Market Month: May 2016

The Markets (as of market close May 31, 2016)

Following an up-and-down path similar to what occurred in April, the indexes listed here ultimately closed the month of May higher (except for the Global Dow). The month started with a run of positive returns, only to see much of the month’s gains given back by the end of May. Information from the Fed that interest rates could be raised as early as June could be interpreted as… Click here to read the rest of this market summary, Market Month: May 2016.

Market Month: April 2016

The Markets (as of market close April 29, 2016)

Despite a poor close to the month, the indexes listed here improved in April (with the exception of the Nasdaq) compared to their March closing values–but not by much. The Dow gained a scant 88.55 points over the month, while the S&P 500 increased less than 0.3%. On the year, only the Russell 2000 and the Nasdaq remain below their year-end values… Click here to read the rest of this market summary, Market Month: April 2016.

Making a Financial First Aid Kit

April 15, 2016

Disaster preparedness is a practical step everyone should take to keep themselves and their family safe during all kinds of emergencies. And while having water, canned goods, and medical supplies on hand is one step toward disaster preparedness, it’s not the only thing you should do. You should also have a financial first aid kit ready to help make survival during and recovery from an emergency that much easier.

Three Essential Measures

There are three essential steps to take when putting together your financial first aid kit:

1. Set up all income sources as direct deposit so you don’t have to rely on the mail to get expected monies.

2. Itemize all the items in your home and all of your accounts on a smartphone or in a notebook, leaving room to later create a disaster recovery log.

3. Put all of your important documents in a safe place such as a fireproof safe.
Let’s take a look at each of these steps in detail.

Direct Deposit

Cash flow is vital after a disaster, but if you’re waiting for checks to be delivered or forwarded to a temporary address then you’re going to be at a big disadvantage. Schedule a direct deposit for any employer income, investment income, assistance and other income sources.

Property Itemization

Getting the right value for damaged property is an important part of getting your life back together after a disaster. By keeping an itemized list of all the property in your home you can better prove the value of your losses to the insurance company. Having this record of what you owned will assist you in making a detailed log of all the damages you endure during a disaster. A smartphone is ideal for both of these tasks, as you can use the phone’s camera and you can download one of many apps dedicated to property itemization and disaster logs.

In addition, having a separate list of all of your account information such as bank account numbers and insurance policy numbers will make it easier for you to access information that may have been destroyed in the event of a disaster.

Preserving Documents

Our lives are ruled by fragile paper documents that need to be kept safe from disaster. From your birth certificate to Social Security card, bank statements to insurance policies, marriage certificate, deeds and titles to various legal documents there’s an almost endless list of items you need to be able to access after a disaster. In addition to keeping the originals in a fireproof safe, you can also keep copies in a safe-deposit box (or vice versa), or keep copies scanned and uploaded to a secure storage cloud.

Your WealthPath may be littered with unexpected obstacles, but Kramer Wealth Managers is here to help you find a way to deal with all of them. Contact us today to see how we can keep the pathway clear and organized!

Quarterly Market Review: January – March 2016

The Markets (as of market close March 31, 2016)

The first quarter of 2016 started with a whimper as equities suffered several weeks of losses. However, as March came to a close, several of the indexes listed here recovered enough to finish the quarter in positive territory. The Dow picked up 260 points to close 1.49% ahead of its fourth-quarter closing value. The S&P 500 also finished the first quarter slightly better than it ended the previous quarter. However, the NASDAQ, Russell 2000, and Global Dow each ended the quarter behind their respective December 2015 closing values. March proved… Click here to read the rest of this market summary, Quarterly Market Review: January – March 2016.

Social Security Maximization for Married Couples

March 18, 2016

You may have heard rumors that there were major changes made to Social Security when Congress passed the Bipartisan Budget Act of 2015. While it is true that big changes were made, it only affects a select group of people.

What changed were the filing strategies for married couples called, “File and Suspend” and “Restricted Application.” The recent budget bill closed the loophole on these two filing strategies for anyone who has not yet reached age 66 by April 30, 2016. For those who will be age 66 by April 30, 2016, they are able to still utilize these two strategies as they will be grandfathered in.

Current filing options remain unchanged

All people who are eligible for social security have three choices for prompting Social Security retirement income (not SSDI):

• At age 62 (early)

• At full retirement age (which varies by date of birth)

• After full retirement age

Take a look at your Social Security statement. Some people receive them in the mail but if you don’t have it handy, you can register for online access at ssa.gov and view your personal benefit statement there. You will see the staggering difference in your benefit amount depending on the age you decide to start payments. In fact, for each year you delay taking social security, your benefit goes up by 8%. That is an increase of 40% if you wait from age 65 to 70. These filing options remain unchanged. There are two additional filing strategies, Restricted Application and File and Suspend Strategy that will phase out after April 30, 2016.

Restricted Application (old rules)

If you’re married, you are entitled to claim spousal benefits in lieu of taking your own. The spousal benefit provides for 50% of what the amount of your spouse’s benefit. This can be beneficial when your spouse out-earned you in life and has a much higher benefit, but it can also be used as a means of delaying your benefits so they can continue to grow. This process is called the restricted application strategy.

By filing a restricted application, you elect NOT to receive your own benefits, even if they are higher than 50% of your spouse’s. Instead, you restrict your benefit only to the spousal benefits, allowing your own benefits to continue to grow at 8% per year.

The File and Suspend Strategy (old rules)

Under Social Security rules, the main beneficiary must have already filed for benefits in order for the spouse to file for spousal benefits under a restricted application. However, that doesn’t mean that the main beneficiary has to lose out on the delayed credits he or she can get by waiting until age 70 to take payments. The main beneficiary can file for benefits (thus enabling the spouse to file for spousal benefits) then he or she can suspend the benefits so that no payments are actually received. This is called a file-and-suspend strategy. This will allow the main beneficiary to receive the 8% annual increase to his/her benefits while still allowing the spouse to receive benefits in the meantime.

Example:

Terry and Pat are both age 66 and married.
Terry’s benefits are $1500 per month and Pat’s benefits are $2000 per month.
Pat files for benefits at age 66 and then suspends benefits
Terry files for benefits under a restricted application which means instead of taking Terry’s own $1500/month benefit, Terry gets 50% of Pat’s $2000 per month benefit
Meanwhile, Terry’s and Pat’s own benefits are both growing at 8% per year until age 70.
At age 70, they both start receiving their own benefits, now at $1980 per month for Terry and $2640 per month for Pat. This is a total of $4620 per month which is $1120 more than the $3500 they would have been receiving had they both filed for their own benefits at age 66. Over their lifetime, based on a 90-year life expectancy, they would receive an additional $148,800 in total benefits with these filing strategies compared to regular filing strategies.

New rules

Under the new rules, for anyone who files after April 30, 2016, the worker can still file and suspend benefits but they no longer allow anyone else to file for benefits under their record during the suspension period. Further, the restricted application is no longer allowed so whenever someone applies for benefits, they are deemed to have filed for any benefits for which they are eligible and can no longer choose to restrict their own benefits.

If you happen to fall within that short window of time for married people who are already age 66 prior to April 30th of this year, you’ll want to act now to consider if either of these strategies are right for you.

But even if you aren’t eligible to use these filing strategies, the timing of when you start social security benefits can have a huge long-term impact. There are a lot of factors to consider in this decision. When you make an appointment to work with one of the professionals at Kramer Wealth Managers, we’ll show you how your income could look under each scenario and help you determine the best strategy for maximizing your benefits.

Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed and the accuracy of the information should be independently verified.

Market Month: February 2016

The Markets (as of market close February 29, 2016)

Following steep declines in January and a rocky start to February, equities rebounded by the end of the
month to finish close to their ending values from the prior month. The Dow actually finished up, gaining a little over 50 points by February’s market close. Each of the indexes listed here remained in negative territory for 2016, with the Russell 2000 and Nasdaq each down almost 9.0%. Investors may be feeling a little more confident in the U.S. economy despite… Click here to read the rest of this market summary, Market Month: February 2016.

Understanding the Three Basic Types of Life Insurance: Term, Universal and Whole Life


February 26, 2016

While there are many different aspects of life insurance policy design that you’ll want to understand before you take out a policy, the most fundamental thing to know is the difference between term insurance, universal insurance and whole life insurance.

Term Insurance

Term life insurance provides a death benefit if the insured passes away during a certain time frame specified within the policy. While the policy may have some added benefits attached (such as spouse or child coverage riders) there is no cash value associated with the policy, so there is no surrender value if it is terminated.

Because term life insurance covers a specified time period and has no cash value accumulation, it’s less expensive than other types of life insurance. Most people use this type of life insurance to cover a specific period of time such as to cover the 30-year term on their mortgage or to cover the period of time while their children are still dependents.

Whole Life Insurance

While a term policy only pays a death benefit if death occurs in a specified time period, a whole life policy will provide a death benefit for life—as long as premium payments are made on time. Additionally, the policy has level premiums and will accrue cash values, which grow tax-deferred at a guaranteed rate. Once the cash values reach the same value as the death benefit (usually around age 100) the policy will mature (or endow) and the value will be paid out to the owner.

Universal Life

Much like a whole life policy, a universal life policy is meant to provide death benefit protection for the insured’s entire life. The major difference between the two is that universal life policies offer some flexibility in death benefit and premium. Cash values for universal policies grow tax-deferred based either on prevailing interest rates or their growth may be tied to the performance of a chosen index. With underwriter approval, you can increase the death benefit of the policy so that it includes the cash value portion. You can also reduce your premiums over time—even stop paying them altogether—if your cash values grow sufficiently. Because interest rates can rise and fall, it’s important to continually monitor the cash value performance to ensure that future plans to stop paying premiums can be supported.

There are now many other types of life insurance policies as well such as those linked to investments, those that provide long term care benefits, UL policies with no-lapse guarantee riders, or other hybrid products. At Kramer Wealth Managers we can help you sort through the many options and design the best life insurance policy for your needs and expectations. Contact us today to make an appointment.

How Your Financial Assets Impact Financial Aid Eligibility

February 11, 2016

The amount of financial aid your children qualify for is heavily dependent on both your assets and theirs. All students interested in financial aid for college must fill out a FAFSA form (Free Application for Federal Student Aid). Let’s take a look at the formula FAFSA uses to determine financial need and the part your family assets play in it.

Parental Assets

FAFSA expects parents to contribute toward their child’s cost of college. The amount they expect the family to contribute is called the Expected Family Contribution (EFC). If the cost of college is more than the EFC, the difference is the amount of the student’s financial need.

EFC is determined by assigning a percentage of the parental assets and student assets toward payment of annual college costs. Of course, they don’t expect parents to spend their entire life savings on college so parents are given an emergency reserve allowance that’s subtracted from their total asset value. After they factor in the emergency reserve allowance, the remainder is called the available asset value. From that amount, they can expect to see 5.6% assigned as family contribution each year.

Also included is the income of both parents (except certain family-owned business income). After allowances, 22 to 47 percent of their income is included in the total asset value, from which the before mentioned 5.6% would be assigned as the expected family contribution.

Certain parental assets are not counted by the FAFSA, including home equity, retirement assets, life insurance cash values, and non-qualified annuities.

Student Assets

All custodial accounts are considered the student’s personal assets when it comes to determining financial aid eligibility. The FAFSA formula attributes 20 to 25 percent of these assets to the EFC each year. Because of this, it may be a good idea to consider transferring UGMA/UTMA assets into a college plan owned by the parent so they can be treated like parental assets and only 5.64 percent is attributed to EFC.

A student’s income also counts toward their expected contribution. Generally, 50 percent of their net income (minus certain allowances) is included. Any savings they have is also included at 20 to 25 percent.

Students with Disabilities

Some students with disabilities find additional financial resources through their state’s Department of Vocational Rehab (VR) agency. While rules vary by state, some VR funds may be available based solely on the student’s resources without consideration for the parental resources. However, the parental resources must still be reported on the FAFSA form, even when the student expects VR financial support.

Even with all of these assets considered, a student may still qualify for financial aid, subsidized loans, and scholarships. That’s why it’s important to complete the FAFSA and look for other supplemental funding opportunities, even if you think your assets might push you over the limit.

This information is not intended to be a substitute for specific individualized tax, legal or estate planning advice. Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed, and the accuracy of the information should be independently verified.

Market Month: January 2016

The Markets (as of market close January 29, 2016)

The start of 2016 for the equities markets may be described as rocky at best. Stunted by receding oil prices and a plummeting Chinese stock market, January began with stocks hitting the skids in a big way. A late-month rally fueled by an about-face in oil prices, some favorable earnings reports, the prospect of further stimulus from the European Central Bank, and Japan dropping interest rates to negative numbers spurred stocks higher toward the end of the month, but not enough to lift each of the indexes listed here out of negative territory year-to-date. The Russell 2000 and Nasdaq still have… Click here to read the rest of this market summary, Market Month: January 2016.

How Financial Advisors Get Paid

January 15, 2015

We are often asked by clients and prospective clients how we are paid. In general, there are two different payment structures an advisor will have: fee-only and commission-based. Some advisors use just one method while others—such as Kramer Wealth—use a combination of the two for various services offered. Let’s take a look at each of these payment models in detail.

• Fee-Only Payment: When financial advisors work on a fee-only basis, they generally get paid for the plans they make for their clients, regardless of whether the client actually executes any of the suggestions on the plan. Clients may be charged an hourly fee or a flat fee for the service and it is paid directly by the client out of their pocket. Some fee-based planners may also get an annual management fee, which is a percentage of the assets managed and is generally deducted from the account balance.

• Commission-Based Payment: The second method of payment for financial advisors is a commission paid for the purchase or sale of certain insurance or investment products. Commissions are paid to the financial advisor directly by the investment or insurance company but come from the client’s account in one form or another. Some commissions may be deducted up front at the time of purchase in the form of a sales load or they may be deducted from the proceeds of a sell transaction. Still other commissions may be paid through the internal expenses built in to an investment or insurance product.

In some instances, you may find an advisor who gets paid salary and bonuses, such as wire-house brokers who are employees of the company they work for. Examples of these types of firms are Merrill Lynch, Morgan Stanley Smith Barney, UBS, and Wells Fargo. However, commission- and fee-based earnings are more common in the industry.

It’s always a good idea to understand how your advisor is getting paid so that you can be aware of any added interest they may have in the decisions you make. A good advisor will always point you toward investments and products that are right for your risk tolerance, goals and timeline. When you work with Kramer Wealth Managers to create your WealthPath, we make sure to focus on investments and products that will be best suited for you, regardless of the payment involved.

*The discussion of advisor fees should also state that investors should be aware that the deductions of fees will impact their overall account returns.