9/30/14 – Underneath It All

Underneath it all, sometimes we take things for granted.

The other day a friend stopped by the house to chat with my wife and me before I headed off to the office. We talked, laughed, gossiped a bit, and then I looked at my watch. A little late for my meeting! I grabbed my briefcase, opened the garage door, and hurried to my car.

I began backing up a smidge faster than usual, and then…BOOM! 

I jumped out of my car and discovered that I did some significant damage to my car, my friend’s car, and of course, my pride. I turned toward the house, noticed a stunned and what appeared to be somewhat smug wife, and felt a tinge of anger mix with my growing embarrassment. Her expression reminded of an Allstate commercial about a couple sitting in a restaurant.

“Remember when you said that men are better drivers than women?” the female actor accuses, pulls a safe-driving check out of her pocket, and shoves it in her male companion’s face. The poor guy attempts to plead his case, but the booming baritone of Allstate spokesperson, Dennis Haysbert, bellows through the woman.  “Silence!”

My Wife’s expression reminded me of the Allstate woman.

I walked into our kitchen where our friend was enjoying a cup of coffee. Before I could say anything, she turned to face me and said, “You want me to move my car, right?”

“Ah, not exactly.” Quoting the band, No Doubt, I said, “Underneath it all, somehow, I hope you’re full of forgiveness.”

She looked at me quizzically. Can’t an older guy listen to hip music?  “Actually, I backed into your car,” I confessed.

I’ve been backing out of my garage at least once a day for over 18 years. I suppose I should take some solace in knowing that approximately 25% of accidents happen within a mile of home. Unfortunately, I couldn’t find a statistic on the number of people who smash into their friend’s car in their own driveway.

Underneath it all, I got off easy. The only things that got hurt were my pride and my pocketbook, which just means that my wife is going to have less money to spend at the mall.

Yeah, right.

Sometimes we do take things for granted, especially when it comes to our finances. Most people just bury their statements in a drawer and pray for the best. Now ask yourself: When was the last time you analyzed your retirement portfolio? When was the last time you analyzed how much you need to spend annually in retirement to maintain your standard of living? Historically, industry experts have applied an in-retirement salary replacement of 75%. That number does not include health care, which may account for as much as 33% of all retirement expenses.

Here’s what’s underneath it all.

Medicare has adopted a policy that translates into, “The more you make, the more you’ll pay.” These premium surcharges will not just impact wealthy retirees who can “afford to pay,” but practically anyone who has a modest income stream during retirement. Additionally, since the Medicare income brackets are not indexed to inflation, a far greater number of Generation X/Y retirees will face these surcharges unless they invest in products that do not fall into the Medicare income algorithm.

For example (assuming a 3% inflation rate), a 40-year-old currently earning $40,000 annually will be in the second income bracket at retirement (say age 66) and incur a 36% surcharge on top of standard premiums. Since most people earn more than $40,000 annually, many will face surcharges of up to hundreds of thousands of dollars that they haven’t factored into their budget.

Unfortunately, more and more retirees on fixed incomes will find themselves extracting funds from other household necessities just to pay for Medicare premiums.

Underneath it all, there is a solution: not just retirees, but everyone, must educate themselves and seek out advisors who understand how to modify a portfolio’s investment mix to lower Medicare-assessed income and avoid these surcharges. By analyzing the benefits of life insurance, qualified annuities, and both a Roth and Roth 401k, Medicare premiums can actually be lowered by as much as 200%.

The moral: If you are careful when backing out of your garage, you can save thousands of dollars and if you also modify your investment mix, you may save hundreds of thousands of dollars. 

By | 2014-12-02T20:11:10+00:00 December 2nd, 2014|Client Conversations|0 Comments

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