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Little-Known Homeowners Insurance Facts

You may be surprised to learn what is and is not covered.

If you have a homeowners insurance policy, you should be aware of what the insurance does and does not cover. These policies have their limitations as well as their underrecognized perks.

Some policies insure actual cash value (ACV). ACV factors depreciation into an item’s worth. If someone makes off with your expensive camera that you bought five years ago, a homeowners policy that reimburses you for ACV would only pay for part of the cost of an equivalent camera bought new today.1

Other policies insure replacement cash value (RCV). That means 100% of the cost of an equivalent item today, at least in the insurer’s view.1

Insurers cap losses on certain types of items. If you lose an insured 42” flat-screen TV to a burglar, the insurer could reimburse you for the RCV, which is probably around $300. An insurance carrier can handle a loss like that. If a thief takes an official American League baseball from the 1930s signed by Babe Ruth out of your home, the insurer would probably not reimburse you for 100% of its ACV. It might only pay out $2,000 or so, nowhere near what such a piece of sports memorabilia would be worth. Because of these coverage caps, some homeowners opt for personal floaters – additional riders on their policies to appropriately insure collectibles and other big-ticket items.1

Did you know that losses away from home may be covered? Say you have your PC with you on a business trip. Your rental car is broken into and your PC is taken. In such an instance, a homeowners policy frequently will cover a percentage of the loss above the deductible – perhaps closer to 10% or 20% of the value above the deductible rather than 100%, but still something. An insurance company might put a $200 or $250 limit on cash stolen away from home.1

Where you live can affect coverage as well as rates. If you reside in a community with rampant property crime, your insurance carrier might cap its reimbursements on some forms of personal property losses lower than you would like. (The insurer might even refrain from covering certain types of losses in your geographic area.)1

Now, do you have a home-based business? If you do, you should know that homeowners insurance will not cover damage and losses to your residence resulting from or linked to business activity. (The same holds true for a personal umbrella liability policy.)2

Having a separate, discrete business insurance policy to protect your home-based company is important. Without such a policy, you have inadequate coverage for your business – and could you imagine losing your home from being uninsured against a visiting client’s bodily injury claim or a workers’ comp claim if employees work at your residence and hurt themselves?2

Reading the fine print on your homeowners insurance policy can be worthwhile. Recognizing the basic limitations of homeowners insurance coverage is critical. You should know what is and is not covered – and if you see any weak spots, you should address them.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – nasdaq.com/article/3-caveats-about-your-homeowners-insurance-cm771517 [4/10/17]
2 – washingtonpost.com/lifestyle/home/if-you-work-from-home-and-dont-have-this-insurance-you-could-be-at-risk/2018/02/23/23a4a42a-1754-11e8-92c9-376b4fe57ff7_story.html [2/23/18]

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Long-Term-Care Insurance Isn’t Dead. It’s Now an Estate-Planning Tool

Last year, after finishing with college tuition for their three children, Jessica Galligan Goldsmith and her husband, James, treated themselves to something she had long wanted: long-term-care insurance.

It hasn’t been cheap. The couple, both lawyers in their mid-50s, will shell out more than $320,000 between them over a decade. For that, they will be able to tap into benefits topping $1 million apiece by the time they are in their 80s, the age when many Americans suffer from dementia or other illnesses that require full-time care.

Plus, the policies pay out death benefits if long-term care isn’t ultimately needed, and most provide 10% to 20% of the original death benefit even if the long-term-care proceeds are fully tapped.

Such policies that combine long-term-care coverage with a potential life-insurance benefit are called “hybrids,” and they are reshaping the long-term-care niche of the U.S. insurance industry just as it had appeared headed for obsolescence, financial advisers say. The Goldsmiths were among 260,000 purchasers last year nationwide of these hybrids, according to industry-funded research firm LIMRA, far outpacing the 66,000 traditional long-term-care policies sold in 2017.

When long-term-care insurance took off in the 1990s, insurers aimed for the broad middle class of America. The pitch was that policies would save ordinary families from entirely draining their savings, leaning on children or enrolling in the federal-state Medicaid program for the poor. (Medicare pays for nursing-home stays only in limited circumstances.)

Now, many insurers are finding their best sales opportunity with wealthy Americans. Many of these people may be able to afford costly care later in their lives, but they are buying the contracts to protect large estates, advisers say. ​​

Ms. Goldsmith wanted long-term-care coverage partly because her legal specialty is trusts and estates and she has seen families whose seven-figure investment portfolios were devastated by years of care for spouses.

“What felt like a good nest egg” can be hit by “astronomical expenses,” says Ms. Goldsmith, of Westchester County outside New York City. Their policies are from a unit of Nationwide Mutual Insurance Co.

According to federal-government projections, about a quarter of Americans turning 65 between 2015 and 2019 will need up to two years of long-term care. Twelve percent will need two to five years, and 14% will need more than five years. At $15 an hour, around-the-clock aides run $131,400 a year, while private rooms in nursing homes top $100,000 in many places.

Hybrids can cost even more than traditional standalone products because they typically include extra features. There is wide variation across the hybrid category and the type the Goldsmiths bought (known as “asset-based long-term-care”) includes a particularly valuable feature: a guarantee that premium rates won’t increase.

Traditional long-term care policies fell from favor in the mid-2000s after many insurers obtained approval from state regulators for steep rate increases—some totaling more than 100%—due to serious pricing errors. In May, Massachusetts Mutual Life Insurance Co. began applying for average increases of about 77% that would apply to about 54,000 of its 72,000 LTC policyholders. Until this move, MassMutual hadn’t previously asked longtime policyholders to kick in more to better cover expected payouts.

Affluent buyers also can afford to pay for their hybrid policies within 10 years, as many insurers require. However at least one big carrier, Lincoln National Corp. , has begun allowing people in their 40s and early 50s to spread payments over more years, provided they fully pay by age 65.

Besides the death benefit—which is as much as $432,000 on a combined basis for the Goldsmiths—hybrids also include a “return of premium” feature. This allows buyers to recoup much of their money if they want out of the transaction, albeit without interest.

“We call these ‘live, die, change your mind’ policies,” says Natalie Karp, the Goldsmiths’ agent and co-founder of Karp Loshak LTC Insurance Solutions, a brokerage in Roslyn, N.Y.

About a dozen insurers still offer traditional long-term-care policies that typically lack those features. They charge more and provide shorter benefit periods than they did in the past. But Tim Cope, a financial adviser in South Burlington, Vt., for insurance brokerage NFP, says the good news is that “policies continue to pay for much-needed care, and changes in their policy design, pricing and underwriting are an effort to minimize premium increases on recently issued and new policies.”

Many advisers favor standalone and hybrid offerings of three of the nation’s largest and financially strongest insurers: MassMutual, New York Life Insurance Co. and Northwestern Mutual Life Insurance Co.

Ms. Goldsmith says she was attracted to the Nationwide hybrid because it doesn’t require submission of receipts to obtain the long-term-care proceeds. Benefits are payable in cash when a physician certifies a severe cognitive impairment or inability to perform basic activities, such as bathing, eating and dressing. Payments are capped at specified monthly amounts. For the Goldsmiths, the monthly benefit starts at $9,000 per spouse and grows with an inflation adjustment to more than $15,000 in their 80s.

“Receipts are very hard for older people to deal with, especially when stressed by caring for a disabled spouse or being disabled themselves,” Ms. Goldsmith says.

This article was prepared by a third party for information purposes only. It is not intended to provide specific advice or recommendations for any individual. It contains references to individuals or entities that are not affiliated with Cornerstone Wealth Management, Inc. or LPL Financial.
All illustrations are hypothetical and are not representative of any specific investment.

Riders are additional guarantee options that are available to an annuity or life insurance contract holder. While some riders are part of an existing contract, many others may carry additional fees, charges and restrictions and the policy holder should review their contract carefully before purchasing. Guarantees are based on the claims paying ability of the issuing insurance company.
If you need more information or would like personal advice you should consult an insurance professional.

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Is It Time to Stop Procrastinating About Your Financial Plan?

Some things to think about as you get started with your strategy.

First, look at your expenses and your debt. Review your core living expenses (such as a mortgage payment, car payment, etc.). Can any core expenses be reduced? Investing aside, you position yourself to gain ground financially when income rises, debt shrinks, and expenses decrease or stabilize.

Maybe you should pay your debt first, maybe not. Some debt is “good” debt. A debt might be “good” if it brings you income. Credit card debt is generally deemed “bad” debt.

If you’ll be carrying a debt for a while, put it to a test. Weigh the interest rate on that specific debt against your potential income growth rate and your potential investment returns over the term of the debt.

Of course, paying off debts, paying down balances, and restricting new debt all works toward improving your FICO score, another tool you can use in pursuit of financial freedom (we’re talking “good” debts).1

Implement or refine an investment strategy. You’re not going to retire solely on the elective deferrals from your paycheck; you’re to going retire (potentially) on the interest that those accumulated assets earn over time, assisted by the power of compounding.

Manage the money you make. If you simply accumulate unmanaged assets, you have money just sitting there that may be exposed to risk – inflation risk, market risk, even legal risks. Don’t forget taxes. The greater your wealth, the more long-range potential you have to accomplish some profound things – provided your wealth is directed.

If you want to build more wealth this year or in future years, don’t go without a risk management strategy that might be instrumental in helping you retain it. Your after-tax return matters. Risk management should be part of your overall financial picture.

Request professional guidance. A considerate financial professional should educate you about the principles of wealth building. You can draw on that professional knowledge and guidance this year – and for years to come.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – experian.com/blogs/ask-experian/credit-education/improving-credit/improve-credit-score/ [5/30/18]

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Life Insurance Products with Long-Term Care Riders

Are they worthwhile alternatives to traditional LTC policies?

The price of long-term care insurance has really gone up. If you are a baby boomer and you have kept your eye on it for a few years, chances are you have noticed this. Last year, the American Association for Long-Term Care Insurance (AALTCI) noted that a 60-year-old couple would pay an average of $3,490 a year in premiums for a standalone LTC policy.1

Changing demographics and low interest rates have prompted major insurance carriers to stop offering standalone LTC coverage. As Forbes recently noted, about 750,000 consumers purchased long-term care policies in 2002; just 89,000 bought an LTC policy in 2016. The demand for the coverage remains, however – and in response, insurers have introduced new options.2

Recently, hybrid LTC products have outsold traditional LTC policies. Some insurers now offer “cash rich” whole life insurance policies with an option to add long-term care benefits. Other insurance products feature similar riders.2

As these insurance products are doing “double duty” (i.e., one policy or product offering the potential for two kinds of coverage), their premiums are costlier than that of a standalone LTC policy. On the other hand, you can get what you want from one insurance product rather than having to pay for two.3

Hybrid LTC policies provide a death benefit, a percentage of which will go to your heirs. If you end up not needing long-term care, you will still be able to justify the premiums you paid. You can also often add a rider to adjust the LTC benefits of the policy in view of inflation.4,5

The basics of securing LTC coverage applies to these policies. The earlier in life you arrange the coverage – and the healthier you are – the lower the premiums will likely be. If you are not healthy enough to qualify for a standalone LTC insurance policy, you still might qualify for a hybrid policy – sometimes no medical exam by a nurse is necessary.1,3

Hybrid policies have critics as well as fans. Their detractors point out the characteristic that puts off potential policyholders the most: lump sums are commonly required to fund them. An up-front payment in the range of $75,000-$100,000 is typical.4

Funding the whole policy with one huge premium payment has both an upside and a downside. You will not contend with potential premium increases over time, as owners of stock LTC policies often do. (Many retirees wish they could lock in the monthly or quarterly premiums on their traditional LTC policies.) On the other hand, the return on the insurance product may be locked into interest rates lower than you would prefer.4

Since the focus of a hybrid LTC policy is on long-term care coverage, the death benefit may be relatively small compared with that of a pure life insurance policy. Also, the premiums paid on hybrid policies are not tax deductible; premiums paid on conventional LTC policies are.4,5

Another reality is that many seniors have little or no need to buy life insurance. Their heirs will not face inheritance taxes, since their estates will not exceed estate tax thresholds. Moreover, their adult children may be financially stable. Providing a lump sum to these heirs is a nice financial gesture, but the opportunity cost of paying life insurance premiums may be significant.

Life insurance can play a crucial role in estate planning, however – and if a policy manages to combine life insurance and long-term care coverage feature, it may prove useful in multiple ways.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – fool.com/retirement/2018/02/02/your-2018-guide-to-long-term-care-insurance.aspx [2/2/18]
2 – forbes.com/sites/howardgleckman/2017/09/08/the-traditional-long-term-care-insurance-market-crumbles/ [9/8/17]
3 – tinyurl.com/y94mm59c [3/16/18]
4 – consumerreports.org/long-term-care-insurance/long-term-care-insurance-gets-a-makeover/ [8/31/17]
5 – tinyurl.com/y7gbhr7u [10/9/17]

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The Stock-Market Price Can Be Wrong. Very Wrong.

Researchers have caught investors in the act of wildly—and unnecessarily–overpaying for a stock

If you could buy the same stock in two different ways, one of which cost up to nine times as much as the other, you would pick the cheaper way.

Wouldn’t you?

Perhaps you shouldn’t be too sure.

In a new study, finance researchers have caught investors in the act of wildly — and unnecessarily — overpaying for a stock. In effect, investors paid as much as $9.07 for shares that they could have bought at the exact same time for $1 instead. That casts some doubt on the idea that financial markets are efficient. It should cast more doubt on whether all investors, including you and me, are as shrewd as we think.

The study is based on a peculiar transaction that occurred on the Euronext stock exchange in Amsterdam in 2014. That October, Dutch engineering-services firm Royal Imtech NV was struggling to survive. To raise capital, Royal Imtech announced a rights offering, enabling investors to buy new shares at a discount to the market price.

The rights offering worked like this: For each share they owned, stockholders who subscribed to the offering got the right to buy another 131 shares at only 0.01 euro apiece.

Yet, during the offering period, Royal Imtech stock closed as high as 0.1 euro per share. By purchasing shares on the market instead of buying them through the rights offering, investors were paying up to nine times more than they needed to. (Even if you didn’t already own the stock, you could obtain rights by buying them on the exchange from a Royal Imtech investor.)

Rights offerings are rare among operating companies in the U.S., with none since the beginning of 2017 and a total of only 11 since 2009, according to Dealogic. They are less unusual among closed-end funds in the U.S. and more common in Europe.

Shareholders often fail to participate in rights offerings, presumably because stocks are much more familiar and it takes a little effort to figure out what rights are worth.

As a result, many investors seem to have overlooked the Royal Imtech deal entirely; 48% of the rights offering went unsold, according to Martijn van den Assem, a finance professor at Vrije Universiteit Amsterdam and co-author of the study. Investors kept buying the stock the same way they always had, oblivious to the opportunity the rights gave them to buy it at a fraction of the market price.

That turned out to be costly; by late October 2014, investors who had paid up to 0.1 euro per share were left with stock trading at only 0.017 euro. Royal Imtech declared bankruptcy in 2015.

“If people avoid the unfamiliar and the uncommon and they aren’t perfectly attentive,” says Prof. van den Assem, then what happened with the Royal Imtech offering “isn’t super-puzzling.”

So are investors stupid or irrational? Neither: We are human. We have many demands on our time and attention, we hate thinking harder than we need to, and we chronically take mental shortcuts and leap to conclusions. A slightly more complicated way to buy a stock feels like a worse way. So we don’t bother with it.

Royal Imtech is only the latest violation of what economists call “the law of one price,” which holds that identical assets shouldn’t trade simultaneously at different prices, regardless of where they change hands.

In 1999, for example, 3Com Corp. spun off Palm Inc. You could buy Palm shares directly in the open market, or you could buy them indirectly by purchasing 3Com stock. For each share of 3Com, you would get 1.5 shares of Palm.

Yet on the offering date, you could get one share of 3Com for $82, with 1.5 shares of Palm thrown in for free — at the very same time as other investors were willing to pay $95 for a single share of Palm. (The risk that the deal might not have gone through, and the costs of betting against it, might explain part of the oddity.)

Likewise, in the roaring stock market that preceded the great crash of 1929, it was common for closed-end funds to trade for double or even triple the per-share value of the stocks and bonds they held. Investors acted as if such leading stocks as Radio Corp. of America, Studebaker Corp. and Wright Aeronautical Corp. were worth two or three times as much inside a fund than outside it — on the illusory belief that skilled stock pickers could make diversification and high returns easier to achieve than investors could on their own.

All this is a reminder that market prices are shaped by the tension between sophisticated, informed and attentive investors, on the one hand, and naive, unknowing and uninterested investors on the other.

The same mechanism that overpriced Royal Imtech by nine-fold also fostered the internet-stock bubble that burst in 2000 and the crisis that nearly destroyed the global financial system a decade ago.

Markets are mostly efficient most of the time. They aren’t perfectly efficient all the time.

This article was prepared by a third party for information purposes only. It is not intended to provide specific advice or recommendations for any individual. It contains references to individuals or entities that are not affiliated with Cornerstone Wealth Management, Inc. or LPL Financial.

Past Performance is no guarantee of future results.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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For the Elderly Who Are Lonely, Robots Offer Companionship

Ironic that the people who might use high tech the least are the folks who can greatly benefit from it. Below is a recent article that moves the classic discussion of elder care into a hard-to-solve area: Engagement.

For the Elderly Who Are Lonely, Robots Offer Companionship

Researchers are testing whether digital assistants can help older people stay healthy

Courtesy of ‘Robots and Chatbots Look After the Elderly.’

Twice a day a little robot in Rayfield Byrd’s living room lights up and asks him a very personal question: “Have you taken your medication?” For the past few weeks, Mr. Byrd, a 67-year-old retired transit worker who lives alone in Oakland, Calif., has been able to proudly answer “yes.”

The portable robot’s name is Mabu, and at the recommendation of his health-care provider, she now lives with Mr. Byrd to help monitor his irregular heartbeat. She checks in on him two or three times a day to make sure he weighs himself, takes his medication and exercises regularly—and relays information back to his health team.

“She’s my little blue-eyed girlfriend,” he says. “She keeps me on my toes.”

Avoiding the ER

With the senior-citizen population expected to nearly double to 88 million by 2050 and some nursing programs stretched thin, researchers and elder-care centers are exploring the potential of digital companions, in robot or chatbot form, to help the elderly. Digital assistants like Mabu and others are being developed to do everything from monitor chronic health conditions to encourage patients to stay active and engaged—with the overall goal being to find ways to meet the needs of a growing elderly population without overburdening the health system.

While the idea of bringing automation to elder care has been discussed for years, recent technological advances in natural-language processing have moved it closer to reality, says Dor Skuler, the founder of the firm behind ElliQ, a robot that encourages the elderly to stay active and connected to loved ones. Before such advances, people had to speak to digital assistants in specific formulaic commands, making the technology difficult and frustrating to use, especially for seniors.

Already, digital assistants have allowed some health systems to cut back on nurse home visits and prevent unnecessary trips to the emergency room.

Element Care , an elder-care program in Boston, last year began dispatching digital avatars, instead of nurses, to help some patients manage their chronic conditions at home. The technology, from Care.coach Corp. , uses an animal avatar on a tablet to remind patients to take their medications and follow their treatment plans. About 70% of what is spoken by the avatar is written out by human specialists working behind the scenes, says Care.coach Chief Executive Victor Wang, while the other 30% is generated via artificial intelligence.

Kendra Seavey, Element Care’s clinical administrative manager, estimates that the center has saved $150,000 in emergency-room costs by assigning Care.coach avatars to patients who make the most frequent hospital trips. Sometimes, the avatars guide patients through breathing exercises to calm them down; other times, just giving patients an ear to talk to prevents them from calling 911.

“We have individuals who just get anxious and want to go to the hospital or are lonely and want to go to the hospital,” she says. “There’s no need for them to go there.”

Alleviating loneliness

Indeed, loneliness is one of the key problems researchers and companies are trying to solve with digital companions. Loneliness is a significant predictor of poor health, and it is widespread, affecting more than one-third of older adults in the U.S., according to a 2010 AARP study.

“Robots that help people connect with and maintain their relationships with others are becoming increasingly important,” says Timothy Bickmore, a professor at Northeastern University who is developing a digital assistant to help the elderly navigate the final stages of life.

While older people aren’t usually early adopters of new technologies, seniors who lack companionship tend to be receptive to having automated friends, says Maja Mataric, a professor of computer science and neuroscience at the University of Southern California. “In many cases their friends have died, no one cares to spend time with them, and the grandkids think they smell funny,” she says. “So when they actually have someone or something that’s interested in them, they are willing to explore it.”

Ms. Mataric, who has studied using robots to improve the attention spans of dementia patients, says robots give patients the illusion of having a physical companion, and the elderly often interact with them in surprising ways, such as by petting them and asking how they are feeling.

Programming robots and chatbots to act as friends is simpler than it might seem, developers say. ElliQ, now in beta testing, turns to face users when they are talking, to show attentiveness, and bounces with excitement when a message arrives from a loved one. Mabu, from Catalia Health Inc., uses eye contact to show it is listening to users.

“It isn’t actually very hard to project empathy,” Ms. Mataric says. “Empathy is what you do, not what you feel.”

Most of today’s socially assistive technology also is designed to be cuddly and cute, defying the stiff and scary stereotype associated with robots in the past. Paro, a speechless lap-sized robot from Japan’s National Institute of Advanced Industrial Science and Technology, looks like a baby seal and is used much like a live therapy animal to soothe patients. Paro, which displays emotional reactions to touch and sound, became a certified medical device in the U.S. in 2009 and has sold roughly 5,000 units world-wide, primarily in Japanese elderly facilities.

Toy maker Hasbro Inc. and researchers at Brown University, meanwhile, have said they would use a $1 million grant from the National Science Foundation to add artificial intelligence to Hasbro’s robotic companions, which resemble cats and dogs, so that they can help the elderly with everyday tasks such as locating lost objects, in addition to providing comfort.

Real people

But even as technological advancements make empathy and companionship easier to simulate, those in the field say digital companions aren’t meant to replace the human touch.

Care.coach’s Mr. Wang says human specialists will remain an important part of his product because building a long-term supportive relationship with a patient requires an actual person.

Real people also are going to be needed to perform the harder, and dirtier, tasks associated with elder care—at least for the foreseeable future, experts say. “We aren’t developing robots who can toilet the elderly anytime soon,” says Ms. Mataric.

This article was prepared by a third party for information purposes only. LPL Tracking # 1-737700

 

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Should You Pay Off Your Mortgage? The New Tax Law Changes the Math.

The Wall Street Journal published the article below which prompts further thought: In a lower interest rate environment, a mortgage can actually have a positive effect on personal finances for many. But with the new tax law and cap on deductions, this is new territory to explore.

The further point I would add is: While this does change the math, more importantly, the math should be done via a comprehensive financial plan.  This is where the details like deductions and opportunity costs and long term use of family resources can help in making good financial decisions.

Courtesy of the Wall Street Journal

Should You Pay Off Your Mortgage? The New Tax Law Changes the Math.

Tax-law changes will shut millions out of mortgage-interest deductions, especially if they are married couples

Now is the time to find out if you are one of the millions of Americans who won’t be able to deduct their monthly mortgage-interest payments.

For 2017, 32 million tax filers got a mortgage-interest deduction. For 2018, that number will drop to 14 million. Americans’ total savings from this break are also expected to fall sharply this year, from nearly $60 billion for 2017 to $25 billion for 2018, according to Congress’s Joint Committee on Taxation.

These landmark shifts are the result of the tax overhaul’s direct and indirect changes to the longstanding provision allowing filers to deduct home-mortgage interest on Schedule A. These changes are set to expire at the end of 2025.

As a result, current and future mortgage holders need to consider their options, which range from paying part or all of their debt to sitting tight.

“The changes to the mortgage deduction strengthen the arguments for paying down or off a mortgage,” says Allan Roth, a financial planner with Wealth Logic.

Some homeowners are already reducing their debt. Ken Walsh, an engineer who lives outside Baltimore with his family, says he used a windfall to pay off the remaining $500,000 mortgage on his home in January.

When the tax overhaul passed, Mr. Walsh knew that he and his wife would no longer get an interest deduction, even after their 2.6% adjustable-rate loan reset higher this year.

“It was a perfect storm, so we decided to pay off the loan,” he says.

Mr. Walsh’s move may not make sense for everyone. Here’s what to consider for your analysis.

The key changes. For many people, two revisions to non-mortgage provisions will have the biggest effects on their mortgage-interest deductions.

One is the near-doubling of the “standard deduction” to $12,000 for most single filers and $24,000 for most married couples. As a result, millions of filers will no longer benefit from breaking out mortgage interest and other deductions on Schedule A.

The other key change is the cap on deducting more than $10,000 of state and local income or sales and property taxes, known as SALT. This limit is per tax return, not per person.

These changes will hit many married couples with mortgages harder than singles. Here’s why: For 2017, a couple needed write-offs greater than $12,700 to benefit from listing deductions on Schedule A. Now these write-offs have to exceed $24,000.

Assuming a couple has maximum SALT deductions of $10,000, they’ll need more than $14,000 in other write-offs of mortgage interest, charity donations, and the like to benefit from using Schedule A.

Many couples won’t make it over this new hurdle on mortgage interest and SALT alone. According to the Mortgage Bankers Association, the first-year interest on a 30-year mortgage of $320,000 (the average) at the current rate of 4.8% is about $15,250. Interest payments are smaller if the loan is older or the interest rate is lower.

The new threshold is lower for single filers, as each can also deduct SALT up to $10,000. Their standard deduction is now $12,000, so many will only need more than $2,000 of mortgage interest, charity donations and the like to benefit from listing them on Schedule A.

Even for taxpayers who can still deduct mortgage interest, the expansion of the standard deduction means the value of this write-off will typically be lower than in the past.

Other limits. Following the tax overhaul, most home buyers can deduct only the interest on total mortgage debt up to $750,000 for up to two homes. This limit won’t be an issue for most buyers, but some will be affected.

There’s a “grandfather” exception: Most homeowners with existing debt up to $1 million on up to two homes before the tax overhaul can continue to deduct their interest.

The rules also changed for home-equity loans. To get an interest deduction, the taxpayer must use the debt to buy, build or improve a home. There’s no write-off if it’s used for another purpose, such as paying tuition.

Doing the math. For homeowners with a shrinking or vanishing interest deduction, here’s the key question: Is the after-tax return on an ultra-low-risk investment lower than your after-tax mortgage rate? If it is, consider paying down the mortgage if you can.

Mr. Roth offers this example. Say Bob has a mortgage rate of 3.7%, and he’ll no longer get an interest deduction. He’ll need to earn about 3.7% after-tax on an investment such as a five-year CD to come out ahead by keeping his mortgage. Recently some of these CDs had pretax yields of about 2.8%.

Preserving liquidity. Even if paying down a mortgage makes financial sense, it means restricting access to funds. So consider whether they’ll be needed in an emergency, and what the rate on a (non-deductible) personal loan would be. You need to be able to sleep at night.

Saving the difference. If you pay off a mortgage, Mr. Roth advises setting up an automatic payment of the savings to an investment account to rebuild your liquidity.

This article was prepared by a third party for information purposes only. It is not intended to provide specific advice or recommendations for any individual. It contains references to individuals or entities that are not affiliated with Cornerstone Wealth Management, Inc. or LPL Financial.

Tax services are not offered by Cornerstone Wealth Management, Inc., LPL Financial or affiliated advisors. We suggest that you discuss your specific situation with a qualified tax advisor.

LPL Tracking # 1-737346

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Losing Your financial nest egg is linked to shorter life expectancy

One benefit of creating a financial plan is that the process puts into perspective the importance of collecting singles and doubles in a portfolio rather than swinging for the fences.

The following article is courtesy of the Wall Street Journal. Please forward to anyone you know who is going through a life or financial transition.

Many people lost their life savings in the last recession.

New research on the health damage done.

Is it worse to suddenly lose your financial nest egg or never to have saved any money at all? This question concerns many of us: A quarter of Americans watched much or all of their life savings evaporate during the last recession, while nearly half of U.S. families have nothing put aside for retirement, according to the Economic Policy Institute and federal data.

Either way, there’s no happy answer. Both scenarios can increase our risk of dying within the next 20 years by more than 50%, a recent study shows.

We’ve long known that a financial shock causes immediate distress. Suit-clad men leaping from buildings were dismal hallmarks of the Great Depression, and soon after a major recession began in 2007, there were notable spikes in clinical depression, substance abuse and suicides.

But what about the effects of such a shock over a more extended period? “Does the stress of losing one’s wealth also create a long-term risk?” asked Lindsay Pool, a Northwestern University epidemiologist and the lead author of the new study. Published last month in the Journal of the American Medical Association, her research investigated how losing one’s life savings in the short term might curtail one’s lifespan in the long term.

​To find out, the researchers analyzed how participants in the federally funded Health and Retirement Study fared over a 20-year period. When the study began, researchers selected a nationally representative group of people in their 50s and asked these roughly 8,700 men and women detailed questions about their daily habits, health and financial situation.

Every two years, from 1994 until 2014, the federal study’s investigators called each subject looking for any change in their status and especially for a signal event: the disappearance of 75% or more of a person’s assets during the previous two years. “The reason we look at 75% or more is that we’re looking for a sudden loss, one that’s high enough to be shocking. People are nearing retirement, and all of a sudden their wealth is gone,” said Dr. Pool.

The results showed how profoundly financial loss can damage us. Exactly how this happens at the physiological level is still being worked out, but we already know that stress unleashes hormones that constrict our blood vessels and make our hearts beat faster—thus increasing blood pressure and possibly spurring a future cardiovascular event. Coping with ongoing pressures we cannot control has also been linked to a shorter lifespan.

Loss of control was front and center for the 26% of those in the survey who had endured a wealth shock. They were 50% more likely to have died during the period of the study, compared with participants whose savings remained intact. The researchers statistically controlled for other causes of mortality, such as ill health, job loss, insurance loss and marital breakdown.

Interestingly, women were more likely to have experienced a wealth shock than men, but they were not more likely to die as a result. They were, in short, more financially vulnerable but more resilient physiologically.

The study can’t explain why losing your life savings can kill you, only that it does. But one of the researchers’ findings is clear: At 50%, the mortality risk of those who had lost their nest eggs was lower than for those who never accumulated much for retirement at all; those people were 67% more likely to die than savers. It may be cold comfort, but it seems that it’s better to have saved and lost than never to have saved at all.

This article was prepared by a third party for information purposes only. It is not intended to provide specific advice or recommendations for any individual. LPL tracking # 1-736613

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College Funding Options

You can plan to meet the costs through a variety of methods.

How can you cover your child’s future college costs? Saving early (and often) may be the key for most families. Here are some college savings vehicles to consider.

529 college savings plans. Offered by states and some educational institutions, these plans let you save up to $15,000 per year for your child’s college costs without having to file an I.R.S. gift tax return. A married couple can contribute up to $30,000 per year. (An individual or couple’s annual contribution to a 529 plan cannot exceed the yearly gift tax exclusion set by the Internal Revenue Service.) You can even frontload a 529 plan with up to $75,000 in initial contributions per plan beneficiary – up to five years of gifts in one year – without triggering gift taxes.1,2

529 plans commonly feature equity investment options that you may use to try and grow your college savings. You can even participate in 529 plans offered by other states, which may be advantageous if your student wants to go to college in another part of the country. (More than 30 states offer some form of tax deduction for 529 plan contributions.)1,2

Earnings of 529 plans are exempt from federal tax and generally exempt from state tax when withdrawn, so long as they are used to pay for qualified education expenses of the plan beneficiary. If your child doesn’t want to go to college, you can change the beneficiary to another child in your family. You can even roll over distributions from a 529 plan into another 529 plan established for the same beneficiary (or another family member) without tax consequences.1

Grandparents can start a 529 plan (or other college savings vehicle) just like parents can. In fact, anyone can set up a 529 plan on behalf of anyone. You can even establish one for yourself.1

These plans now have greater flexibility. Thanks to the federal tax reforms passed in 2017, up to $10,000 of 529 plan funds per year may now be used to pay qualified K-12 tuition costs.2,3

Coverdell ESAs. Single filers with modified adjusted gross income (MAGI) of $95,000 or less and joint filers with MAGI of $190,000 or less can pour up to $2,000 annually into these accounts, which typically offer more investment options than 529 plans. (Phase-outs apply above those MAGI levels.) Money saved and invested in a Coverdell ESA can be used for college or K-12 education expenses.3

Contributions to Coverdell ESAs aren’t tax deductible, but the accounts enjoy tax-deferred growth, and withdrawals are tax free, so long as they are used for qualified education expenses. Contributions may be made until the account beneficiary turns 18. The money must be withdrawn when the beneficiary turns 30, or taxes and penalties will occur. Money from a Coverdell ESA may even be rolled over into a 529 plan.3,4

UGMA & UTMA accounts. These all-purpose savings and investment accounts are often used to save for college. They take the form of a trust. When you put money in the trust, you are making an irrevocable gift to your child. You manage the trust assets until your child reaches the age when the trust terminates (i.e., adulthood). At that point, your child can use the UGMA or UTMA funds to pay for college; however, once that age is reached, your child can also use the money to pay for anything else.5

Whole life insurance. If you have a permanent life insurance policy with cash value, you can take a loan from (or even cash out) the policy to meet college costs. Should you fail to repay the loan balance, obviously, the policy’s death benefit will be lower.6,7

Did you know that the value of a life insurance policy is not factored into a student’s financial aid calculation? If only that were true for college savings funds.6

Imagine your child graduating from college, debt free. With the right kind of college planning, that may happen. Talk to a financial professional today about these savings methods and others.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – irs.gov/newsroom/529-plans-questions-and-answers [2/20/18]
2 – cnbc.com/2017/12/29/tax-bill-529-plan-provision-helps-families-save-on-school-costs-taxes.html [12/29/17]
3 – forbes.com/sites/katiepf/2018/04/13/yes-the-coverdell-esa-still-exists-and-heres-why-you-should-care [4/13/18]
4 – irs.gov/taxtopics/tc310 [3/1/18]
5 – finaid.org/savings/ugma.phtml [5/8/18]
6 – collegemadesimple.com/whole-life-insurance-vs-529-college-savings-plans/ [5/9/18]
7 – marketwatch.com/story/a-529-roth-ira-insurance-whats-best-for-college-savings-2017-03-22 [5/13/17]

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Why Medicare Should Be Part of Your Retirement Planning

The premiums and coverages vary, and you must realize the differences.

Medicare takes a little time to understand. As you approach age 65, familiarize yourself with its coverage options and their costs and limitations.

Certain features of Medicare can affect health care costs and coverage. Some retirees may do okay with original Medicare (Parts A and B), others might find it lacking and decide to supplement original Medicare with Part C, Part D, or Medigap coverage. In some cases, that may mean paying more for senior health care per month than you initially figured.

How much do Medicare Part A and Part B cost, and what do they cover? Part A is usually free; Part B is not. Part A is hospital insurance and covers up to 100 days of hospital care, home health care, nursing home care, and hospice care. Part B covers doctor visits, outpatient procedures, and lab work. You pay for Part B with monthly premiums, and your Part B premium is based on your income. In 2018, the basic monthly Part B premium is $134; higher-earning Medicare recipients pay more per month. You also typically shoulder 20% of Part B costs after paying the yearly deductible, which is $183 in 2018.1

The copays and deductibles linked to original Medicare can take a bite out of retirement income. In addition, original Medicare does not cover dental, vision, or hearing care, or prescription medicines, or health care services outside the U.S. It pays for no more than 100 consecutive days of skilled nursing home care. These out-of-pocket costs may lead you to look for supplemental Medicare coverage and to plan other ways of paying for long-term care.1,2

Medigap policies help Medicare recipients with some of these copays and deductibles. Sold by private companies, these health care policies will pay a share of certain out-of-pocket medical costs (i.e., costs greater than what original Medicare covers for you). You must have original Medicare coverage in place to purchase one. The Medigap policies being sold today do not offer prescription drug coverage. A monthly premium on a Medigap policy for a 65-year-old man may run from $150-250, so keep that cost range in mind if you are considering Medigap coverage.2,3

In 2020, the two most popular kinds of Medigap plans – Medigap C and Medigap F – will vanish. These plans pay the Medicare Part B deductible, and Medigap policies of that type are being phased out due to the Medicare Access and CHIP Reauthorization Act. Come 2019, you will no longer be able to enroll in them.4

Part D plans cover some (certainly not all) prescription drug expenses. Monthly premiums are averaging $33.50 this year for these standalone plans, which are offered by private insurers. Part D plans currently have yearly deductibles of less than $500.2,5

Some people choose a Part C (Medicare Advantage) plan over original Medicare. These plans, offered by private insurers and approved by Medicare, combine Part A, Part B, and usually Part D coverage and often some vision, dental, and hearing benefits. You pay an additional, minor monthly premium besides your standard Medicare premium for Part C coverage. Some Medicare Advantage plans are health maintenance organizations (HMOs); others, preferred provider organizations (PPOs).6

If you want a Part C plan, should you select an HMO or PPO? About two-thirds of Part C plan enrollees choose HMOs. There is a cost difference. In 2017, the average HMO monthly premium was $29. The average regional PPO monthly premium was $35, while the mean premium for a local PPO was $62.6

HMO plans usually restrict you to doctors within the plan network. If you are a snowbird who travels frequently, you may be out of the Part C plan’s network area for weeks or months and risk paying out-of-network medical expenses from your savings. With PPO plans, you can see out-of-network providers and see specialists without referrals from primary care physicians.6

Now, what if you retire before age 65? COBRA aside, you are looking at either arranging private health insurance coverage or going uninsured until you become eligible for Medicare. You must also factor this possible cost into your retirement planning. The earliest possible date you can arrange Medicare coverage is the first day of the month in which your birthday occurs.5

Medicare planning is integral to your retirement planning. Should you try original Medicare for a while? Should you enroll in a Part C HMO with the goal of keeping your overall out-of-pocket health care expenses lower? There is also the matter of eldercare and the potential need for interim coverage (which will not be cheap) if you retire prior to 65. Discuss these matters with the financial professional you know and trust in your next conversation.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – medicare.gov/your-medicare-costs/costs-at-a-glance/costs-at-glance.html [5/21/18]
2 – cnbc.com/2018/05/03/medicare-doesnt-cover-everything-heres-how-to-avoid-surprises.html [5/3/18]
3 – medicare.gov/supplement-other-insurance/medigap/whats-medigap.html [5/21/18]
4 – fool.com/retirement/2018/02/05/heads-up-the-most-popular-medigap-plans-are-disapp.aspx [2/5/18]
5 – money.usnews.com/money/retirement/medicare/articles/your-guide-to-medicare-coverage [5/2/18]
6 – cnbc.com/2017/10/18/heres-how-to-snag-the-best-medicare-advantage-plan.html [10/18/17]