pool, but there are quite a fewhurdles to overcome in order to pull itoff: First, the pool has to be deemed med-ically necessary by a doctor (you need toswim laps in order to relieve arthritisfor example). Then the pool would haveto be used primarily for this purposeand no other adequate less expensivealternatives exist. Finally, you wouldonly be able to deduct any costs aboveany increase in your property value.For example, if your property value in-creased $5,000 because of the pool, butit cost $20,000 to build, then you couldonly deduct $15,000 (and that’s afteryou meet the 10% adjusted gross in-come threshold mentioned in Taxesand the Affordable Care Act onpage 2). What if you hire a babysitter while youvolunteer for a charity? Well, thatcounts as a charitable contribution. We mentioned on page 3 that you candeduct the expenses of a move whenyou get a new job. Some of you may beinterested to learn that pet moving ex-penses are included.

First Financial Associates’

Tax Report

First Financial Associates, Jeff Snyder,and Justin Kelleher do not provide taxadvice and material within this newslet-ter is provided for informational purpos-es only. Please consult a taxprofessional.

Continuing the animal theme, if youcan prove that you have a guard animalto protect your business property thenyou are able to deduct some of the asso-ciated expenses. One junkyard was al-lowed to deduct the cost of cat food fora cat that was deemed necessary to keepthe junkyard free of rats and snakes. If your business is located in yourhome and if the appearance of yourlawn is deemed relevant to the perfor-mance of your business, you can deductthe cost of lawn care. A parent was able to deduct the cost ofclarinet lessons because she claimed itrepaired her child’s overbite. She useda 1962 case when an orthodontistclaimed that playing the clarinet helpscorrect a child’s overbite. It isn’t a tax deduction, but did youknow that you can receive 14 days ofrental income for your home or vaca-tion home tax-free? Not many peoplerealize that they could rent out theirhome while they are away, or rent outtheir vacation home when not in use forup to two weeks and not have to reportthe income. In order to qualify youwould have to use the property for morethan 14 days yourself.

therefore lower their income and theirtaxes. Unfortunately it doesn’t alwayswork that way. First, while some ofyour expenses will decrease in retire-ment, you may add new expenses liketravel or vacations that result in less ofa drop than you think. Second, overtime you might qualify for fewer deduc-tions such as mortgage interest andhave less dependents, meaning your ef-fective tax rate might increase. Finally,even if you move to a state with no in-come tax there are plenty of other taxesthat can eat into your income like high-er sales and property taxes. Many people struggle to get by inretirement and live with regret.According to that same Fidelity Invest-ments survey, 82% of recent retireesfeel like they retired at the right timeand 85% say that retirement is the mostrewarding time of their life. While 36%wish they had saved more, 79% saidthat it is easier than expected to livecomfortably in retirement. If you’re confused about anythingyou’ve heard about retirement, give us acall!

(Myths from page 4)



Spring 2016

My favorite destination is one wherethe whole family can be comfortableand relax. I have been vacationing atLake George in upstate New York foryears and now experience the villagethrough my 4 year old’s eyes. Lastsummer we enjoyed mini-golf, playedat the arcades, visited Water SlideWorld, swam in the lake and pool, andpretended to like having our picturetaken with Frankenstein! The adultslike outlet shopping, craft fairs, livemusic, Six Flags, and historic FortWilliam Henry. There is something affordable foreveryone to do rain or shine – muchin walking distance of the motels.Restaurants are plentiful and accom-modate all tastes and budgets – ourfavorite breakfast spot is The Lone

Bull and for a splurge on dinner, it’sThe Log Jam. Lake George is myplace to unwind and recharge. It’s aneasy 3 hour drive from central Con-necticut, so it’s close enough to homebut far enough to feel like a getaway.I hope you visit soon!

My parents bought land in Martha’sVineyard in the late 1970’s and built ahouse in the 1980’s, so I have beenvisiting the Vineyard for a long time.To me, the Vineyard has always meantgetting away with family. Now that Ihave children of my own, our trips aremore meaningful than ever. Martha’s Vineyard is known for itsbeaches, lighthouses, peaceful andquirky small towns, and attractionssuch as the The Flying Horses (the

oldest operating carousel in the U.S.),the Black Dog restaurant, and theGingerbread Cottages. Each townhas its own personality. For example,Oak Bluffs has more of an urban vibewith activities for all ages as well as avibrant night life. I would describeEdgartown as “yachty” and VineyardHaven as a little more subdued. If you visit late in the summer,consider attending Grand Illumina-tion Night (usually the 3rd Weds ofAug) in Oak Bluffs. The GingerbreadCottages are adorned with colorfulChinese and Japanese lanterns and acommunity sing / concert is held atthe Tabernacle building. Also checkout the West Tisbury Agricultural Fairaround the same time. The fair fea-tures livestock, rides, games, horsepulls, fiddling contests, and woods-men competitions.

Favorite Vacation Destinations From Some Staff Members

In an effort to continue our year-round charitable giving, we elected tomake Easter baskets for the childrenstaying at the New Horizons DomesticViolence Shelter in Middletown, CT.This facility serves more than a dozenlocal communities as an emergencyshelter for women and children fleeingdomestic abuse. More than 1,300 wom-

en and children are served each yearjust at this one location. The shelter has been run by Commu-nity Health Center, Inc. (CHC) for over30 years. We worked with their amaz-ing staff to determine the gender, age,and individual interests of each of thechildren currently housed at New Hori-zons. We assembled and decorated

nine baskets for boys and girls ages 2 -12 with donations purchased entirely byour staff. As we all know, it doesn’t take much tomake a difference in someone’s life. Wefeel good knowing that these childrenwill be thrilled with The Easter Bunnyon Easter morning!

Easter Basket Making Fun For a Great Cause



Spring 2016

Ask your insurance company about de-ductibles, collision coverage, discountsfor multiple cars or driver’s class,when to insure, etc. Shop around thiscoverage. The Law - Make sure your childknows the rules – those of your state aswell as your home. Consider limitedand local driving for their first fewmonths, a strict no-phone policy (textsand calls), no passengers, call whenarrive at destination, enforce familycurfews, etc. Violating certain new driver laws canresult in a 30-day to 6-month suspen-sion for a first offense. In Connecticut,16- and 17-year-old drivers who drive

more than 20 mph over the speed limitwill lose their license for 60 days andface a $175 fee and court fines. Violat-ing your house driving rules shouldhave consequences as well. Once yourteenager is licensed, you are still incharge. There are parent-child con-tracts available online if you’re inter-ested. What Will They Drive? - We tendto place more value on things we haveto pay for, so their privilege of drivinga car should be tied to an expense. Carpayment, gas, insurance, property tax,maintenance, and repairs should all betaken into consideration when deter-mining their fair contribution. Per-haps connect their access to the car

with having a part-time job as well asgood grades, responsible behavior, etc.Also make sure they know what to doin an emergency situation (accident,breakdown, police stop). Doublecheck that car registration is togetherwith the certificate of insurance insidethe glove compartment.

Odds & Ends • If your family carries AAA autoinsurance, some plans add your new17-year-old driver for free for one year. • Place a road safety kit in the trunk ofevery car. Review the steps for usingjumper cables. • Slow down - speed is the numberone cause of accidents in the UnitedStates.

(Driver from page 3)

yield curve hasflattened, and neither mortgage ratesnor savings account or CD interest rateshave risen at all. Japan just moved toNEGATIVE interest rates, and much ofEurope either has or will likely soonfollow suit. Federal Reserve Chairwom-an Yellen herself just indicated the po-tential openness of our Fed to go tonegative interest rates. It boggles themind to think about giving money to abank in exchange for being CHARGEDan interest rate! Perhaps we should allinvest in physical safes, ha! The upshot here is that U.S. bonds,while trading at very low interest rateshistorically, are FAR more attractivethan most other developed markets’bonds, so that can continue to keep a lidon interest rates and a correspondingbid under bonds. The other asset class that is showingsigns of life is gold and gold-relatedstocks such as mining companies.While my clients currently don’t have alot of exposure to gold, this is some-thing that I’m now giving serious atten-tion. Needless to say the first two months of2016 have been challenging. I am con-stantly monitoring conditions and amlooking for an opportunity to take apartial position soon. But we will bevigilant in our analysis and adapt ourstrategies if market conditions changesubstantially. As you know, I am always available todiscuss the markets, your investmentportfolio, retirement scenarios, etc.

(Jeff from page 1) Who will I talk to all day? Manypeople have some of their strongestfriendships at work, but those mightweaken or dissolve completely once youstop seeing each other daily. Try tokeep work friends by perhaps establish-ing a monthly lunch date. At the sametime, be sure to make time for the newacquaintances you make through hob-bies or pastimes. Experts agree that it isimportant not to isolate yourself or relysolely on your spouse. Being together24/7 will only highlight those annoyinglittle habits you once overlooked. You should also identify a new pur-pose or expand on existing ones – be-come a skilled photographer, involvedgrandparent, wine enthusiast, parttime worker, avid gardener, etc. Thesesocial activities will provide the basis forcreating meaningful dialogue in andaway from the home. Will my living arrangementchange? Whether moving across thecountry or simply downsizing yourhome locally, moving is stressful. Somecouples disagree about moving awayfrom children or grandchildren, but thelure of a warmer climate or a better taxenvironment might need to be consid-ered. Talk honestly to your spouse andfamily members about what you want –and start those discussions years beforeyou retire. Mutual compromise is oftenneeded so that retirement is enjoyablefor everyone – this is no time to play ‘myway or the highway.’ Also, talk withyour financial and tax professionals soyou have a full understanding of a po-

tential move – both financially andemotionally. Can I afford the retirement Idreamed? When your younger selffirst imagined retirement, you probablyenvisioned a carefree lifestyle, limitlessincome and a full social calendar in awarm and sunny climate. That visionhas likely adjusted as the reality of yoursavings habits, changing priorities,health status and other factors surfaced.Some workers stress so much aboutchoosing between their dream retire-ment and the prospect of outliving theirmoney that they think they can’t everretire. Do you want to be the personwho never enjoys retirement becausethey are financially afraid to retire? Thekey is to fully understand if and how allof your retirement income will supportthe lifestyle you desire. Financial professionals can help yoube emotionally prepared for your finan-cial future with free services, such asour chosen program – eMoney. Thisplatform considers all your incomesources – Social Security, pensions, sav-ings, investments, etc., – and plots real-istic withdrawal amounts based on ageand growth assumptions. This freeservice can bring some peace of mind,so don’t be afraid to ask for help. Throughout forty years in the financialservices industry, we’ve helped thou-sands of clients prepare for retirement.The earlier you start preparing emo-tionally as well as financially, the morecomfort you will have when your big dayarrives. And remember that just as yourwork career evolved, so will your retire-ment!

(Family from page 1)



Spring 2016

For some inex-plicable reason Ivolunteered to dothe grocery shop-ping on a recentSunday. My wifeusually takes careof this chore be-cause she doesn’ttrust me to do it

correctly. And she’sright: while I am fully capable of retriev-ing items on a list, I tend to “freestyle”too much and get things we don’t need(but Ben & Jerry’s was two for $6!). OrI will substitute something on the listfor what I “think” is a better value.Lately I’ve taken to cheering on our Stop& Shop brand dishwasher packs be-cause if they don’t work, I’m in big trou-ble. Again, I’m not sure why I volunteeredto go shopping, or why my wife agreed,but I regretted the decision as soon as Iwalked in the door. The store waspacked! Grocery shopping veterans areprobably chuckling right now at my na-iveté, what else should I have expectedon a Sunday? After taking a deep breath and textingmy wife to complain (Me: “There are1,438 people here.” Her: “Really?There are usually 1,500!”), I was deter-mined to make my way through the list.I was hoping that I didn’t miss some-thing which would force me to fight myway upstream through this endless traf-fic jam of overloaded shopping carts.

My concentration level was high and Iwas up to the challenge. But I kept getting interrupted. Thefirst time was a wonderful womanwhom I’ve befriended over years ofcoaching her son in soccer. It was awelcome break – although I had onlybeen there for two minutes and was stillin the produce section – and we quicklychatted and then moved on becausethere were 1,438 people we were goingto beat to the registers. Then I ran into a boy and his motherfrom another team I coach. Anothergood conversation, but now I’m fallingbehind my mental schedule – I’m still inproduce! Thirty seconds later I ran intoyet another friend: one of the nicestpeople I know, and we met throughcoaching together. We talked abouthow we couldn’t wait for the spring sea-son to start and about some things I hadlearned at a recent coaching educationconference. Another good conversa-tion, but man, now I’m really runningbehind and I think some people arestarting to pass me. Unacceptable. Suddenly a memory caused me topause and smile. When I first moved toGlastonbury from Maine eight yearsago, people would inevitably ask meabout the transition. I always answeredthat I really love the opportunities inthis town, and in this state, especiallyfor my children, but at the same time Iwill miss living in a small town. I’d goon to explain that being a teacher meantI met a lot of people in the community,and I would miss going to the grocery

store and running into people I knowleft and right. I loved that sense of com-munity, and while Glastonbury is hard-ly a major metropolitan area, it is seventimes the population of my prior townand I knew that it just couldn’t be thesame. But here I am in Stop & Shop realizingI was wrong. It took time, but I run intopeople I know all the time. And while Ireally wanted to get this shopping done,those interruptions are exactly what Iwant and need in my life. I had learneda lesson, that community is what youmake of it, and that while it can taketime, you can feel a part of a communitywherever you go. I was reminded of this lesson when Iwas reading Colette’s front page articleabout mentally preparing for retire-ment. Many of us have lived in the sametown for a long time, or have worked ata job even longer, so retirement canmean a change in our “community.”That can mean moving to a new state toget away from the weather or closer tograndchildren. Or maybe staying intown, but no longer having the strengthof work relationships. Regardless, wehave to figure out how we want to con-nect to a new community. For me,coaching has proven an excellent way toconnect to other people and makefriends. For you it could be somethingtotally different, like a hobby, joining aclub, or volunteering for a cause youbelieve in. However you go about it, don’t under-estimate how changes in community

and daily relationships can affectyour view on your retirement. Itis very easy to get caught up inthe dollars and cents, and forgood reason, but don’t neglectthe social and mental aspects ofthis big transition in your life. Itrequires some effort and plan-ning on your part, so please planahead. Speaking of planning, try toavoid the grocery store on Sun-day afternoons, and please stickto your wife’s list (she knowsbetter than you).

Embracing Life’s Changes Through Community

About First Financial AssociatesFirst Financial Associates is an independent retirement planning firm located in Glastonbury,CT. We help people plan their financial lives and work with them every step of the way. Ifyou are interested in learning more about us or how to set up an appointment, please visitour website.

Jeffrey B. Snyder, CFP® President Ann Swain Executive Assistant

Justin Kelleher Financial Advisor Lynda Hickey Underwriting

Rachael Alsdorf Underwriting Devin Buckley Underwriting

Colette Weber Executive Assistant Avis Richardson Office Manager

P: (860) 657-3000 First Financial Associates

F: (860) 659-2956 180 Glastonbury Blvd, Suite 104

http://firstfinancialassociatesllc.com/ Glastonbury, CT 06033

Justin’s Corner

180 Glastonbury BlvdSuite 104Glastonbury, CT 06033

Documents

Newsletter March - 2016 · market in history. For those of you who have accounts in our FFMS Defensive Growth model, the vast majority of ac-counts were moved to cash positions on