Retirement Planning – What big lessons did we learn from 2016

What are some retirement risks that people often underestimate, or forget about? What action steps can people take to deal with this risk? What else should people be on the lookout for? Any other underestimated retirement risks? What can be done about this risk? Watch Szarka Financial’s Senior Financial Advisor Alex Menassa, MT, CPA, JD, discuss these issues with Fox 8 News Anchors Roosevelt Leftwich and Autumn Ziemba.

More on Retirement Planning with Alex Menassa

Is the “Trump” Stock Market rally over?

What the next move for the stock market? What are the current issues and driving forces related to the stock market? We’ve seen the stock market relatively flat for the last six weeks, where might it be heading now? What are the next steps that investors should be looking at doing? Watch Szarka Financial’s CEO Les Szarka, CFP®, ChFC®, discuss these issues with Fox 8 News Anchors Stefani Schaefer and Gabe Spiegel.

Post-election, what is the greater investment risk right now?

Post-election, What is the greater investment risk right now, stocks or bonds? If the Federal Reserve raises interest rates in December, what does that mean for my investments? In general, what does look good as far as investment choices? How may the financial markets react in the short-term or long-term if interest rates go up? Is there anything that investors can do?Watch Szarka Financial’s CEO Les Szarka, CFP®, ChFC®, discuss these issues with News Anchors Stefani Schaefer and Gabe Spiegel.

Night of the Living Debt

Susan and Tom were in their early thirties, and both had promising careers. Having only been married a few years, they had met with a financial advisor to discuss strategies for their growing family.

Susan was due with their first child in a few months and they were both scared and excited about buying their first home. Susan was a saver, having learned the importance of planning early from her parents, so they both agreed to diligently sock away the 20% down payment they needed for a house in a neighborhood with a highly rated school system. Tom was also determined to ensure that he and Susan begin planning early for their future, by not only making sure they had enough life insurance to cover each of them, but also by setting up a 529 plan as soon as the baby arrived.

Then one day they got a call from a collection agency regarding an outstanding debt that supposedly Tom owed from before they were married. Tom couldn’t remember having any outstanding debt, so he was just as surprised as Susan with the call. Tom spoke to the creditor and not knowing for sure that it was his, inadvertently accepted responsibility for the debt.

That started a chain reaction that ultimately affected his credit. It turns out, unbeknownst to Tom, that there had been fraud activity on one of his dormant credit cards. When Tom finally found out that the debt was not actually his responsibility, it was too late. The damage was done and his credit score took a serious hit, which ultimately affected the final interest rate that they were able to get for their new house.

How could this have happened?
Most companies will make every effort to contact an individual to receive payment on a past due account. Unfortunately in Tom’s case, because it was due to fraud on an old account, the company most likely had an incorrect address and phone number, so they were unable to contact Tom and eventually gave up. Since payments are unlikely for debts over 180 days past due, these items can no longer be shown as an asset on the company’s balance sheet, per the general accounting rule. These debts are then normally charged off and removed from the books.

Just because a debt is charged off by a creditor does not mean that they will stop trying to collect it.

It is commonplace for companies to sell their old and uncollected debts at a discount to third-party debt collection agencies. These agencies will try harder to track people down, because they have dedicated staff.

There are two ways debt collection agencies can profit from purchasing these old debts. They can try and collect the debt, which is then given back to the original creditor, with the collection agency retaining a fee for their service, or they can buy all of the debt outright and then keep any money they are able to recover.

What is Zombie Debt?
Even when the original creditor might not find it worth their while to continue to try to collect on debt, some third party debt collectors do. Because third-party debt collection agencies can purchase these debts outright for pennies on the dollar, they have a great incentive to contact you, even if the statute of limitations has passed. As long as they get paid on even a small number of accounts they purchase, reviving these “zombie” debts can be very profitable for them.

Each state has its own consumer protection laws that cover collection of debt by a lender or creditor, with each also having respective statutes of limitations (SOL) regarding how long a period of time a creditor or collection agency can sue a debtor in court for the money owed. For example, in the State of Ohio the SOL is six years regardless of the type of debt. What this means is that a debtor can be sued in court for a period of six years; with this six year period beginning when the debt first officially becomes overdue.

Be aware that, even though a creditor charges off your debt and the SOL expires, late, unpaid or charged off debt stays on your credit report for seven years. This can present significant issues for someone who chooses not to pay their debts, because any charge offs or judgments assessed against them in court can result in significant harm to their overall credit reporting and credit score (a judgment can remain on a credit report for up to 10 years).

Another thing to keep in mind is that more and more employers are making job offers contingent upon background checks, which include a thorough review of a prospective employee’s credit report. Landlords do the same. A credit report showing court judgments, a history of late payments and low credit score can significantly impact a person’s ability to obtain credit, especially a home mortgage or car loan.

For these reasons, it is vital to understand the nature of zombie debt and how to protect yourself. Make sure you understand your rights. Follow the instructions below to learn ways in which to protect yourself if you are contacted regarding a debt you are not familiar with:

  1. Request the debt collection company’s address and send them a certified letter within 30 days of their phone call requesting that they prove that you owe the debt and name and address of the original creditor of the debt that was resold.
  2. Do not talk to anyone on the phone until they verify the debt’s validity or a judgment against you.
  3. Maintain a file containing any correspondence relating to any issue with debt.
  4. Remember, the Fair Debt Collection Practices Act (FDCPA) requires the debt collector to provide you with the information you are requesting.

Should I Pay Zombie Debt?
Once you obtain the information regarding the debt about which you have been contacted, the first thing you need to do is find out if it’s even your debt. The debt could be the result of identity theft, a computer error or simply fraudulent activity. If the debt does belong to you, find out if the statute of limitations has passed.

Zombie debt collectors might offer you a settlement amount that is significantly less than you originally owed via a lump sum or installment payments, but paying any amount on the debt can restart the statute of limitations again. If the debt is yours and the statute of limitations has passed, it might be in your best interest to contact a consumer law attorney for advice before deciding whether or not to pay the debt.

When a Loved One Dies Are You Responsible For Their Debt?

When a spouse or loved one dies, surviving family members are often faced not only with the emotional aftermath of dealing with their loss, but also with an avalanche of legal and administrative issues to deal with for which they are totally unprepared. And in these situations, the last thing that grieving family members may have expected is a barrage of phone calls from debt collectors seeking payment for the deceased’s outstanding debts. Often the surviving family members have no idea how to handle these issues. Should these debts be paid? Who is liable? Are other family members personally responsible? And are family members entitled to inherit any assets if there are outstanding debts?

The general rule in these situations, per the State of Ohio, is that the decedent’s “estate” is primarily responsible for their debts. But in many cases, creditors automatically assume that if the decedent had any assets when they died, these assets must be used to pay their outstanding debts before family members can inherit anything. But that’s not really the case! How is that possible? The reason is that it’s only the PROBATE estate that is primarily responsible for the debts. Assets that pass outside of probate do not fall into this category, and are often beyond the reach of creditors (there are some exceptions, discussed later). In cases where the decedent took the time to do probate planning, most or all of their assets could pass outside of probate and thus be exempt from their outstanding debts.

Here are some of the most common examples of assets that can be structured to fall outside of probate:

1) Assets that pass via designated beneficiary form, such as IRA accounts, 401(k)s, pensions, annuities, and life insurance. As long as the form names someone who outlived the decedent, these assets will not need to go through probate.

2) Assets that are titled Joint with Right of Survivorship. This typically applies to the residence owned by a married couple. The “right of survivorship” feature (shown on the title of the property) means that the house will pass to the survivor outside of probate.

3) Assets that are titled Payable on Death (POD) or Transfer on Death (TOD). This applies to any checking accounts, savings accounts, other bank deposit accounts, or automobile titles where the decedent had filled out a form making them POD or TOD.

4) Assets placed in a trust. These assets are considered as being owned by the trust, not the decedent, and pass outside of probate.

If the decedent did proper probate planning, there is often virtually nothing left to go through probate, and thus nothing for creditors to take, even if the decedent had sizeable assets such as IRAs, bank accounts, etc. This often comes as a surprise to family members, who may be approached by debt collectors trying to get them to pay quickly, before they learn these rules.

For example, the decedent may have signed a long-term lease agreement for an automobile shortly before passing away. In these cases, the leasing company may try to collect the payments for the entire contract from the surviving spouse and/or other family members, who may not realize that only the probate estate is liable (of course, in this case, the car itself would have to be returned because under a lease agreement the decedent never owned it in the first place). Another typical example is credit card debt, which is generally unsecured and thus “dies with the debtor,” meaning that it can be claimed only against assets in the probate estate, if any.

There are, however, some exceptions to these rules in which the spouse and/or family members can indeed be liable for some or all of the decedent’s outstanding debts. Here are some common examples:

1) In cases where a family member co-signed for a debt, they would remain personally liable for the entire debt.

2) In cases where the debt is secured by an asset, such as a mortgage on the house or an auto loan secured by the car, that particular asset would be subject to the debt.

3) In the case of medical expenses, Ohio law generally follows the “Doctrine of Necessaries,” which makes the spouse liable for the decedent’s unpaid medical bills.

4) If the decedent had any long term care expenses paid by Medicaid, the State will generally enforce collection from other assets even if they passed outside of probate, in particular the family residence.

As you can see, there are a myriad of rules that can apply when it comes to the question of who is liable for the debts of a decedent. The bottom line is that surviving family members should never make any assumptions, such as thinking they are personally liable for these debts, and/or that they can’t inherit any assets without paying these debts first. Instead, they should speak with a qualified professional and get good counsel before taking any actions in this area. As always, it pays to think before you act! Feel free to contact our office if you have any questions about these issues.

How Easily Criminals Use Social Media and Public Info to Scam You Out of Your Money

How easy has it become for criminals to use social media to scam people out of their money? Is this just aimed at the elderly? What can people do about not falling victim to financial scams?

Fighting Financial Scams Against the Elderly

Over the past few years there has been an alarming increase in financial fraud aimed specifically at the elderly. While some of the scams could have easily been spotted, the level of sophistication of some of them is truly disturbing.

Since many cases of financial scams go unreported or can be difficult to prosecute, they’re considered “low-risk” to criminals. However, some of the losses incurred by older victims can be devastating, leaving them in a very vulnerable position with little chance to recover their losses.

Seniors make easy targets for financial abuse according to a study by the American Association of Retired Persons (AARP), because older generations expect that people will be honest with them out in the marketplace. They also are they less likely to take action when swindled, and tend to be less knowledgeable about their rights in an increasingly complex world. And because the elderly are more likely to be home during the day, they are often within easy reach of unscrupulous door-to-door solicitors and deceitful telemarketers.

Scammers target seniors that they perceive to be vulnerable—those that are isolated, lonely, physically or mentally disabled, unfamiliar with handling their own finances, or have recently lost a spouse. Sadly, it’s not always strangers who are perpetuating these financial crimes. It’s often committed by family members, often by their adult children, grandchildren, nieces and nephews.

Below, we have listed a few of the more frequent scams that have been reported.

1) Funeral Fraud: Law enforcement officials warns about scammers who monitor obituaries and then call the grieving widow or widower and claim that the deceased had an outstanding debt that needs to be paid. Many times they will provide official looking statements with instructions that the balance needs to be paid immediately in full to avoid going to a collection agency.

2) Medicare Fraud: There are several types of Medicare scams. One involves someone posing as a Medicare representative, telling the victim that they need to update their information, tricking them into providing personal financial information as well as their physicians’ names. The information can then sold to other criminals or used to commit subsequent scam. One version is to contact the victim and tell them they are from their physician’s office and that an outstanding balance has to be paid immediately before another appointment can be scheduled.

3) Charity Scams: Scammers will contact seniors to solicit donations for fake charities. Many of these scams are done right after natural disasters or during the holidays. To add legitimacy, many times the names used may sound very similar to actual charities, such as “Red Crosses”. Other times they will use names to elicit an emotional response such as “Feed the Starving Children”.

4) IRS Scams: In this scam, perpetrators will call saying they are from the IRS collection department. They will ask the victim why they have ignored the several letters that the IRS has sent regarding an outstanding balance (no letters were actually sent). When the victim states that they don’t recall ever receiving any letters, the scammer will typically sound suspicious, and state that they need to immediately pay the full balance to avoid legal prosecution and additional penalties.

5) Sweepstakes Winner: This is an old one, but very effective. Here the scammer informs the victim that they have won a sweepstakes of some kind. Many times the amount is not too exorbitant so as to be more plausible. For example, the victim is told that they have won $100,000, but IRS requires that 10% has to be paid for taxes in advance before the prize can be released. If the victim refuses to pay the $10,000, the scammer will offer to “forward” the $10,000 in advance to pay the taxes – the balance of the $90,000 will then be sent after the taxes are paid. The scammer will then send a fake check for $10,000 that can deposited into the victims bank account, with instructions that they have to send a bank check for the full amount owed in taxes within 24 hours. After receiving the initial check the victim is more willing to follow the instructions.

Elder financial abuse scammers can be tough to catch. Many scammers have paperwork that appears to give them legal authority to act—including powers of attorney, authorizing signature cards, and vehicle pink slips. Some work at a bank or other financial institution and have intricate ways of hiding their tracks by manipulating electronic records and such.

Where to Report Suspected Abuse
There are a number of organizations devoted to investigating suspected financial abuse and helping to find and stop these scammers. Below are a few ways to take action.

Alert bank officials: Notifying the bank tellers and officers who commonly handle the senior’s accounts may be enough to stop the misconduct, depending on the scope of financial abuse involved. Bank employees are often keenly aware of suspicious activity, such as a sudden withdrawal of large sums of money or use of an ATM card by a senior who is housebound.

Federal law requires financial institutions to file a Suspicious Activity Report with the federal government when they suspect elder financial abuse, as well as most states have laws that encourage or require bank officials to report suspected abuse.

Get help from a senior services group: The Eldercare Locator (800-677-1116), directs callers to local programs and services that help prevent financial elder abuse. And INFO LINK (800-394-2255), helps arrange and coordinate assistance with those that have been victims of a crime.

Contact Adult Protective Services (APS): APS is the government-affiliated agency who investigates reports of elder financial abuse and offers assistance to victims. Visit the National Center on Elder Abuse’s website at www.ncea.aoa.gov (click on “Resources” on the top menu, then “State Resources” to the left), to find your local APS office.

Alert law enforcement: The police will often intervene when there is good evidence that a crime is being committed.

If you suspect you’ve been the victim of a scam don’t be afraid or embarrassed to talk about it with your family or someone you trust. You’re not the only one. Doing nothing could only make the situation worse. If you have elderly parents, make sure you are having conversation with them regarding the types of scams they should be aware of, and pay attention to any spending that seems unusual. If you ever have a question or concern, we are here to help.

What is risk tolerance and how does this affect your finances?

 

Risk tolerance is affected by having the emotional ability to withstand losses and having the financial capacity to withstand losses. This creates a unique risk tolerance for you.

Life is kind of like a football game. The first quarter you’ve got different objectives, the second quarter you might be planning for a child’s college education, and there are little things that can happen in each quarter that can either define the game or you adapt to them and overcome them. Sometimes you have times where you are doing everything correctly, yet you still have something happen that you weren’t planning for. The key here is how you respond to this.

We’re living a lot longer and we have to worry about running out of money. In a recent study from MIT, a married couple both age 65 has a 36% chance that one of them will reach the age of 95. This is extremely important to keep in mind when planning for retirement, as it is important to adjust asset allocation properly. If you get too conservative too early, you will be a risk of running out of money.

Chuck Conrad is a Senior Financial Planner with Szarka Financial, concentrating in transition planning, wealth coaching, and qualified retirement plans. Two of Chuck’s passions are helping others and lifetime learning. Chuck is also a co-author of a new book Money Talks: Life Lessons to Help You Plan Now, Save Wisely, and Retire Well.

 

social-security-increases

No Social Security Increases Expected for 2016

According to a recent report from the Center for Retirement Research it appears that there will be no annual cost-of-living increase for Social Security recipients in 2016.

This will come as unwelcome news to the millions of retires who count on these increases to help them keep up with their ever increasing expenses.   

So why no social security increases for 2016?

Any adjustment in Social Security benefits as of Jan. 1 of each year is based on comparing the Consumer Price Index (CPI) in the third quarter of the preceding year with the CPI in the prior year’s third quarter. The CPI in 2015’s third quarter was below 2014’s third-quarter inflation, and thus no cost-of-living increase for next year.

Many retires will argue that their expenses have not decreased, but rather increased substantially over the past year—and they would be correct in their observations. The problem exists because of the way the government calculates the inflation rate. The government’s methodology consists of comparing the average cost of a fixed “basket of goods” that the “typical” American family purchases. They then make some adjustments to that calculation that typically will have the effect of lowering that initial rate.

The real problem exists because how the average retiree spends their money can be substantially different than how an average family in their 40’s with two children does.     

The typical retiree’s budget, as a percentage of their total monthly income, will be much higher for items such as food, utilities, insurance, taxes, and of course, health care related expenses.

These items tend to go up year after year, some substantially. Health care expenses, for example have been increasing dramatically, especially for durable medical goods and prescription drugs. All said, the cost of living tends to be higher for retiree’s than it is for the “average” American household. While many people see this as an obvious glaring problem, Congress seems to be blind to it. Of course, this is one more reason why diligently saving for retirement is so critical.

So, the bad news is that unless Congress acts quickly (which is unlikely) if you are already collecting Social Security, you won’t see an increase in your benefits for 2016. The silver lining is that because of this, most retiree’s won’t see an increase in their Medicare premiums either.

According to the Centers for Medicare and Medicaid Services, the current law doesn’t allow for an increase in the Medicare premiums in those years where there is no cost-of-living increase in Social Security benefits, at certain income levels. For example, there would be no increase for those single retirees whose total annual income is under $85,000, or for couples under $170,000. Unfortunately, retiree’s making over those amounts are likely to see substantial increases in their premiums for 2016.      

In their report however, the Center for Retirement Research also points out that while most retiree’s may get a reprieve in their Medicare premiums in 2016, some of it may be added back in subsequent years when the cost-of-living adjustment is reinstated.

If you have not taken the time to review your retirement plan, in light of the fact that there will be no cost-of-living adjustment for your Social Security in 2016, now would be good time to do so, especially with the fact that we anticipate seeing lower interest rates for the foreseeable future. And if you don’t currently have a plan, no better time than the present to get started.

long-term-care-insurance

What Plans Do You Have for Long-Term Care?

When my father passed away in 2013, my brother and I realized that my mom was not going to be able to continue to live in our family home and take care of herself on her own.

We had the agonizing process of having to find a new home for her, a place that we knew would be best suited to her mobility and medical needs. After many hours of discussion with my brother, and numerous tours of facilities in the area, we settled on a facility that wasn’t too far from either of our homes. I know that my brother and I are not alone in having to face the dilemma of deciding on long-term care options for a loved one. Maybe you are finding yourself in the same situation now, or perhaps you are beginning to have concerns regarding your parents or another family member. Industry statistics indicate that approximately one person in six will spend time in a skilled nursing facility, with the average stay ranging between eighteen months and four years. What are your options? How do you prepare ahead of time for all the various possibilities?

You may never need care, but what if you did? How would that affect your family? Many baby boomers are unwilling to face the possibility of something that they think may never occur. If you do need care, how will you pay for it? There are three possible answers to the question.

Medicaid: Relying on some form of government assistance, such as Medicaid, will require becoming impoverished in the eyes of the government. The look back period for Medicaid is currently 5 years, but that could change at any time, especially with the constant budget maneuvers in Congress. Some may be eligible for assistance from Veteran’s Affairs, if they quality, but there is a means testing to that as well.

Long-term Care/Nursing Home Insurance: Purchasing Long-term Care/Nursing Home insurance has been an option since the 1970s, when Fireman’s Fund Insurance pioneered the category of long-term care. The fact that Fireman’s Fund no longer exists is a testament to the difficulty insurance companies have in properly pricing their product and maintaining the reserves necessary to fund the liabilities. Until about twenty-five years ago, the options for obtaining coverage were limited to annual premium type policies. You could pick coverage with different benefit periods and different deductible periods. The policies were either reimbursement or indemnity benefits, with some offering return of premium. The return of premium option existed because people wanted a choice to get their money back if the insurance wasn’t used. That’s understandable, isn’t it?

It is not uncommon for insurance companies today to make available coverages funded with a lump sum of money. A key feature of this type of coverage is the beneficiary option, in the event the insurance is not used, and there are several providers offering this type of coverage. Some are only available with after tax dollars, while others are available for use with IRA dollars. It is always a good idea to examine all your options when considering funding potential coverage for long-term care. Keep in mind that newer policies which are compliant with the Pension Protection Act, allow distributions from long-term care to be tax free if used for long-term care costs. This can be a significant savings.

It can sometimes feel daunting to wade through all the variables and possible options when it comes to handling long-term care needs, concerns and expenses. Whether you decide to pay for potential expenses out-of-pocket or would like to investigate insurance based solutions, please contact me to assist you with your decision-making process.