Sunday, October 31, 2010

Financial planners face ethical dilemmas when candidates show dementia or Alzheimer's


The New York Times has a story in a series called “The Vanishing Mind” on Sunday, Oct. 31, “Money woes can be an early sign of Alzheimer’s”, by Gina Kolata, link here.

Spouses and more often adult children have first learned about parents’ Alzheimer’s disease by because of emptied bank accounts, collection notices, or even foreclosures.

The article gives the story of an obstetrician-gynecologist in Miami whose son, a CBS correspondent, found out he had lost everything through a complicated series of events.

Worse, there was a case where an adult son got guardianship of his father in Wyoming, but a neighbor got another lawyer to rescind the custody, and then got the will changed. It’s surprising—and scary -- that the legal community would allow a third party to pull something like this.

The article discusses the ethical quandaries that financial planners face if they suspect clients have diminished capacity, and the law in the area seems to be evolving slowly.

However, some banks have partnered with geriatric care management companies to develop financial supervision and watchdog mechanisms to report suspected abuse to adult protection authorities.

Friday, October 29, 2010

Freezing pensions and switching to defined contribution plans not a panacea for public employees

R. Dean Kenderdine, Executive Director of the Maryland State Retirement and Pension System, has an important Letter to the Editor of the Washington Post on Friday, Oct. 29, “Wrong ‘fix’ for Md. Public pensions”, link here. He argues that switching to a defined contribution plan for new employees does not completely fix the funding problem, because it denies the older defined benefit plan future contributions and can cause it to have to liquidate assets.

He gives a useful link to the Maryland Public Employees’ and Retirees’ Benefit Sustainability Commision.
 
The writer refers to an Oct. 13, 2010 Washington Post Editorial, “Maryland’s Silent Tsunami: Martin O’Malley and Robert Ehrlich stay mum on massive pension bill”.

Thursday, October 28, 2010

Virginia social security offset again discussed by AARP


The AARP Bulletin has a story on p 26 of the September 2010 DC Area bulletin, “Benefit cut hits needy”; the online title, in the Virginia section under “states”, is “Social security recipients stunned by reduced unemployment benefits; little known ‘offset’ clause triggered by plummeting unemployment trust fund”, link here.

In January 2010 the trust fund for unemployment benefits in Virginia fell to below 50% of that amount projected to be needed for the year. That triggered a law that reduces a person’s unemployment benefit by 50% of the person’s social security benefit. It is much life the hated “social security offset” of some private defined benefit pension plans.

However Virginia does not reduce unemployment benefits for those receiving both unemployment and private pensions.

Since 2002, 17 states have repealed offset laws, but Virginia is one of five states with such provisions. I see that I have an earlier story about this here April 17, 2010, based on an earlier AARP account.

When I was unemployed and “retired” in Minnesota (in 2002-2003), I collected full unemployment after severance expired, and having a pension did not affect unemployment benefits.

People who started social security benefits early would seem to be penalized under Virginia’s systems (whereas private employers sometimes deduct an offset based on what you can receive regardless of whether you take it). A good question would be whether one could stop the social security benefit in order to receive the full Virginia benefit, but probably not many retirees could afford that.

Wednesday, October 27, 2010

If GOP wins House back, we'll see Majority Leader John Boehner's (confusing) ideas on social security

The media are all speculating about the prospect of Representative Jon Boehner of Ohio becoming the House Majority Leader for the 112th Congress, since Democrats seem to be doing badly in the House races, at least in October.

Once again, it’s good to reiterate Boehner’s calls for raising the retirement age to 70, indexing to the CPI, and eventual means testing, apparently starting with workers in their 50s now. (Would he let these workers "privatize" and take ownership of their already-collected contributions to keep them from expropriation?) An article by Michael O’Brien on “The Hill” site has a typical story with a video from a Pittsburg paper:



As I’ve noted, social security benefits are largely, although not wholly, funded by worker’s own contributions through FICA taxes based on earnings, so they already have the attributes of private annuities.

Boehner’s own site doesn’t seem to say this, and actually has an interesting article on the preservation of retirement pensions to union employees of the bailed out GM, but not to salaried retirees of Delphi, as in this entry. Boehner has also noted that in general workers have more control over their retirement income than in the past, a contention that one could certainly dispute.

The Eight District is north of Cincinnati. The picture, however, is the Oberlin Inn (recent trip).

Saturday, October 23, 2010

Time Magazine covers Alzheimer's; note Gibbs's backpage on caregivers

The October 25, 2010 issue of Time Magazine, which I consumed on an Amtrak train round trip to New York recently, is largely devoted to Alzheimer’s Disease, which a lead story by Alice Park (“Alzheimer’s Unlocked: After years of disappointing vaccine and drug trials, researchers are finding new ways to interrupt the memory-robbing disease, just in time for an anticipated explosion in cases”, p 53.
The most important piece appears on the back page, by Nancy Gibbs, “The Coping Conundrum: The longer we live, the more important elder care becomes. But who looks after the caregivers?” link here (requires subscription). Gibbs’s first sentence refers to the biological life cycle as if the answer to a biology test question, that we spend our final days being gently lowered, just as in our childhood we are raised up by our parents, as in that Josh Groban song.

She gives alarming statistics on women and Alzheimer’s and notes that the majority of caregiving for it, unpaid and much of it unchosen, falls on women. Another sidebar on p 55 by Patti Davis, regarding Ronald Reagan’s family, says “Particularly in a disease like Alzheimer’s, in which parts of a person die off gradually, it’s been my observation that men tend to back away in discomfort. Women, on the other hand, inhabit the experience fully…” That’s partly because, even in a free individualistic culture, men are brought up to see disease in moral terms.

Indeed, many people age into the late 90s or over 100 without much disability; but the demographic prognosis as the baby boomers retire is dire: people will spend many more years of their lives in disability (not just Alzheimer’s) than did previous generations, and there are fewer children to care for them, and institutions will be stretched. True, a lot more can be done in the CCRC area, as there is plenty of real estate market incentive to build more of them (an irony given the mortgage crisis).

Much of the Time issue deals with early testing and future opportunities for prevention. This raises new questions, about insurance or employment discrimination, for example, related to future genetic or neurological tests. It also says that, even given our debt-ridden economy, we can’t back off on research. Alzheimer’s has replaced AIDS (ironically, in the view of someone who survived and buddied the 1980s) as likely our number 1 public health problem.

Thursday, October 21, 2010

John Hancock will raise long term care premiums by 40%

Kimberly Lankford of Kiplinger’s Money Power has an article on p 23 of The Washington Examiner on Thursday Oct. 21, “What should you do about your long-term care policy?” This refers to (another) announcement from John Hancock that it would raise premiums for long term care by up to 40%.

Hancock says that the “duration” of claims from 1990 to 2010 has been much higher than expected. That’s because people can live longer with modern medications and good home health care. Hancock has already stopped selling policies with lifetime benefits as of June 2010.

Policyholders can pay higher premiums for the same coverage, or they may reduce the benefit period or the monthly or daily benefit amount.

We haven’t seen a political debate on better tax-free “savings accounts” for long term care, but I am surprised that conservatives (and libertarians, or those of the Steve Forbes ilk) haven’t been pressing more for such a discussion.

Time Magazine has a major issue on this with Alzheimer’s that I’ll cover later.

The online version of Examiner doesn’t have this story yet. I’ll provide the link as soon as it appears. An earlier article by her had appeared in February, here.

Monday, October 18, 2010

Maxmimizing spousal social security benefits is complicated business

Liz Pullman Weston from MSN Money has a nice article “5 Ways to Wreck Your Retirement”, or maybe it’s not so nice, link here.  Seriously, the most important tip is #3, about failure of married couples to take advantage of social security spousal benefits properly. In general, the strategy involves using both spouse’s records (assuming they both worked) at different times, and letting at least one spouse wait until the maximum age 70-1/2 to start withdrawing. There’s also a file and hold strategy that she discusses which one spouse can use. The missing piece is of political importance: as of now, same-sex couples can't use this, even in states with gay marriage.

The other good advice is to look at non-monetary factors, such as what you really want to do with the rest of your life. Maybe it’s make your movie.

Friday, October 15, 2010

Obama administration acts to make sure investors get full information on 401(k) costs

On Oct. 14, 2010, The White House, in a blog posting by Jared Bernstein, announced that workplace 401(k) providers would be required to disclose their investment expenses to investors (employees and retirees), so that they can make much more informed choices. This should address the “investment class” vs. “retail class” problem.

The blog link is here.

The Department of Labor (Employee Benefits Security Administration, EBSA) actually has its own news release of this day, link here. It is the “final rule to improve transparency of fees and expenses to workers with 401(k)–type retirement plans.”

Tuesday, October 12, 2010

Social security privatization is the best prevention against means testing and expropriation

Phil Kerpen has an important op-ed in The Washington Times, “Social Security Demagoguery won’t help Democrats; ownership is only route to protect workers’ pensions”, link here

Kerpen characterizes social security as a “transfer program” but later gets around to talking about it in terms of “return on investment.” He talks about demographics but also says that a privatization bill (Rep. Paul D. Ryan of Wisconsin and then-Sen. John Sununu of New Hampshire) can be set up so that the worker is guaranteed that his return cannot be worse than in the current public program.

Ultimately, a privatized program based on legal ownership of an account is the only way to make sure one’s promised benefits cannot be expropriated by “means testing.”

Sunday, October 10, 2010

No Social Security COLA in 2011; for second year in row

The Associated Press is reporting that there will be no Social Security Cost of Living Increase (COLA) in 2011. This will make the second straight year without a COLA in the benefit amount for retirees, despite the fact that prior to 2010, COLA’s had been applied every year since 1975.

Political analysts consider this bad news for the Democratic Party at midterm.

The AP story is by Stephen Ohlemacher, with link here.

In 2009, predictions had been made that the COLA might not increase in 2010.

The problem is low inflation, or deflation, which is hard to believe given the increase in health care and higher education costs.

Thursday, October 07, 2010

Tips on inheriting a 401(k), gift tax (from Mary Beth Franklin)

Here’s a video from Bukisa on what happens if you inherit a 401(k), a Kip Tip, with Kevin McCormally, of Kiplinger, talking to Mary Beth Franklin. In the past, only a spouse could keep the tax-deferral; now any named beneficiary can. Also, when you have to take it out isn’t necessarily at 70-1/2, it is based on your actuarial life expectancy.




Here is a Kiplinger article from the end of 2009 on a little known area, the gift tax, which could help prevent inheritance taxes, which could become more significant in 2011. The link is here. You have to be   concerned about look-back period rules, however, if you wind up needing long term care and have given away too much money.

The Washington Examiner today (Oct. 7) ran a Mary Beth Franklin article on p 23, “Your Money: The Bottom Line on 401(k)’s”. I couldn’t find it online yet. But she recommended being aware of the quality of your employer’s 401(k) plan, and if it is unfair, with too many retail fees, only allow the employer to deduct and match the minimum amount, and manage the rest yourself.

Wednesday, October 06, 2010

Public backlash against government pensions building

Government workers’ pensions – that is, state, county and municipal workers—are becoming the most visible target as states and local government scramble to balance their budgets, in another story today in the Washington Post by Michael A. Feltcher, link here.

The backlash against local civil servants continues, as government compensation and benefits have long been passing those in private business. Although the problem sounds novel, as more governments find their pension funds don’t follow acceptable accounting, it has gone on a long time. Back in the 1970s financial crisis in New York City (the “Ford to City: Drop dead” story), it took the teachers’ union to help settle it.

But today more local governments have to raise retirement ages and increase retired employee contributions, and reduce future benefits.

The tsunami of bad news about government employees' pensions rushes in.

Tuesday, October 05, 2010

Public employees double dip into pension, unemployment; is this wrong?

Red Tape chronicles published a story, linked from MSNBC this morning, about 20 public employees with huge incomes (for doing little or nothing) and huge pensions, while states face enormous budgets that could affect Medicaid and other services (as well as families indirectly, as we have pointed out here.) In California, a worker could quit, take his huge pension, get another job, lose that job, and collect unemployment too.

The story is here (authored by Bob Sullivan).

Actually, in Minnesota in 2002, I was told that I could not collect unemployment and severance at the same time, but I could collect the (private, not government employment) pension at the same time. However, I was able to start unemployment after the eight months severance ran out. When I read the rules myself later, it looked less clear. But there were situations where you could collect more mathematically if you waited until after severance to file.

Sunday, October 03, 2010

You can undo a Roth IRA conversion by Oct. 15, and some people benefit from doing so

The AARP has reminded members that Oct. 15 is the deadline for “undoing” a Roth IRA conversion (back to a traditional IRA), and some people may find it to their eventual tax advantage to do so, particularly with accounts that have lost value, or people finding themselves in lower tax brackets.

The AARP reran a Sept. 30 story in the New York Times by Jennifer Saranow Schultz, here.

Relatively few investors realize that such a reversal switch is possible.

The AARP site today seemed to show that it likes pro football.