Can you believe that the oldest baby boomers of the Woodstock Generation, will turn 66 this year?  And many are simply unprepared for the purple haze of retirement.   When you’re 66, you can claim full Social Security benefits; and at 65 most seniors will file for Medicare. 

Many advisors presume their clients “look into” Social Security and Medicare. but I believe these critical retirement benefits should be understood and integrated in any sensible retirement blueprint.  Social Security represents about one-third of total income for the average retiree, and it’s especially important to pursue smart strategies and file correctly.  This income is an essential source of security as we reach very advanced ages – especially for women who may suffer financially when they lose a spouse and a monthly pension.   Concurrently, Medicare makes the cost of health care in retirement at least “manageable” for most seniors.

“Will you still need me, will you still feed me, when I’m sixty-???”

With that in mind, here’s a list of Frequently Asked Questions:

WHEN SHOULD I BEGIN COLLECTING BENEFITS?   About half of all Americans file for Social Security at age 62–the first year of eligibility for benefits.  But for most, it’s a costly mistake that will mean foregoing thousands of dollars in higher benefits, since annual benefits will be boosted for every year that they wait, up to age 70.

As clients approach 62, I usually get the “math quiz” about collecting benefits sooner rather than later.   Social Security is built around actuarial principles (the mathematics of risk) of attaining the Normal Retirement Age (NRA).   Retirees fear they won’t live long enough to make delayed filing “pay off;” but, the concept of Social Security is about the replacement of current income, not the accumulation of assets.  The longer we wait, the greater the income.

Visit the SSA website:  http://www.ssa.gov/retire2/agereduction.htm.  There is a wealth of knowledge and some unique calculators.  A table shows how monthly benefits for earlier filers are reduced accordingly to avoid paying then higher lifetime benefits. For a 62-year-old filing this year, the net effect will be a permanent reduction of annual benefits of 25%.

On the other hand, the SSA will bump up payments by 8% for every year a senior delays filing beyond the NRA up until a max at age 70.  Another very useful link is found on a USA Today link: “Boomers Eagerness to Retire Could Cost Them.”

CAN I WORK WHILE RECEIVING BENEFITS?   You may have heard the expression “the graying of America” – We are working longer. If we wait until our Normal Retirement Age (presumably 66), we can earn an unlimited amount of income and receive Social Security benefits. However, earlier filers are hit with a penalty on income over $14,640. (Social Security defines “income” in this context as wages from employment, or net earnings from self-employment). If earnings exceed the limit, $1 will be deducted from benefit payments for every $2 earned over that amount.

IS IT BENEFICIAL FOR ONE SPOUSE TO WAIT TO FILE?  Married couples need to pay attention to the powerful amplifying effects when the higher-earning spouse waits to file for benefits until the NRA or beyond.  The bottom line is that it’s generally beneficial for the higher-earning spouse to delay taking Social Security benefits until the NRA or beyond. More details on the spousal rules can be found HERE.

Medicare

HOW DO I APPLY FOR MEDICARE?  Although Medicare eligibility begins at age 65, enrollment is only automatic for seniors who already have begun receiving Social Security benefits.  In that case, the government mails a Medicare card three months before the date of eligibility.  If you aren’t already receiving Social Security, you can apply for Medicare through the Social Security Administration, either by visiting a local office or online at the agency’s website (HERE)

To ensure that your Medicare Part B coverage start date is not delayed, your clients should apply three months before the month you turn 65, or up to 3 months after.

WHAT IF I MISS THESE DATES?  If you’re still working and have healthcare coverage, Medicare’s probably not on your agenda.  It’s best to start thinking about filing for Medicare before retirement, because failing to file within the enrollment window can lead to substantial Part B premium penalties – the monthly Part B premium jumps 10 percent for each full 12-month period that a senior could have had coverage but didn’t sign up. A mistake can be costly; a senior who fails to enroll for five years ultimately would face a 50 percent Part B penalty – 10 percent for each year.

If I’m still working at age 65, how do I coordinate my employer-based healthcare with Medicare?  At companies with fewer than 20 employees, Medicare is the primary payor; at larger companies, your employer is primary. In the latter situation, a senior can postpone filing for Parts A (hospitalization) or B (outpatient services), although many choose to enroll for Part A anyway since it doesn’t require premium payments. Seniors can enroll later without penalty for up to eight months following retirement.

Approach this decision with great caution.  The best advice I can offer for those who opt to postpone enrollment is to discuss this in person with the Social Security Administration and your workplace plan administrator. And, it’s best to notify Medicare at age 65 of a decision not to file in order to ensure that there won’t be problems with premium penalties later on.

DOES EVERYONE PAY THE SAME PREMIUM FOR MEDICARE B AND PART D?  Believe it or not, individuals with $85,000 or more in annual income, and joint filers with income over $170,000 pay a surcharge.  Not many retirees report this level of income, but, we may want consider strategies that might keep you under the income trigger. One possibility is taking withdrawals from a Roth IRA, which are not counted in Social Security’s definition of taxable income.

SHOULD I GET MEDIGAP INSURANCE?  Many Medicare beneficiaries opt to purchase an optional Medigap policy, which charges an extra premium but pays for substantial deductibles and out-of-pocket costs. If you buy a Medigap policy, it’s best to do so during the six-month open-enrollment period, which is open for six months at the time you turn 65 (or enroll in Medicare Part B). While no late enrollment penalties are levied, after the open enrollment, seniors may be required to take medical screening tests and can be rejected because of preexisting conditions.

Useful Medicare Links

The federal government publishes an annual – and very comprehensive – guide to Medicare annually. Click HERE to download the 2012 edition of Medicare & You

Medicare produces a guide that explains how Medicare works with other kinds of insurance or coverage and who should pay seniors’ bills first. To download that guide, click HERE.

And a comprehensive guide to Medicap plans can be downloaded HERE.

Mick Jagger is 68 and still singing “Jumpin’ Jack Flash.”  We are not relics yet…even though our generation is “mature” enough to merit a museum!  (The “Museum at Bethel Woods” has opened on the site of the old dairy farm northwest of New York City that was trampled under by some 400,000 people on the wet weekend of Aug. 15-17, 1969.) 

I hope this article was useful and gets you motivated to check out your options. As always, we are there to help, so please give Sharyn a call at 781-556-1038 to set up an appointment.

Retirement doesn’t have to be a “bummer.”    Think of it as simply rearranging your schedule: less time working; more time eating and sleeping; and a lot of time looking for things you had a minute ago…Peace, Love and Tie-Dye.

“Should Auld Acquaintance Be Forgot, and Never Brought to Mind?” 

-excerpt from Auld Lang Syne, a Scottish poem written by Robert Burns in 1788^.

My response is a resounding YES!   Although traditionally this song is used to celebrate the start of the New Year at the stroke of midnight, it is also sung at funerals (ironic) and as a farewell or ending to other occasions.   Just as this year’s weather patterns have been extreme, we have endured unpredictable swings in the (pick one): social, economic and political landscapes, both here at home and worldwide.   I, for one, am happy to bid farewell, adieu, sayonara, rest in peace (and… excuse me… good riddance) to 2011.

In keeping with the insanity, TIME Magazine’s “Person of the Year” was the Unknown Protester and everybody was either part of the crowd or looking to identify with one.   It’s a year almost no one in America (and most of the developed world) wants to remember.  According to the Mayans, it’s the last year we’ve got before the end-times and the signs of the Apocalypse are everywhere:

Democracy moved to the Middle East after discovering it was evidently no longer useful in America.  Betty Ford, Liz Taylor, Joe Frazier and Jack LaLanne died, but Charlie Sheen and Lady Gaga lived. North Korea’s Beloved Leader Kim Jong-Il passed away after his true golf handicap was revealed.   And, after discovering that without him, Apple had no clue how to make the iPhone 5, Steve Jobs moved on as well.

Finally, the absolute proof that the Mayans are right (and that we shouldn’t buy any green bananas)… Kim Kardashian reportedly made $65 million in 2011. “Jersey Shore’s” TV princess Nicole “Snooki” Polizzi got $32,000 to lecture to students at Rutgers University… which would pretty much guarantee the end of the world — or at least the end of American “culture”.

Not to be outdone, global stock markets saw $6.3 trillion (12.1 percent) in value wiped out in 2011 thanks largely to the European debt crisis, which agitated markets for most of the year.  Domestically, this past year was filled with problems whose origins can be traced to the impact of the burst in the credit bubble in 2007 and the Great Recession that has followed.  From what we see now, the markets have not yet cleared the wreckage: in 2011, the S&P 500 was virtually unchanged on the year; while blue-chip European companies fell 11 percent; Japan’s Nikkei index lost 17.3 percent; and strangely, the Dow Jones Industrial Average, finished up 5.5 percent at 12,217.56 (which left many of us scratching our heads).      In general, investors and professional portfolio strategists grew weary of the massive swings in stock market indices especially in the absence of any clear indicators to help position holdings for the next big move.   There was a huge amount of activity, projecting and “noise” for virtually no net gains.

It probably doesn’t make you feel any better, but, the “Sage of Omaha”, Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., lost about $2 billion in 2011.  The billionaire investor, who has a record of beating the market when stocks fall, oversaw a 4.7 percent decline last year.   It was only the second time since 1990 that the firm underperformed an S&P 500.  “There’s going to be a big asterisk by this year,” said David Rolfe, chief investment officer of Berkshire investor Wedgewood Partners Inc. “In tough markets it’s a strong performer. But, there’s no doubt it has broken the mold this year,” he said in an interview last month.

One of the most important responsibilities of my job is to become informed and, in turn, to communicate to you, my valued clients and friends, about the issues and trends that could impact a peaceful and secure retirement.   I hope you find my bulletins and blogs useful and entertaining.  They are on our website and we encourage you to share them with friends and potential new clients.  We’re looking forward to ramping up our efforts in this area during the coming year.   As always, I will dedicate myself to refining ways we can protect and preserve that which you have entrusted to me; and have sacrificed greatly to create.

I think we all know that 2012 will not be without its share of challenges.  But, if we all “hang in there together,” I’m certain we’ll find our share of comfort and joy in 2012!

Ron and Sharyn Papa wish to thank all who came to this year’s Holiday Brunch at the Blackrock Golf Club on December 10, 2011 for making the event a very festive one.

Here are some photo highlights.  Enjoy!

And Merry Christmas, Happy Hanukkah, and Happy New Year to all clients and friends of Legacy Advisors!

As the holidays approach, we are all looking forward to visits with family and friends, shopping, home cooked meals, and tax planning. What?? Yes, tax planning. While taxes are not due until April, now is the time to make moves that will help you reduce your taxes.  To help with this Legacy Advisors has its own annual holiday tradition – The Holiday Tax Letter.

Wishing you a happy and healthy (and tax savvy) holiday season.

Why Send the 2011 Year-End Tax Report?

One of our goals is to help clients identify potential opportunities for tax reduction. To make that goal a reality, we continually stay current about potential year-end tax strategies that our clients might consider.

We remain constantly committed to tracking these changes and we are available to provide you with current and updated information that can help with all of your financial planning needs.

This special report details information about some potentially helpful year-end tax strategies for 2011.  It is important to note that every situation is different and that the strategies outlined may not be appropriate for all and should be discussed in full coordination with your tax preparer or a CPA.  As a comprehensive financial services firm, Leagcy Advisors is committed to helping our clients improve their long-term financial success.

If you would like us to send a copy of this report to any of your friends or colleagues, please call Sharyn at 781-556-1038.

Warmest personal regards,

Ronald A. Papa, President

Click HERE to view full report:  “Year-End Tax Considerations for 2011“

Ever since Gordon Gekko told us that “Greed was good,” Americans have justified their love affair with their stock market investments.  This year they have embraced a new mantra: “SIN IS IN.”   Believe it or not, “socially irresponsible,” or “vice” stocks – which include, drinking, smoking and gambling stocks – seem to be paying off for investors beyond their obvious “mood enhancement” effects.

While Santa would surely disapprove, shares of tobacco companies Lorillard, Philip Morris and Altria are up 34%, 29% and 15% respectively this year — better than the 1% year-to-date gain by the Standard & Poor’s 500.  Alcoholic beverage stocks aren’t falling off the wagon either.  Diageo and Brown-Forman are up 14% and 13%.  And gaming stocks such as Wynn Resorts and Churchill Downs are each up 14% — a welcome offset to what’s shaping up to be a disappointing year for stocks at large.  Morningstar has reported that the Vice Fund (yes, an actual mutual fund) has returned 10.3% so far this year.

The S&P 500 broad index of stocks has taken wild swings this year.   Concerns such as political bickering over  our economic management, to fears Europe will be unable to contain the debt crisis there and prevent the eurozone from unraveling, have spooked investors time and time again.  Those fears aren’t going away any time soon, especially in Europe, where the Standard & Poor’s rating agency says the winds of recession are blowing.

It appears that the value of these sin stocks is directly correlated to the Misery Index.  This is an economic measure of the degree of financial distress in American households. In simple terms, the measure is the sum of the unemployment and inflation rates. The Index was created by Arthur Okun, an economics adviser to President Lyndon Johnson.  Over the last year, the Misery Index has been steadily rising.  Some economists claimed the misery rate is at its highest level in 15 years.

So, maybe the lesson here is:  When the going gets tough, the tough drink, smoke and gamble???

When Uncertainty and Unknowing Collide

If you can believe it, Donald Rumsfeld has stated:  “As we know, there are known knowns. There are things we know we know.  We also know there are known unknowns. That is to say we know there are some things we do not know.  But there are also unknown unknowns, the ones we don’t know we don’t know.”  One thing is for sure:  I know enough to know that I don’t know what he’s talking about.  Or, shall I more accurately say that I’m uncertain.

Coincidently, it is interesting to note is that the word “uncertainty” has appeared 26 times in the most recent Beige Book.   While this is less than the 33 “uncertains” in the early September edition, it is still pretty bad.

You may have heard economists and financial journalists refer to the “The Beige Book.”  I don’t know if it’s really beige (it should be fire-engine red); but it is a qualitative assessment of business, banking and economic conditions by bankers, and small and large businesses in each of the 12 regional Federal Reserve districts.  

Not all of the uncertainty was attributed to our ongoing economic woes or the current financial turmoil in Europe. There were 19 mentions of the upcoming holiday shopping season in the most recent Beige Book, half of which were negative. It is clear that the “certainty” craved by businesses, consumers and Congress is in short supply.

Chart 1 describes how many times the words “uncertain” or “uncertainty” appeared in the Beige Book since January 2010. Look how recent years have compared to pre-recession years (the 2002 – 2007 recovery), as well as the years of the Great Recession (2007, 2008 and 2009).

In the current period, uncertainty led to a nearly 20% drop in U.S. markets between July and October 2011.   So far, the only antidotes for this problem have been:

• Monetary manipulation around the globe, as Europe works toward a plan to stabilize its financial system and central bankers begin to loosen monetary policy that had been getting more restrictive over the past several years.

• Better-than-expected economic data (the U.S. economy in the recently completed third quarter is on pace to more than double the pace of growth seen in the first half of the year) but, expectations remain low.

• Healthy corporate earnings, which ultimately drive equity prices. But, the bar has been previously lowered, so it’s easy to surprise on the upside.  Regrettably, I seriously doubt we can sustain this growth.

Of course, some uncertainty is likely to remain in place.  There is still plenty of work to be done on our labor and housing markets which could again drive consumer spending.   The 2012 Presidential and congressional election circus will no doubt divert lawmakers attention put solutions on hold until sometime in 2013.  Maybe we can find solace in the words of Pliny the Elder:  “…In these matters the only certainty is that nothing is certain.”