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C.H. Robinson

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Retiree Health Care Costs Are Out of Control

Written by Bruce Primeau on .

We've been reading quite a bit of news regarding the rising health care costs for retirees and this information just confirms the urgency with which Congress must address Obamacare aka the Affordable Care Act.

  • According to the third annual "Retirement Health Care Data Report," lifetime health care premiums for Medicare Part B and D, supplemental Medigap insurance and dental insurance for an average 65-year old couple retiring in 2017 will be about $322,000 (in today's dollars).
  • When other out-of-pocket costs such as deductibles, co-pays, hearing, etc. are added in, total lifetime healthcare costs could exceed $400,000.
  • The annual retiree health care inflation rate will likely average about 5.5% for the foreseeable future. That is almost triple the U.S. inflation rate of 1.9% from 2012 to 2016 and more than double the projected Social Security cost of living adjustments of 2.6%.
  • A HealthView Services report shows that a 66-year old couple retiring in 2017 will need about 59% of their total Social Security benefits to cover their projected lifetime retirement healthcare costs.
    • However, a 55-year old couple retiring at age 66 will need about 92% of their Social Security benefits to cover theirs while a 45-year old couple retiring more than 20 years from now will need about 122% of their Social Security benefits to cover their projected lifetime health care costs.

Not that we didn't already know there was a problem with the current health care system, but the statistics outlined above are alarming.

For our clients, as we update their retirement projections moving forward, we will be breaking out the projected costs of their health care as a separate / specific line item so they will have a better feel for how much of their projected lifestyle cash flow will be available for their retirement goals, not including their lifetime health care costs. If you have questions about how your projected health care costs in retirement will impact you, please let us know as we are glad to help.

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Retirees: Beware

Written by Becky Botzet on .

Social Security beneficiaries may see an increase in 2018. Based on the Consumer Price Index (CPI) data through April of this year, the consumer advocacy group estimates that the Social Security cost-of-living adjustment for 2018 will be about 2.1%, which is significantly higher than the 0.3% increase in 2017. The official announcement about next year's COLA (Cost Of Living Adjustment) is in October, so it could change.

Social Security's COLA is governed by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) which gives less weight to medical care and housing costs, two categories that have experienced rapid inflation and represent the larger portion of the budgets of older households than younger workers.

Social Security Inflation adjustments have averaged only 1% since 2012, including no increase in 2016. Since 2000, Social Security benefits have increased 43% while typical senior expenses have jumped 86%. Social Security beneficiaries and federal retirees have lost about a third of their purchasing power since 2000, making it more difficult for retirees to afford necessities such as medical care, food and housing.

Also consider higher-income retirees pay a higher monthly premium for both Medicare Part B, which covers doctors' fees and out-patient services, and Part D, which covers prescription drugs. Those higher-income retirees subject to monthly Medicare surcharges may be in for a shock next year. New income brackets, based on 2016 tax returns, take effect in 2018. As a result, retirees who currently pay a high income surcharge pay even more next year even if their income remains the same.

If you have any questions about your Social Security benefits or the role it should play in your retirement plan, please contact us today.

 

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Managing Student Debt or How to Keep Your Kid From Living in Your Basement

Written by Jon Govin on .

Student loan debt is often times the first credit your children will have. Many students receive and sign a loan agreement, without an understanding of what they have just signed – by the way, parents can be just as guilty. And, like a credit card, the loan amount can build very rapidly. So before it builds too high, here are a few steps that can help your student (and parent) in managing the debt they are taking on.

Start with WHO you owe and HOW MUCH

Most student loans are federal student loans, but occasionally students or families take out private loans. After four years of taking out loans, you may not remember who you owe and how much. Adding to this confusion, student loans are often sold or transferred to new servicers, making it even harder to track them down.

Internet to the rescue. There are two tools you can use to find out what loans you and/or your child has and the current balance on each:

  • For federal loans you can visit the National Student Loan Data System (www.nslds.ed.gov). This is a database of loans and grants where you can see what debt you have and the status.
  • For private loans, you can find the loan servicer and status of the loan by checking your credit report for free at www.annualcreditreport.com. The credit report will show all of your loans and lines of credit in your name – we recommend checking this, in any case.

Calculate the payments and budget

Once you have identified the student loan servicers, you can find out the minimum payment your child will owe each month.

If you can locate the loan promissory note, it will outline the loan terms, including the minimum loan payment and length of repayment. Even if you can't find the promissory note, the loan company will send your child a bill with the minimum amount.

For private loans, you can contact the lender directly via their customer service line to find out the account status and minimum payment.

You can also use the Federal Student Aid Repayment Estimator (https://studentloans.gov/myDirectLoan/mobile/repayment/repaymentEstimator.action) to estimate how much of the payment will go towards interest versus principal. This is a function of the website studentloans.gov and you will need to sign up to use the functions. By running the numbers with your child, you can show them how applying extra payments to the loans can save them hundreds of dollars over the length of their loan.

Research repayment options

If your child's starting salary is too low to keep up with the payments, or if they are still job searching, look at possible repayment options.

If they have federal loans, an income-driven repayment (IDR) plan may be a smart idea. Rather than the standard 10-year plan, the government extends the repayment term to 20-25 years with an IDR option. Monthly payments are also capped at a percentage of your child's discretionary income, so they may significantly reduce the monthly bill. In fact, it's possible to end up with a monthly payment of $0. At the end of the repayment term, if any debt is left over, it will be discharged but taxed as income for that year.

Private student loans are not eligible for income-driven repayment, but some lenders offer interest-only payments. Just remember to tell your child that they still have the principal to pay for private loans! Under these plans, your child will pay a much smaller bill each month that only covers the interest. It will take much longer to repay the loan, but it can give a young graduate more breathing room until their career takes off.

Consider other repayment options / refinancing

If the interest rates on the loans are high, you might want to refinance. By refinancing the current loans, your child can get a lower interest rate and new repayment term. That approach can reduce the payments and help save money over time. It can be difficult for a new graduate to get approved for a loan, however, so you can help your child by co-signing the loan.

Keep in mind that co-signing means you're responsible for the loan if your kid misses a payment, so it's important to work out an agreement with your child ahead of time. Only take this step if you're confident in their ability to be responsible with their payments.

An important note, there is no federal refinancing. But, if you find a lower rate on a private loan, you may consider refinancing by paying off the federal loan. Beware, the many various loan types, rates and terms can give you a false sense that you are paying less. Be sure to review the loan details with us, prior to refinancing.

There you have it. Your child's first foray into the world of consumer credit. A true feeling of independence. But, with this independence comes a great deal of responsibility. Student loans are a great way for parents to help their children get off on the right foot (and not have them living in your basement again).

If you have questions regarding your child's student loan debt—or you own, please ask your advisor for advice. This is part of what you pay us for, and we are here to help.

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The Things They DON'T Teach in School

Written by Bruce Primeau on .

A quote we frequently hear is, "Why don't our educators teach our kids the basics of finances – like balancing a checkbook, saving for items they want, minimizing the use of credit cards, etc. – in high school or college?"

We feel that's a fair question to ask and are in complete agreement that these topics should be part of the high school (or at least college) curriculum. I feel our educators do a good job of teaching reading, writing and arithmetic but seem to lack the wherewithal to teach our kids some of the more critical information they'll need as they move into the real world, for example:

• Saving / investing for what you want
• Employee benefits / insurance to ensure they are maximizing what they receive from their employment
• Credit card / debt management
• Renting versus buying a home or how to purchase their first home

Recently, several of our clients have asked us to meet with their college-age or recently graduated children to help ensure they get off on the right financial foot as they enter "the real world". The meeting typically lasts about 1 hour, and we discuss any specific financial questions they have, as well as provide some basic financial knowledge we feel they should have as they look to make short- and intermediate-term decisions regarding their finances.

We also let each of them know that we are available to answer any questions they may have as they face making some decisions "on the fly" and may want some non parental advice about that decision before they commit. Best of all, this meeting is free of charge for all clients as we want to make sure your kids make informed financial decisions, with the best information possible.

If you are interested in having an SWA advisor speak to your child about the basics of finances, please let us know as we are certainly glad to help. After all, sometimes the best advice means more coming from an outsider than from a parent. I'm a parent so I understand completely!

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No Foolin'--Investing is Like Basketball

Written by Kay Strand on .

It's March Madness—and tax time. Coincidence? I think not. If you ask any accountant or anyone in the financial business, they would all agree it's madness in their offices right now!

When you think about it, basketball and financial advising are really similar.

With both, you have a team of professionals looking out for the player or investor. For the basketball players, that means coaches, trainers, team managers. But there is one head coach who makes sure the whole team of professionals is working together and moving the team in the same direction. For the investor, his or her team may consist of a CPA, an attorney and an insurance agent, but the head coach is the Financial Advisor who coordinates all the moving parts. That person is integral in making sure everyone is working toward the same goal: Winning or retirement.

Referees control the basketball game, and there can be a love/hate relationship between them and the coaches and players. The same is true in finances. Fortunately, for the investor, there is also someone controlling that industry as well. We all know from recent history what happens when financial advisors and/or their firms perform illegal acts. Investors can be assured that the SEC, FINRA and other governing agencies (the "referees") are watching and will penalize those advisors that choose to not play by the rules.

All teams hit roadblocks along the way—injuries happen, an upset takes place, players are penalized—and suddenly everyone is sitting in the bleachers or watching March Madness in a sports bar. It's at times like this that the head coach needs to keep the players focused and bounce back from the inevitable setbacks!

The same is true with investing—everyone has their goal in mind, be it early retirement, a second home, or paying for college. But blips happen along the way, i.e. life - illness, death, job changes, market dips. All good financial advisors have contingency plans for these events and can quickly get their clients back on track.

Whether you are at the tip off just starting your career or counting down the seconds of the final shot clock and ready to cash in your 401(k), working with a financial advisor will help you execute your whole game plan. They may not be able to help you pick that winning bracket, but they can help you stay on track to get what you want out of life so you can spend more time watching the final games of March Madness!

North Metro: 763.355.5873
227 East River Parkway
Champlin, MN 55316-5873

South Metro: 612.987.9112
5871 Crossandra Street SE
Prior Lake, MN 55372-3337

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322 Greenhill Lane
Long Lake, MN 55356

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