MOODY'S REVIEW
APRIL 1998
COMMENTARY ON INVESTMENT AND PLANNING ISSUES
ERROLD F. MOODY JR. BSCE, LLB, MBA, PhD
MASTER OF SCIENCE IN FINANCIAL PLANNING
REGISTERED INVESTMENT ADVISER
WWW.EFMOODY.COM
KNOWLEDGE MAKES OBSOLETE THE INEQUITIES THAT IGNORANCE AND PREJUDICE JUSTIFY
ALZHEIMERS: Here is some more commentary from When Your Loved One Has Alzheimers. It talks about tough love and the fact that discipline should be part of the repertoire in dealing with difficult patients. By the same token, if the patient is so belligerant that it is impossible to control or cope, try to find someone else as quickly as possible so you can take a breather. But I repeat a comment from a practicing nurse who gives a lot of seminars on Alzheimers treatments
If you argue with an Alzheimers patient, you get exactly what you deserve.
Those in middle and late stages of the disease simply do not have any clue what is happening and trying to get them to see reason is fruitless.
THE OTHER PERSON IS NOT ALWAYS TO BLAME: Many people who act as long time caregivers tend to get isolated from reality. But so do some of their friends and relatives. They might be (usually are) quite uncomfortable, embarrassed, intimidated, etc. by the condition of your loved one and not really know what to say. When Your Loved One Has Alzheimers says that they may "smile understandingly and tell you how beautifully you are coping and ask if there is anything at they can do to help. But inside they are confused and- dare they think it?- repelled to, and a little frightened. They wonder if you would rather not be alone. You have so many thing on your mind these days. Perhaps you'd prefer not to be bothered- after all- you have not called them in a while either. Perhaps it is better this way- at least until the patients improves a little.
And so the friendship fades."
IRA's: A recent IRA questionnaire by American Century Investments of 752 people who described themselves as active retirement savers showed that only 26% got more than half the 10 questions right. They thought that the participants would do lot better this year because of the significant amount of articles on the new ROTH IRA. But as one who is taught the IRA laws for years to insurance agents and planners, I can tell you that the rules are so convoluted that very few people of any educational background really have a complete handle on what to do and when. Congress did provide some greater savings opportunities- but they made the process equally more incomprehensible. However I'll make it simple for many- check out the ROTH IRA. You lose current tax deductibility but you almost universally gain far more later on.
AUDIT STATISTICS: Source- Internal Revenue Service
| Forms 1040, 1040A, 1040EZ | Percent audited in Fiscal 1996 |
| Income of $25,000 to under $50,000 | 0.95 |
| $50,000 to under $100,000 | 1.16 |
| $100,000 and over | 2.85 |
| Schedule C (Sole Proprietorships) | |
| Gross receipts under $25,000 | 4.21 |
| $25,000 to under $100,000 | 2.85 |
| $100,000 and over | 4.09 |
| Estate Tax Returns | |
| Gross Estate under $1,000,000 | 7.85 |
| $1 million to under $5 million | 21.42 |
| Over $5 million | 49.33 |
DYING: When I was back east visiting my mother in a Medicaid ward, the statistics of long term care were most noticeable. Almost all were women. And except for my mother and one other woman, the rest were in various comatose states. Many were under 100# and just sat or lied in a contorted state. An article in the Atlanta Constitution noted "the debate raging in high courts and ordinary homes over the right to die with dignity raises complex questions..... I only know that watching a loved one die slowly is agonizing." When I visited my grandmother "in a nursing home, watching her suffer the indignities of someone completely dependent on others for the most personal routine care, my heart ached." "If she had the presence of mind and the inclination to ask me to help her end her life as she lay wasting away, I'm not sure would I would have said.. Do you ignore the please of a loved one who cannot hope for recovery? Or do you wrestle with the request and decide you cannot comply. How can you know if you haven't been there?"
My father died a tough death with all the indignities that 80% of all of us will inevitably face. I will NOT die that way, even if I have to take my own life. Why? Heck, it's my life- not the supreme court's, not some judge I never met, not the civil liberties union. Don't agree? That's fine. If I got you to think about your demise and how to plan for it, then that is all I can ask.
WOMEN AND MEN: By 2007, female college enrollment will reach 9.2 million versus 6.9 million for men. As I have repeatedly stated, if the world is still around by the year 3000, women will be in power in most countries of the world. Education of all will increase dramatically due to their intervention.
YOUNG AND OLD: (Commerce Secretary Peterson says that young children are now 3 times more likely than the elderly to be below the poverty line. The FED spends 12 times more per capita on the elderly than those under 18. Today, no state has more elderly than young people. But by 2025 the University of Michigan indicates that there will be 10 states with more people over 65 than under 18 with many others being close.
UNHEALTHY LIVING: (American Journal of Public Health and Jonathan Tilove) "Residents of states with wider income disparities show less trust of others and lower membership in voluntary organizations and neighborhood groups. They therefore show higher rates of violence and disability, more people lacking health insurance and less investment in education" That may also tie in with a lengthy article by Tilove regarding the changing shape of demographics in the future. Not only will there be more elderly, but less white. William Frey, a University of Michigan demographer noted that "in 2025, there will be fewer white Americans under age 65 than there were in 1995 even as the under age 65 population of Latinos and Asian Americans doubles. The under 65 age population of Blacks will increase by a third. But over the same 30 years, the white elderly population will increase by two thirds to 47 million. There will be more white Americans over 65 than under 18 while the Blacks, Latinos and Asians will remain overwhelmingly more young than old. By 2025, more than three quarters of the elderly, but just less than half of the population will be white".
ANNUITIES: Here's an important Quiz on annuities. Only a minuscule number of variable annuities are annuitized- in part due to the high ordinary income tax the owners will face. The annuity companies want to see these annuitized- to the point of offering agents additional commissions if they can get the owners to do so. My question is- DO YOU KNOW WHY? And here is an additional part of the quiz. Why are Blacks, Hispanics and others impacted to a greater degree?
Why in the world would an insurance company be willing to pay commissions to get people to annuitize any of the annuity buildups? (Only about 1% of annuities are annuitized.) Because they'll make more money, that's why.
What you clearly need to recognize is that many annuity payouts provide extremely poor returns to the annuitant (you). Obviously, they therefore provide good returns for the insurance company.
Unfortunately, the basics of an annuity are usually totally lost on not only purchasers of an annuity, but the salespeople as well. And since I am an instructor in annuities to life insurance agents, let me tell you what I teach them.
The first thing about annuities- on the plus side- is that all the money invested can grow tax deferred until they are removed. And with qualified plans, the initial investment may be deducted from gross income- thereby also reducing current income tax.
Unfortunately, once you want to get the money out, there are several negatives. First- anything that has not been taxed (appreciation, dividends and interest) will be taxed as ordinary income. Almost universally, that will be higher than the long term capital gains tax. In fact, if you are in the highest ordinary income tax bracket, your income tax can be twice that that would have been occurred under capital gains. (See full text on annuities for more complete detail including surrender charges, bonus interest, etc.)
Next is the fact that annuities receive no step up in basis at the date of death. If you had invested $25,000 in a standard mutual fund and it grew to $100,000 and you died, your beneficiaries would receive $100,000 with NO tax (estate taxes not considered). If your beneficiaries had received a qualified annuity of $100,000, the entire amount would be taxed as ordinary income. Assuming a 35% total federal and state tax rate, they would send a check to the IRS for $35,000 and net just $65,000. Quite a difference. You MUST understand basis in order to do effective investment, retirement or estate planning.)
But the issues we are exploring are more complex. If an annuitant decides to annuitize, they may do so under several methods. It could be a singular lifetime, with a spouse or friend and cover for both lifetimes, for a set period of time (10 or 15 years for example), refund to a survivor if the annuitant should die prematurely, etc. (Also note that almost all variable annuities revert to fixed annuities during payout.) The kicker is how to figure out what the returns actually are under each method when presented to you by the insurance company. For that you must utilize a financial calculator. If you do not have one, your agent must have one and be conversant in its use. (If they don't have one, you got big problems since they were- and are- clearly lacking in the ability in how money works and are simply poor agents.) But assuming such capabilities exist, you utilize a basic present value calculation. You will know how much you have in the annuity (principal) and how much the insurance company is willing to pay under each payout option. But what you are lacking is how long the payouts will exist. That's because you don't know how long you will live (combined lives or whatever). WRONG! The annuity company is using an actuarial lifetime table based on its experience (though not necessarily utilized-see comments on elderly 86 year old annuitant below). They have statistical evidence showing how long you will be EXPECTED to live. So that's the time frame (in years) that you use for the calculation. But wait you say, you don't know what the company is using for their life expectancy. True. And even if you did ask, they universally won't tell you. But what you do have is the standard tables in use by the government. Here's one right here. Look at a man and woman age 65. Statistically how long does the man have to live? The answer is 15.2 years- till age 80.2. A woman can expect a lifetime of an additional 18.8 years to 83.8. Whatever your age when you annuitize, you can use this or a similar table to get a rough idea of the term in years the payments will be for.
Of course, many of you will say that you will live longer. O.K., let's get real. You're overweight, get no exercise and are glued to the TV. Further, and a major consideration, is your genealogy. Your father died of cancer at age 76 and your mother of a heart attack at age 79. Your only sister is sickly at age 61. While you would like to live forever, the odds are dramatically against you and you should figure for no longer than a standard lifetime- if that. (This is what I do, at least in a subjective mode, for each client I deal with. The anticipated lifetimes affect not only retirement planning (budget and net worth) but also investments (what type used and for how long), etc. but also many of the elements of estate planning since you need to figure on how much will be left in each estate- with a couple- at the first to die and the second to die. I tactfully acknowledge the truth and let them comment further on what they wish to do/how long they expect to live.) You can search my web site for links to sites that have the ability to do "what if" computations on your lifetime. Unfortunately , you may be unpleasantly surprised. But foregoing this, if you did the calculations just for the standard time frames, you will almost universally find that the returns are terrible.
Here is real life example that I took from a longtime client, male, healthy, age 68 who was sent payout numbers for his annuity. He would have about 13.3 years to live. I simply used the HP12C to figure out the numbers. I will note that the annuity company first just asked him what type of an annuity payout he wanted WITHOUT providing any of the numbers. That was ludicrous and I told them he had to get them to at least give the numbers for each payout.
| Type of Annuity Payout | Return over actuarial lifetime | Time period for a 6% return in
years
Installment Life Refund |
| Installment Life Refund | 1.47% | 20 |
| Life with 5 year guarantee | 2.45 | 18 |
| Life with 10 year Guarantee | -3.48 | 19 |
| Life with 15 year Guarantee | 2.44 | 22 |
| 10 year Annuity Certain | 5.49 | N/A |
| 15 Year Annuity Certain | 4.91 | N/A |
Yes, different companies will have different payouts depending on their mortality tables, maturity dates on the bonds, anticipated movements in interest rates, and other factors.
As additional info on payouts and returns, a major insurer sent figures to me and received 10/24/97. I have used males and females, ages 65 and 75 for single life payouts and those for 10 years ONLY and 15 years guaranteed (and for life if still living.)
| Life Only Annual Return | Life Only Annual Return | 10 Year Certain Annual Return | 15 year Guaranteed and Life Annual Return | |
| Male age 65 (15.3 years actuarial additional life expectancy) | 2.32% | 24.33 years to age 89.33 | 3.93% | 2.81 |
| Male age 75 (9.4 additional years) | .29 | 13.3 years to age 88.3 | 3.93 | 2.81 |
| Female age 65 (18.8 actuarial additional life expectancy) | 2.93 | Female age 65 (18.8 actuarial additional life expectancy) | 3.93 | -0.16% |
| Female age 75 (11.9 additional years) | 1.82 | 16.92 years to age 91.92 | 3.93 | 2.25 |
You may try to make "sense" out of the numbers but I wouldn't bother. The simple fact is that one needs to live a long time in order to get a 6% annualized return. This makes many annuities unrealistic- at least in my work as a planner.
As a recent example of how little "sense" these actuarial tables might be, here is an October 1997 commentary from the Wall Street Journal. An elderly woman, age 86, was sold a variable annuity (that's absurd, ludicrous and wrong but commentary is addressed elsewhere in my site) and annuitized the product. Forgetting any implications for surrender charges and extraneous fees, the annuity company ANNUITIZED HER PAYMENTS AS THOUGH SHE WOULD LIVE TO AGE 106. In essence, they reduced her payments to an insignificant number by stretching the payments over an absurd length of time so they could retain more of the principal when she probably would die at around 91 or so. YOU OR YOUR ADVISER MUST KNOW HOW TO USE AN HP12C OR SIMILAR IF YOU ARE GOING TO USE ANNUITIES OR MOST OTHER INSURANCE OR INVESTMENT PRODUCTS.
Dispensing with the absurdity and fraudulent activity, there is an additional major negative aspect to annuitization that is rarely addressed. Before you say if you find any of these rates acceptable, you must also take into account that once the annuitization starts, YOU, AS OWNER, LOSE ALL ACCESS TO YOUR PRINCIPAL. If an emergency should arise, you cannot access the principal. As an additional caveat to retirement-YOU NEED A LOT MORE ACCESS TO MONEY AFTER YOU RETIRE THAN BEFORE SIMPLY BECAUSE "STUFF HAPPENS". There therefore is an element of additional risk in having large amounts of retirement assets that are inaccessible. This makes many annuities doubly unrealistic- at least in my work as a planner.
Getting back to the returns- the highest return available under a normal lifetime was in using the 10 year certain (payments for 10 years only) at 5.49%. (You could do the same or better without losing control of your money.) The other rates were relatively pathetic- but that 's exactly what the insurance companies do not want you to see. That's also the reason that they do not effectively care about your health when you annuitize- actually even you originally buy the policy. Since most people will live about the actuarial lifetime, they can pay low returns and get away with it since no one tells the consumers and the consumers rarely work with agents who use a financial calculator. Even so, in my experience, literally none of the agents I have taught so far were ever remotely aware of how long people were truly expected to live and had not even bothered with these types of calculations.
Is there a positive to annuities. Yes and a real life example proves the point. One client of mine- healthy female age 62 actually had both grandmothers live to 100+ and her mother moved into a retirement home (not a nursing home) at age 90. In such a case, we have an individual that might actually live far longer than the average person. She will earn a good return on her money from annuitization due to the potential long lifetime. But even then we have the real world that can cause serious problems. Regarding the healthy male above- he had an accident at home in February 1997 and died shortly thereafter. If he had selected a life payout, his return would have been poor and access none. And due to the accident, his effective return would have been very negative. So you ask- what annuity payout did we actually utilize? When they provided the numbers back for the payouts, one was, apparently, conveniently missing. Lump sum. So I asked the client to see if it was available. It was and that was what was selected. I might have had to address the tax issues save for the fact that whoever had him buy the annuity years before had him do so in an IRA- a tax deferred vehicle in a tax deferred account. Ludicrous and unconscionable.
Of course one would say you simply add a beneficiary and get the extra money over a longer period and a higher return. Not so since the insurance companies simply reduce the payments to reflect the longer actuarial lifetimes.
I must note another positive use of an annuity however. If you have someone that is a mindless spendthrift who would have spent the money frivolously if they had it as a lump sum, an annuity serves the situation well since they get payments over a period of time but no access to the principal. Better they only get monies in drips and drabs and not allow the principal to be squandered.
The last part of the quiz talks about Blacks, Hispanics, etc. Now, most monies in annuities come from Caucasians. Nothing insidious- just a fact. But all annuitization (at least to my knowledge) is based on a group of people of ALL races. However, there is a disparity in the lifetimes of different races. According to government actuarial lifetimes, Blacks have SHORTER lifetimes. As such, at least statistically, they "should" receive more money since it is paid out over a shorter time frame. But they and Hispanics, Indians etc. are thrown into the same grouping as the bulk of the Caucasians and therefore, if they live their standard lifetime, their returns are even SMALLER. Admittedly as one gets older, the disparity between lifetimes of all races becomes far less, but it nonetheless exists and needs to be objectively dealt with.
Of course, we could use that same tack with Asians- who statistically live longer than even Caucasians. They are getting extra payments due to their longer actuarial lifetimes. The point being that if you belong to a minority, consider whether an annuity is worthwhile based on the most relevant actuarial table you can get from the government. But still, don't forget the loss of access to your principal- a big negative if too much is utilized.
In summary, annuities do provide tax deferral but clearly at the expense of ordinary income tax at annuitization. Secondly, there is no step up in basis. But of greater concern is the effective poor payouts that translate into poor yields. One may have to live 5 to 10 years longer than actuarially standard in order to effectuate a return similar to riskless or relatively riskless investments. Lastly, the principal is no longer available for use during one of the most critical times of life where money may be needed.
As a result of such teachings, some agents have accused me of not "LIKING" annuities or agents. However, they have missed the point of research and numbers. There is no such thing as emotion in investing (though some would certainly disagree). I just do the numbers and whatever I come out with is simply what I use in determining the viability of most investments, timeframes, etc. for a client. Based on the above numbers- and where they have been reinforced by previous studies- I think that annuities have been SOLD incorrectly and do a great disservice to many consumers who will not live long enough to get a return comparable to risk free investment (Treasuries) or relatively risk free (Short term bond funds) and where they have lost access to their money.
As regards the apparent dislike for agents- it simply relates to competency. If one cannot use an HP calculator or similar, the agent is incompetent and nothing more than a salesperson. That is not the key to financial success. If you continue to use that salesperson, you are also incompetent.
ADULTS WHO KEEP READING, LEARNING AND INTERACTING WITH OTHERS ARE FAR LESS LIKELY TO LOSE THEIR MEMORY OR DECLINE INTO SENILITY THAT THOSE WHO RETREAT INTO THEMSELVES AS THEY AGE.
IT SEEMS THE MIND IS LIKE A MUSCLE THAT CAN BE BEST KEPT IN SHAPE THROUGH REGULAR EXERCISE.
SOCIAL SECURITY: In 1935 when age 65 was the retirement age, the actuarial lifetime was just 61. But here is an unusual statistic- in 1950 there were about 16.5 workers to recipients; in 1997 about 3.3 and projected in 2025 to about 2.2. But about 38% of the working age population will be Black, Latino or Asian and they will be supporting a largely white elderly population. That's a precursor to a lot of social problems.
HORSE PUCKY: Well here's just another "mess" we got ourselves into. The amount of manure produced in the US is 130% greater than the amount of human waste. One single 50,000 acre hog farm will produce more waste than the entire city of Los Angeles. However, it would probably smell better.
WEIGHT LIFTING: (National Geographic) As stated numerous times, getting old is part genetics and part your own fault. Even the very elderly can retain/regain mobility and agility. Some subjects who found it difficult to climb stairs were put on a specially designed weight lifting regimen. It was shown that even 90 year weaklings can regain the strength and vitality they had 30 years earlier. And they can do it with simple exercises around their own homes. In one study of hundreds of nursing home residents age 72 to 98, ten weeks of weight training more than doubled the participants muscle strength and increased walking speed and their ability to climb stairs. Another study of 40 mostly sedentary women ages 50 to 70 involving just twice a week exercises led to substantial increases in muscle mass, strength, balance and bone density.
MUCH OF WHAT WE THINK OF AS AGING IS REALLY JUST A BY PRODUCT OF INACTIVITY AND POOR NUTRITION
AIDS: (Evelyn Leopold of the U.N.) AIDS infections are now estimated at about 16,000 a day after a new 1997 study. And the total number afflicted already is about 30 million. "If current transmission rates hold steady, by the year 2000, the number of people living with HIV or AIDS will soar to 40 million". In 1997 people who became infected for the first time grew from 3.1 million children and adults to 5.8 million, an actual increase of 9 %.
A U.N. report said that some 2.3 million people died of AIDS in 1997 - a 50 % increase over 1996. Nearly half those deaths were women and 460,000 were children under 15.
The new figures show that the number of people estimated to be living with HIV or AIDS include 20.6 million in sub-Saharan Africa, 6 million in South and Southeast Asia and 1.3 million in Latin America and 530,000 in Western Europe. The worst affected is sub-Sahara Africa where HIV cases increased by 7.4 % among people between 15 and 49 years of age. The rate of new AIDS cases is expected to drop about 30 % in Western Europe in 1997 and by 11% in the U.S.
REVERSE ANNUITY MORTGAGES: For all the rhetoric out there on the validity of these (though the high fees (up to 4% on the front end) and scam artists (over 20% in front end fees) have caused problems), they have effectively gone nowhere. In the eight years since FHA insured reverse mortgages were available, only about 23,000 have actually been issued. For one thing, they ARE complicated to understand and the elderly aren't that swift to begin with in comprehending financial instruments- particularly those in the lower income stratum that may need the help the most. Additionally, not that many lenders have adopted the program- and the recent defection of Household International (one of the "bigger" players) will hurt all the more. Also many of these elderly remember the depression and are loathe to have a loan against their homes.
Maybe as the more astute baby boomers get older, we will see more of these.
GOING DOWN: As the competitive nature of the life insurance business has grown- and with it a reduction of commissions on products- there are fewer and fewer insurance agents. One study said that there has been reduction in the last few years from around 250,000 to
less than 200,000 nationally. Membership of the National Association of Life Underwriters dropped to 108,000 from a peak of 143,000. Nonetheless, there probably should be fewer agents overall. The industry itself is to blame. Schmucks.
MAJOR WIREHOUSE FRAUD: Direct quote from a broker. "I work at a major wirehouse(ten year veteran) and when I was told that once again I needed to complete my continuing education for my insurance license I was given a few forms to fill out and a test AND all the answers. I was informed in writing that I should miss at least two or three answers on each section of the test and to state that it took me 30 to 90 minutes to complete each sections. I did all the above, turned in the forms and exam. I'm no different from anyone else- I consider this continuing education thing for insurance to be a major annoyance....But I'm beginning to feel a little guilty. I think the state insurance board would find it interesting that in a large branch office of a major wirehouse that the brokers are being helped to cheat on this educational requirement."
You do not buy stocks from (just) a stockbroker and you do not buy insurance from an insurance agent. The sooner you learn that, the better off you will be- and usually more financially wealthy.
ELDERLY AND LONG TERM CARE: (National Geographic) Studies have show that seniors who have emotional support from friends and family have lower levels of stress hormones circulating in their blood and are less likely to die in the near future than those who feel lonely and isolated.
BABY BOOMERS: A study called the "Survey on Longevity and Retirement," by Greenwald & Associates Inc., says that retirees feel pretty good about retirement. But it may also show they don't know what they are talking about since there is a discrepancy between what they save and invest and how long they may live.
Almost 90% of the respondents said that they really should know how much money they would need for retirement- but they were also concerned they couldn't figure that out because they didn't know how long they might live. Guess what? You can make a reasonable guess by looking at actuarial tables and by adjusting those ages to reflect genealogy, health style, married or single, etc. The problem is they have not done the homework to identify those resources available to them- though admittedly most of those are on the Internet.
Anyway, 66% said they were very concerned about the reduction and possible further reductions in Social Security and Medicare. Possibly true, but the reduction in regards Social Security is if you make too much money when retired- say probably over $50,000 . Social security will revert to what it was meant to be when it was initiated- an emergency fund for those in true need- not a retirement fund for everyone. Medicare will always be available- but it will cost more for those that can pay- the wealthy retirees. It doesn't make any difference whether you like this or not- we simply cannot afford it.
As far as inflationary trends are concerned, I think that we can bow down to Volcker and Greenspan. Absent some holocaust, it may actually be possible to have low inflation for even the next 20 years. That may not help retirees directly in added social security benefits, but it should offer significant economic growth which is good for growth investments (which retirees should still focus on even as they get older.)
PUFF ON THIS: Smoking costs the U.S. about $130 billion annually in shortened working lives and added health care spending.
PENSION PLANS: The National Commission on Retirement Policy reported recently that only half of American workers are covered by a pension plan. And defined benefit plans (which guarantee payments upon retirement and now cover perhaps just 38% of workers) have given way to defined contribution plans (the amount of the payments are not guaranteed but depend on the ability to the employee to invest money over their lifetime).
Yet much of this is lost since, should they change jobs, about 66% do NOT roll the money over to another plan- they simply spend it.
The study indicated that only 45% considered an annuity for providing retirement income for life and said that workers need to be educated about them. While that is viable, such education has almost universally voided the problems with annuities- an almost complete lack of control and an unbelievably dismal return. As stated herein, returns might approximate an acceptable yield of a Treasury Bond only if the annuitant were to live 10 to 15 years after his/her actuarial lifetime.
Until such time as the industry takes serious steps in requiring agents to understand the use of an HP12C calculator, good planning for retirement will NOT take place.
RETIREE MEDICAL CARE: (Kaiser Family Foundation) Employer-sponsored retiree health benefits from large companies has declined since 1991.
Their study also showed "that the number of big businesses charging premiums, tightening eligibility requirements, encouraging use of managed care, and placing dollar caps on coverage increased". In addition, the report concluded that potential changes in the Medicare program, such as a higher eligibility age, could accelerate the decline in retiree benefits by shifting additional health care costs to employers and retirees and thus encouraging companies to scale back or eliminate retiree plans.
"For retirees age 65 and older, the percentage of all large firms offering health benefits declined from 80% in 1991 to 71% in 1996.
For retirees age 65 and older, the percentage of employers requiring retirees to pay premiums for health coverage increased from 72% to 88%.
The percentage of employers placing dollar caps on future obligations for retiree health coverage rose from virtually zero to 39%.
More large employers are imposing stricter eligibility requirements for retiree health coverage such as a greater number of years worked.
And proposed Medicare reform could exacerbate the problem. If Medicare was not available till age 67, "a typical large company with a predominately older workforce would pay about 18% more in lifetime retiree health benefits for its employees, while a company with a younger workforce would pay about 16% more." Call 800 656-4533 for more info.
LONG TERM CARE: Before you attempt to reduce your assets so you can get Medicaid long term care, consider these issues:
(1) You will probably lose your price, dignity and have an increased dependence on others
(2) An inability to purchase services not available under
Medicare or Medicaid;
(3) There is unquestionably a reluctance by nursing homes to admit Medicaid as opposed to the more lucrative "private pay" patients;
(4) Once the assets are transferred, they ARE the ownership of the donee and it may be difficult or impossible to get the money back when needed.
(5) Once you have limited assets, you will be denied entry to facilities that do not accept Medicaid patients.
CAREGIVERS: About 25% of American families - almost 22 million households- care for someone else aged 50 or older.
And while this may be obvious- try to make frequent unscheduled visits to your loved one in a facility. It doesn't necessarily mean that you will spot something "bad" but it does show that someone is "watching". From experience, I can almost guarantee your loved one will get better overall care and understanding. That is NOT a reflection of the aides in the home but simply reflective of how people react when they see other people around all the time.
AMERICAN ASSOCIATION OF DAILY MONEY MANAGERS: This is a trade group of professional assistants who, for a fee, provide personal bookkeeping for clients who have difficulty handling banking and other day to day financial matters. AADMM, 106 Playford Lane, Silver Spring, MD 20091, 301 593-5462
BLOCH NATIONAL CANCER HOT LINE: 800 433-0464 gives newly diagnosed cancer patients the chance to talk with other individuals who have been successfully treated with the same kind of cancer.
NATIONAL INFORMATION CENTER FOR CHILDREN AND YOUTH WITH DISABILITIES: provides information and referrals on disability related issues for children up to age 22. NICHY, PO Box 1492, Washington, DC 20013, 800 695-0285
STOCK OPTIONS AND CAPITAL GAINS: (SF Chronicle)
INCENTIVE STOCK OPTIONS:
When to Exercise- wait at least a year after the company grants the option so you can get the lower capital gains rate. Otherwise the difference between the exercise price and the market value will be subject to ordinary income tax rates
When to Sell the Stock- Wait at least 18 months after exercising the option. You would then qualify for the 20% maximum on the difference between the exercise price and the market value.
If you sell between 12 months and 18 months, the tax is higher at 28%
If you sell before 12 months, the tax is at ordinary income tax rates.
NONQUALIFIED STOCK OPTIONS
When to Exercise the Option
Quickly, before the price goes to high. That might look odd since the difference between the exercise price and the market value is taxed as ordinary income. But then it can grow and be taxed at capital gains rates
When to Sell the Stock
Wait at least 18 months- you get capital gains rates at 20%. Otherwise the gain is taxed at the higher 28% rate
STOCK INVESTING: In the U.S. pension funds have more than 60% of their assets in stocks. Not so in Europe. In Italy and Germany it is less than 10%, and in France it is under 30%. Equities make up around 35% of household assets in the U.S. In Germany it's just 5%.
BEST WORKERS: According to employment experts, the best workers are those over age 55. They may be empty nesters that can devote time to work. They may also possess a solid work ethic. Further, they can start work with little or no training.
CHARITABLE REMAINDER TRUSTS: New tax laws disqualifies any charitable deduction for any "charitable remainder trust" for which the computed charitable remainder interest is less than 10%. This effectively precludes the use of remainder trusts (and the resulting charitable gifts) by persons younger than 35, and precludes the use of such trusts with reasonable annuity rates for persons under age 50.
OBSCURE SECURITIES: (Advocate) A couple of firms around the country specialize in helping people learn the fates of lost companies. Supposedly one of the better is RM. Smythe & Co. of New York which publishes The Fisher Manuals of Valuable and Worthless Securities. These 15 volumes detail the status of thousands of securities and are available at many major libraries. It will do research for a fee. Make a photocopy of the face of the certificate and mail it to Smythe. The charge is $75 per inquiry, but if you mention that the Advocate referred you, Smythe will do it for $50. Address: Caleb Esterline, R. M. Smythe & Co., 26 Broadway, Suite 271, New York, NY 10004-1701, or call 800-622-1880.
SEC: "The Securities and Exchange Commission is setting up special legal clinics on a trial basis to help investors who have trouble getting legal help in small securities cases. "These clinics will help small investors who have nowhere else to turn by providing them with high quality legal representation," said SEC Chairman Arthur Levitt.
Nice words but I bet little true competency. Ask one of these attorneys if they know what diversification is. If so, perhaps O.K. But I bet not a one of them will get the right answer.
I DREAM OF GINI: (FED BANK OF MINNEAPOLIS) Actually a measure of wealth is called the Gini index. In taking a look at U.S. Households, the top and bottom are way of whack.
$149,820: That's what the Department of Agriculture says it will take to raise a child to age 17. Housing took the biggest chunk at $49,710 followed by food at $26,130 and then by transportation, clothing and child care. Are you sure you want one???
DEPRESSION AND MEN: (NY Times) I tell all students when doing estate planning and health care that the greatest problems that the men will face is depression. In years' past, the manly "John Wayne" attitude has primarily prevailed. Grin and bear it. Don't cry no matter what the problem. "Real men are supposed to be strong, silent, powerful, dominant". But many men also recognize that some of this is a lot of crap since it eats away inside and causes untold problems later on- namely depression. And depression kills. The greatest number of suicides is in white men. (About 18,000 clinically depressed people commit suicide each year). While they may "get away" with the bravado until they retire, they then may have to confront a lonely, scared little man. Women have been aware of this issue for years.
Depression Statistics: According to a Professor of Psychology, major depression affects about 3% of the elderly- 7% of the elderly have minor depression. Surprisingly, younger people have greater depression- about 6%. It's just that they tend to get treated while the elderly think it is simply a part of getting old (it ISN'T).
According to studies, about 24% of the population will suffer form a major depression in a year. About 9:10 can be helped.
FLU: Get a flu shot- particularly if you are elderly. Flu and pneumonia are the 5th leading cause of death among the elderly taking as many as 60,000 lives each year. It is estimated that up to 80% of the death from flu could be prevented with a flu shot.
TRUST GIFTING: Used to be that a trust could not give the $10,000 annual gift. You had to take the money out of the trust and gift it personally. New laws say that it is O.K.
PENSIONS: The PBGC helps employees protect their rights. They suggest that you
You can get info by calling the Pension Benefit Guarantee Corporation at 202 219-8776. Advisers also take calls at 15 regional offices
Atlanta- 404 562-2156
Boston- 617 565-9600
Chicago- 312 353-0900
Cincinnati- 606 578-4680
Dallas- 214 767-6831
Detroit- 313 226-7450
Kansas City- 816 426-5131
Los Angeles- 818 583-7862
Miami- 305 651-6464
New York- 212 399-5191
Philadelphia- 215 596-1134
St. Louis- 314 539-2691
San Francisco- 415 744-6700
Seattle- 206 553-4244
ERROLD F. MOODY JR.
BSCE, LLB, MBA, MSFP, PhD 2295 W. Ave 133
San Leandro, CA 94577
Phone & Fax 510 352-4127