Medicare Income-Related Monthly Adjustment Amount (IRMAA) Surcharge – What Does It Mean, What Can I Do, and How?

Medicare Income-Related Monthly Adjustment Amount (IRMAA) Surcharge – What Does It Mean, What Can I Do, and How?

 

 

Co-written with Jeffrey Barnett

 

The first question on many retirees’ minds is how to pay for expensive healthcare costs and health insurance when you’re no longer covered by the employer plan you relied on throughout your career. Medicare is the U.S. government’s answer for supporting healthcare costs throughout retirement. While you might have already enrolled in Medicare or are at least looking forward to beginning benefits at age 65, you may not know how Medicare premiums work. Let’s explore Medicare premiums and an important potential speedbump known as IRMAA.

 

What Is IRMAA?

 

To provide some background, approximately 75% of the costs of Medicare Part B (Medical Insurance) and Part D (Prescription Drug) are paid directly from the General Revenue of the Federal Government, with the remaining 25% covered through monthly premiums paid by Medicare enrollees. If you receive Social Security or Railroad Retirement Board benefits, your Medicare Part B premiums are typically deducted automatically from your monthly benefits. For those who don’t receive these benefits, you’ll receive a bill to pay your premiums instead. Medicare premiums increase as your income grows through Income-Related Monthly Adjustment Amount (IRMAA), which is an additional surcharge for higher income individuals on top of the 2021 Medicare Part B baseline premium of $148.50.

 

Medicare premiums and any surcharges are based on your filing status and Modified Adjusted Gross Income (MAGI) with a two-year lookback (or three years if you haven’t filed taxes more recently). That means your 2021 premiums and IRMAA determinations are calculated based on MAGI from your 2019 federal tax return. MAGI is calculated as Adjusted Gross Income (line 7 of IRS Form 1040) plus tax-exempt interest income (line 2a of IRS Form 1040). The table below details the base premium amount you’ll pay for Medicare in 2021 depending on your MAGI and filing status, inclusive of any additional IRMAA surcharge.

 

 

Fortunately, the Social Security Administration (SSA) tracks these numbers for you and uses MAGI data from the IRS. For every year that they determine IRMAA applies to you, you’ll receive a pre-determination notice explaining what information was used to make the determination and what to do if individuals feel the finding is incorrect, like due to a life-changing event as defined by the SSA. After 20 or more days, the SSA sends another notice with additional information regarding your appeals rights. For the instances you feel an incorrect determination was made, you can request a “New Initial Determination.”

 

Am I Eligible to Request a New Initial Determination?

 

There are five qualifying circumstances where an individual may be eligible to request a “New Initial Determination.” They are:

  1. An amended tax return since original filing
  2. Correction of IRS information
  3. Use of two-year-old tax return when SSA used IRS information from three years prior
  4. Change in living arrangement from when you last filed taxes (e.g., filing status is now “married filing separately” but you previously filed jointly)
  5. Qualified life-changing event(s)

 

According to the SSA, a Life-Changing Event (LCE) can be one or more of the following eight events:

  • Death of spouse
  • Marriage
  • Divorce or annulment
  • Work reduction
  • Work stoppage
  • Loss of income-producing property
  • Loss of employer pension
  • Receipt of settlement payment from a current or former employer

 

A common scenario we often see is with new retirees age 65 or over where income is much lower in retirement than it was two years ago, but the SSA determines that the IRMAA surcharge should be applied to your premium costs given the lookback period. Fortunately, an exception can be requested under the “work stoppage” LCE, and we can help you navigate that process. Luckily, this is typically irrelevant after the first or second year of retirement since post-retirement income is often significantly reduced and naturally falls below the IRMAA threshold. Another common scenario for retirees is having portfolio income that pushes you above the IRMAA tiers. However, it’s important to point out that portfolio income from things like capital gains or Roth conversions are not allowable exceptions to request for the IRMAA surcharge in a high-income year.

 

If you don’t qualify to request a new initial determination based on the 5 qualifying circumstances noted above, you also have the right to more formally appeal the determination, which is also known as requesting a reconsideration.

 

 

Requesting a New Determination

 

If any of the above life-changing events apply, individuals are likely eligible to request a new initial determination by calling their local Social Security office or, alternatively, completing and submitting this form for reconsideration along with appropriate documentation. We highly recommend calling the Social Security hotline at 800-772-1213 to discuss if more than one LCE applies to you, if you have questions about why IRMAA applies to you, or if you have questions about requesting a reconsideration.

 

We know that Medicare can be tricky and that this only scratches the surface, so we also encourage you to contact us if you have any questions. We regularly serve as a resource for questions around enrolling for Medicare along with many of the other factors involved in planning for retirement, and we are happy to help you as those questions move to the forefront.

Sources:
Income Thresholds:  https://www.medicare.gov/your-medicare-costs/part-b-costs

Life-Changing Event: https://www.ssa.gov/OP_Home/handbook/handbook.25/handbook-2507.html

Determination Notices: https://secure.ssa.gov/poms.nsf/lnx/0601101035

 

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.

How We Understand Financial Freedom, and How We Actually Should

How We Understand Financial Freedom, and How We Actually Should

 

Financial freedom is especially important for young people, particularly students. They frequently overspend on online courses, products, clothing, and even essay review services like Best Writers Online.

As a result, they feel a sense of financial deficiency. To avoid this problem in the future, it is critical to learn how to properly manage one’s budget.

 

What Exactly Do You Mean by Financial Freedom?

What prevents most people from following their dreams? Money, only money! This represents a specific stage of life. Some may object, saying, “But money does not make you happy!”

And it is true. The primary mission of money is to provide people with safety and freedom. Also, it provides us with the opportunity to live our lives the way we wish. Indeed, it is difficult to argue the point that it is easier to be happy with money than with an empty wallet.

Financial freedom allows you to kill two birds with one stone: have enough resources for living and be happy at any stage of your life.

 

What Is Financial Freedom?

Financial freedom is defined as a state in which a person’s income received without active participation (passive income) significantly exceeds his expenses for maintaining the desired lifestyle.

 

Why Is Financial Freedom Important?

Being financially free means that you have the freedom to:

  • Choose your lifestyle;
  • Buy the things you want regardless of your regular salary;
  • Spend money on entertainment;
  • Invest in projects and the property estate sector;
  • Avoid credit loans;
  • Have access to free money whenever you need it.

Both children and adults must learn the fundamentals of financial freedom—the sooner, the better. Adults can take a long time to learn something new, putting off all their business until later.

The most effective option, of course, is to teach students, who are more intellectually flexible than adults and who have a greater understanding of why this is important than schoolchildren.

Students usually spend most of their time writing essays or scientific papers. However, financial literacy is a much more valuable issue that they will face once they become self-sufficient. As a result, it can be wise to delegate written work to the professionals of an essay review service such as Writing Judge in order to have more time to focus on learning the basics of financial freedom.

 

How Do You Achieve Financial Freedom?

How many of us have wished to be financially independent but concluded that it was out of our reach? We frequently blame our circumstances, other people, or even our bad luck.

However, with proper planning, anything is possible. Here are some pointers to get you started:

#1 – Time Is More Important Than Money

A person who has achieved financial independence begins to see boring meetings and routine work in a new light. He understands that his time has a higher value, and it is better to spend it on important activities. Things that must be done but are of no interest can always be delegated to someone else.

#2 – Always Have Sources of Additional Income

To be financially independent, you must find a passive source of income. Do not refer to an additional source of income as a part-time job; it could simply be another job.

In most cases, one can do it for free or for a small amount of money at first until he improves his skills in a specific field. Over time, this source of passive income can be even more profitable than the main job.

#3 – Make It Possible for Your Money to Grow

The traditional methods of saving money under a pillow or in a home safe are already out of date. Inflation quickly depletes these savings.

Financial crises often leave you wondering whether you should invest. There are various ways to generate passive income from assets, including stocks, alternative investments, and real estate. Simply select what is best for you.

There have never been better strategies to develop equity in the past. The miracle of compound interest will dramatically improve your savings. It may appear complicated, but everything is straightforward: if you constantly contribute, you will receive a proportion of the growing amount each year.

Open a brokerage or an individual investment account and learn how to invest on your own. There are numerous competent materials and courses available on the Internet that can be mastered for free. Create a managed portfolio and replenish it once a month. Or determine if it’s time to hire a financial advisor for guidance.

#4 – Be Deliberate in Your Actions

A person seeking financial freedom does not believe in lotteries and does not invest large sums simply because “everyone does it.” Follow your instincts rather than trends and popular opinion.

#5 – Income Should Be Carefully Spread Out

Invest in various areas to avoid losing everything to the next “black swan.” Even if some assets depreciate, the rest will serve as insurance.

#6 – Read Books on Finance

Read books about financial freedom and ways to achieve it—not to impress others but to expand your knowledge. One devotes a significant amount of time to earning money.

Understanding how money works make sense if you want to dispose of it competently. The wise man researches customer reviews before purchasing household appliances. The same thing applies to money. Learn from the best in this field.

#7 – Plan Ahead of Time for Potential Crises

The world has experienced financial turmoil over the last few decades, including the financial crisis of 2008 and the pandemic-induced recession. It is worthwhile to keep an eye out for signs of impending crises to strengthen your investments’ financial situation. This will also aid in the proper management of available funds.

#8 – Do Not Spend Money on Things That Are Not Necessary at the Time

Goods on sale, incomprehensible investments, and other unnecessary categories of expenses do not contribute to financial freedom. Give up impulsive spending.

#9 – Use Your Money to Help Others

Not everyone is a philanthropist. A small donation, on the other hand, is accessible to nearly everyone. When we help the rest of the world, we benefit ourselves. And this alters our relationship with money.

#10 – Manage Your Monthly Budget

The best way to ensure that all bills are paid and savings are replenished is to create and stick to a monthly budget. This is a common routine that aids in the achievement of financial objectives while discouraging unplanned spending.

It is not difficult to live a simple life. Many wealthy people developed the habit of living within their means before becoming wealthy. To do so, you must analyze costs on a regular basis and find reasonable ways to save without sacrificing your quality of life. For example, when you go shopping, don’t go to the city center where prices are higher; instead, head to a remote quarter where the cost of the same goods is much lower.

#11 – Automate All Your Payments

On payday, distribute funds depending on monthly needs. If you pay a loan, send payment as soon as you receive it. The same is true for savings: it is preferable to set aside a specific amount at the beginning of the month and then spend the remainder.

This also applies to utility bills, mobile communications, and the Internet. All essential payments can be set up in your bank application so you do not even have to send them manually. There will be no incentive to put something off until later.

#12 – Invest in Your Health

Invest in your health by seeing doctors, particularly dentists, on a regular basis. Many difficulties can be avoided by simply altering one’s way of living.

Outdoor walks, healthy eating, and exercise therapy help to prevent several common ailments, such as hypertension, gastritis, diabetes, and obesity. Remember that poor health can compel you to retire earlier than expected and earn a smaller monthly income.

 

Conclusion

Control revenue and spending, investigate investment opportunities, and begin accumulating money as soon as possible. Financial freedom is more than just a certain level of wealth. This is an opportunity to live debt-free, think strategically, and understand how to manage finances for the benefit of your family and others.

 

 

 

Written exclusively for Merriman.com by Lafond Wanda
Lafond Wanda is a professional content writer, copywriter, content strategist, and communications consultant. She started young with her writing career from being a high school writer to a university editor, and now she is a writer in professional writing platforms— her years of expertise have honed her skills to create compelling and results-driven content every single time.

 

 

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and it is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product.  Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.

Inflation: Our Thoughts and How We Respond

Inflation: Our Thoughts and How We Respond

 

As investors, we all share the goal of growing our assets over time. It feels great to see your balance rise and earn a sense of security through diligent saving and investing. However, it’s important to look beyond the ledger line to understand how much our assets can provide for us in real terms. The actual goal is maintaining and improving purchasing power with our savings, and inflation can be a concern even when we see markets trending up. Prudent financial planning accounts for inflation so you’re prepared across economic conditions.

With inflation in the news for the past several months, it can be difficult to determine how much of the heightened concern is noise and how much is worth giving stock to. While it is undeniable that we are currently experiencing increased inflation—having risen 5.4% over the last 12 months as of September, according to the US Bureau of Labor Statistics—some level of inflation is par for the course. Let’s explore what inflation is in more detail, common concerns we hear from our clients around inflation, and some ideas on how to help protect your portfolio when inflation is high.

What is inflation?

In its most basic sense, inflation is “the decline of purchasing power of a given currency over time” as explained by Investopedia. While it is described as less purchasing power, how it affects us as everyday consumers is through the increasing price of goods and services. A common measure of inflation is the Bureau of Labor Statistics’ Consumer Price Index (CPI). The CPI is calculated by taking the average weighted cost of a basket of goods and dividing it by the cost over a prior period. Recent inflation has had an outsized effect in certain areas. The cost of fuel and gasoline are up 43% and 42% respectively from 12 months ago. The prices of used cars and trucks are also up 24%. However, if you look at core inflation, which is the CPI excluding the more volatile food and energy categories, the 12-month rate drops to 4%, which is much closer to historical averages. The Fed also expects increased inflation to be temporary, with projections at 2.1–2.2% in 2022 through 2024 per a report by Reuters. You can dive into the data in the US Bureau of Labor Statistics’ table of 12-month percentage change if you’re curious to learn more.

With inflation running hotter this year, what’s driving it? We typically see three different inputs that spur inflation, including: increased demand without enough supply, steady demand with falling supply, and the cycle of increasing wages and costs due to expectations about future inflation. The supply chain shutdown caused by COVID, as well as the demand rebound from the ongoing vaccination effort and reopening of the economy, are likely contributing to the increase we’re observing now.

What are the fears?

Inflationary concerns often stem from fears of the Fed responding by raising interest rates, leading to more costly borrowing and slower economic growth. However, the subsequent cooling may lower consumer demand and create deflationary pressure. It’s a delicate balance that the Federal Reserve seeks to maintain by adjusting monetary policy, but what does a potential interest rate hike to fight inflation mean for our investments? Opinion varies on short-term signals for rising rates. However, when investing for the long term, we find there hasn’t been significant correlation between interest rate changes and stock market performance over extended periods. In comparison, bond prices tend to fall as interest rates rise since existing lower-yielding bonds become less attractive relative to newer bonds with higher rates. We combat this by weighting short- and intermediate-term bonds more heavily to limit interest rate sensitivity on the fixed income side.

Another common concern we hear from our clients is fear of government overspending. However, there are two key points to remember. The first is that inflation isn’t inherently bad, and a consistent, low level of inflation often indicates steadily increasing productivity for the economy. The second is that government spending doesn’t necessarily cause inflation, and it depends on how the money is spent. There is a great analogy from The Guardian describing government spending and the economy as a flower bed:

It’s possible that overwatering could cause spillover, but it depends on how you water it and where. If you pour water in one place that is already saturated, it’s likely to flood and cause the flowers to die. In contrast, if you shower water over the whole bed, or focus on the driest areas, the water will be soaked up and the flowers will grow.

The article also highlights how massive spending following the 2008 financial crisis and recovery did not cause runaway inflation. Instead, inflation has been near record lows over the last decade.

How do we respond?

We believe the most reliable way to protect yourself from different economic conditions like inflation is to have a balanced, diversified portfolio that includes a mix of assets with real expected returns (total portfolio return less inflation). The amount allocated between stocks, bonds, and other investments like real estate will vary, but it’s during inflationary periods like this when staying on the sidelines and holding too much cash can erode purchasing power over time.

We also invest in specific asset classes to help navigate inflation. Value stocks tend to perform well in inflationary environments as investors seek present income and strong cash flows. Sectors like energy, consumer staples, and financials are prominent in value equities and often perform well during these periods. On the fixed income side, we utilize government credit in our bond allocations, which tends to be less sensitive to inflationary pressure than corporate credit. Merriman portfolios also feature alternative specialized investments in real estate, reinsurance, and alternative lending. These assets have real expected returns above inflation and are less correlated with the stock and bond markets. Real estate tends to perform better during periods of rising inflation as investors increase rents to adjust to the changing prices. Reinsurance contracts can also respond to rising costs and rates by increasing premiums annually and keeping the collateral invested in assets with at or above inflation levels of return. Alternative lenders utilize floating rates which provide flexibility in a volatile rate market as well. Specialized investments offer an alternative to purchasing additional bonds for diversification from equities and provide tools for responding to inflation.

Inflation is an important reality when investing, whether it’s how it affects portfolios or the economy as a whole. We enjoy diving into the causes, concerns, and strategies to address inflation, and hopefully provide insight to ease any worries. At Merriman, we will continue to monitor inflation and ensure we’re positioned properly to navigate changes, up or down.

 

 

 

All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax or legal or accounting advice, and nothing contained in these materials should be taken as such. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. As always please remember investing involves risk and possible loss of principal capital and past performance does not guarantee future returns; please seek advice from a licensed professional. Advisory services are only offered to clients or prospective clients where Merriman and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Merriman unless a client service agreement is in place.

 

Why Cash Isn’t Always The Best Donation

Why Cash Isn’t Always The Best Donation

 

Whether it’s your time, money or a box of things from your garage – giving feels good. Donating cash or writing a check to your favorite charity is an amazing way to give back. It’s also fairly easy and the most obvious method for charitable donations, but it may not be the best strategy.  So, before you reach for your check book, make sure you understand your options.

One of the problems with donating cash at the bank is that for many people, there’s no Federal tax advantage.  That’s because the IRS doubled the standard tax deduction in 2018 and limited certain deductions we used to be able to itemize.  Depending on how you file and how old you are, the 2021 deduction is now between $12,550 for a single filer under age 65 and $27,800 for joint filers over the age of 65.  Therefore, if all your allowable deductions (including your charitable contribution) are less than this amount in a given tax year, you will not save any money in federal taxes by giving cash. In 2021, there is one exception to this that allows single filers to deduct up to $300 in charitable donations and joint filers to deduct up to $600, while taking the standard deduction.

The good news is, there are some options that can save you on taxes and allow you to direct more dollars to the non-profit close to your heart.

 

Qualified Charitable Distribution (QCD)

Once you reach age 72, you will be required to start distributing a certain percentage from your pre-tax retirement accounts, such as IRAs and 401(k) plans. These required distributions are taxable as ordinary income, unless they are given directly to a charity as a Qualified Charitable Distribution (QCD).  This is an excellent strategy for many people, even when giving smaller amounts.  By giving directly from your IRA, you eliminate taxes on the amount given (up to $100,000 annually) regardless of whether you itemize or take the standard deduction.  Unlike other charitable deductions, QCDs also reduce your Adjusted Gross Income (AGI).  This is important because your AGI is a factor in many other tax calculations, so reducing it can also reduce your Social Security taxes and Medicare premiums, increase your medical expense deductions, and help you qualify for certain tax credits.

To highlight the effectiveness of this strategy, here is an example of a couple who wants to donate $10,000

 

Clustering Contributions

If you tend to give every year and your itemized deductions are close to the standard deduction amount, clustering your contributions can be very beneficial.  For example, if you give $20,000 every year you might instead give $40,000 this year and nothing the following year.  This would allow you to itemize in the year you donated $40,000 and take the standard deduction the following year.  Even if you itemize, if your itemizations don’t exceed the standard deduction by the amount of your charitable contributions, clustering your contributions can increase your total deductions over a multiple year period.  This strategy is particularly useful if you have unusually high income one year from the sale property, a business sale, a large bonus or vesting employee stock. If you are able to cluster your contributions using a cash donation, this year may be particularly beneficial for some people since the IRS has waived the usual 50% of income deduction limitation for 2021.

 

Donor Advised Fund

Many people want to take advantage of the clustering strategy, but feel an obligation to give to a certain organization every year, don’t want to give it all away at one time, or are not ready to decide which charities to donate to. In this case, using a Donor Advised Fund may be appropriate.  These funds allow you to cluster several years of contributions for an immediate tax deduction and then to donate them over time. Until the funds are donated, they can be invested and grown tax deferred.

 

IRA Designated Funds

While the IRS does not allow QCDs from IRA accounts to Donor Advised Funds, you are permitted to make a QCD to a Designated Funds. Unlike Donor Advised Funds, Designated Funds have predetermined charitable beneficiaries, so they do not give you the flexibility to determine the organizations at a later date.  They do offer an immediate tax deduction and allow for flexibility on the timing the organization receives the funds.

 

Donating Appreciated Assets

For anyone who owns appreciated assets outside of qualified retirement accounts, donating these assets without selling them first can be a great strategy.  It’s particularly useful for people that have a highly concentrated stock positions and want to reduce their risk by selling some of the stock.  I think seeing a simple example highlights the tax benefits best.

  • An Oregon couple purchases stock for $10,000. Years later the stock is worth $50,000.
  • If sold, they would have a $40,000 taxable gain. The couple has $200,000 of other taxable income, so they would owe 15% in Federal long-term capital gains taxes, 3.8% in Net Investment Income tax and 9.9% state income tax – totaling $11,480 in taxes. This reduces their donation and possible deduction to $38,520.
  • If they instead donate the stock directly, they avoid the federal and state taxes on the sale, the charity receives a larger donation, and they receive a larger deduction.

 

Estate Planning

You can also incorporate charitable giving into your estate plan by naming a charity as a beneficiary on an investment account or in your trust or will.  This is often utilized by people who want to leave a legacy behind.  Since you receive a tax deduction on your estate taxes, this is a particularly good strategy for people who have a taxable estate and want to have access to funds during their lifetime.

When incorporating charitable giving into your estate plan, it’s important to consider how assets are taxed depending on who they are left to.  For example: an IRA that is left to individuals will be taxable as ordinary income to your heirs, non-retirement accounts may receive a step-up in cost basis (basically forgiving the tax on investment gains) and Roth IRAs are passed tax-free.  It’s therefore advisable to leave IRAs to charity and leave your non-retirement accounts and Roths to your friends and family.

 

State Programs

For my fellow Oregonians, The Oregon Cultural Trust is an underutilized resource that can allow you to double your impact when donating to one of 1,400 different Oregon non-profits. You can see which organizations qualify on their website: www.culturaltrust.org. By making a matching donation of up to $500 per person you will effectively have your match refunded to you in the form of a tax credit, which reduces your tax due dollar for dollar. The matched amount is then granted to cultural nonprofits across Oregon. Residents of other states may have access to similar programs.

 

Charitable Gift Annuity

For people who need additional income a charitable gift annuity can be a good option to consider. In exchange for the donation, the charity provides an income stream for your life, or some other set period of time, and you receive an immediate partial tax deduction.

 

Charitable Trusts

If you have significant assets that you would like to donate during your lifetime, you might also want to consider a charitable trust or a foundation.

Charitable trusts are irrevocable, so once assets are put into the trust you cannot use them for any reason not specifically outlined in the trust.  The benefit is that you are able to donate appreciated property, receive an immediate tax deduction, and avoid capital gains on the sale.  There are two main types.  A Charitable Remainder Trust provides income to the charitable donor for life or some other specified period and at the end of the period the remaining assets go to the designated charity.  A Charitable Lead Trust is the opposite.  Income goes to the charity for a specified period and the remaining assets revert back to the donor or another named beneficiary.  You will need an attorney to draw up the trust and having a professional trustee is often recommended, so this is best for more complex assets and larger donations.  If this sounds appropriate for you, you may need to act fast. There is a tax proposal to tax the gains for the non-charitable portion of the trust, notably reducing the tax benefit of this type of donation.

 

Foundations

A family foundation or private foundation can be appropriate for individuals who would like their charitable work to continue long after they are gone, by passing the torch to future generations.  The donated funds are invested tax-deferred.  Unlike other options you have the ability to hire staff, including your own family, to operate the foundation.  Foundations are highly regulated and can be expensive to administer, so they are usually only pursued by families with significant assets.

 

Not all of these strategies will be appropriate for everyone and what makes sense for you one year may not be best the following year, so it’s important to work with your professional team on an ongoing basis. Talk with your financial planner about how this fits into your overall financial plan, to ensure you are balancing your generosity with your ability to achieve your other financial goals. Your planner can also help you narrow down your options, coordinate with your accountant and estate planning attorney, and consider options for taking advantage of higher deductions, such as Roth conversions or realizing investment gains in a lower tax bracket. If you are not currently working with a financial planner, you can learn about the advisors at Merriman at www.merriman.com/advisors.

 

You can download a PDF of this article here.

 

 

 

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax or legal or accounting advice, and nothing contained in these materials should be taken as such. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. As always please remember investing involves risk and possible loss of principal capital and past performance does not guarantee future returns; please seek advice from a licensed professional.

Advisory services are only offered to clients or prospective clients where Merriman and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Merriman unless a client service agreement is in place.

 

Inflation Is Rising – Should I Be Worried?

Inflation Is Rising – Should I Be Worried?

Inflation is rising—should I be worried? What can I do to protect my wealth against inflation if it continues rising?

According to the US Bureau of Labor Statistics, the Consumer Price Index (CPI)—the generally accepted measure of inflation—increased by 5.3% for the 12 months ending in August 2021. Prices for all items less (the more volatile) food and energy rose 4.0% over the last 12 months ending in August. This is a much larger increase in inflation than we’ve seen in over a decade. In the decade earlier, the annual increase in the CPI has remained lower than 2%. In fact, for many of those years, it was even below 1.5%.

With inflation on the rise, many clients are asking what we are doing to protect their assets against this increase in the cost of everything.

A colleague of mine recently shared a chart that I found very telling:

Chart produced by Craig L. Israelsen, Ph.D.    www.7TwelvePortfolio.com

This data shows that investing in stocks has provided a solid defense against inflation—whether we were in a rising interest rate environment or a declining interest rate environment.

The data suggests that in higher inflation periods, small cap stocks have been particularly valuable.

The economy is a very complex organism with so many different variables that will be affected if indeed inflation continues to grow, yet one foundational reason that stocks are a good defense against inflation is that companies pass on the higher cost of materials and goods to consumers. As consumers, this does mean we pay higher prices for things; and as investors, it means that we grow our portfolios, earning a premium above the inflation rate.

Our research team is monitoring the current trajectory of inflation.  Your portfolio at Merriman is already prepared for the potential of continued rising inflation. We “tilt” our portfolios towards small cap stocks. Other ways your portfolio is protected against inflation include using REIT’s and inflation protected bonds (where appropriate), keeping our bonds “short” and “Intermediate” in duration – which also helps in keeping, what we feel, is the right level of defense against stock market drops.  We use cash flow modeling to explore what it may look like if inflation was to remain high for each of our clients.

You have worked with your advisor here to determine right mix of stocks for your situation.  We believe keeping the right mix of “offense” and “defense” has been and continues to be the best way to balance the constant and changing risks posed to your investment portfolio. If you aren’t sure if you have the right balance for your situation or wish to understand how higher inflation can affect you specifically, please don’t hesitate to reach out to us for assistance.

 

 

All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax or legal or accounting advice, and nothing contained in these materials should be taken as such. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. As always please remember investing involves risk and possible loss of principal capital and past performance does not guarantee future returns; please seek advice from a licensed professional. Advisory services are only offered to clients or prospective clients where Merriman and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Merriman unless a client service agreement is in place.

 

Navigating the Free Application for Federal Student Aid (FAFSA)

Navigating the Free Application for Federal Student Aid (FAFSA)

 

My college roommate Maddy knows the Free Application for Federal Student Aid (FAFSA) system well. Maddy used federal student loans to finance her undergraduate and graduate degrees. As a high school teacher, she’s dedicated a large portion of her school’s homeroom curriculum to making sure her students enter college with a better understanding of how personal finances, credit, and loan amortization work. I got together with Maddy to chat about her experience navigating the federal student loan system from start to finish and to find out what advice she has for parents and students today.

 

Moorea: To start off, can you tell me what degrees you have, where you went to school, and how you financed your college expenses?

Maddy: Sure. I have a BA in English from the University of Oregon, a master’s in teaching from Oregon State University, and a master’s in English from Portland State University. My undergraduate degree was funded about 30% by scholarships and 70% by federal student loans. My graduate degree from OSU was paid for 100% with federal student loans and my second graduate degree from PSU was paid for by federal loans and a tuition program through my job that covered $1,000 per term.

 

Moorea: Do you remember what your thought process was when you were 18 and deciding to take out your first student loan?

Maddy: Yeah, there was no thought process. I answered all the questions on the FAFSA with my mom, and at the end of the application, I clicked a box that said “Yes, Accept.” There was a very basic loan counseling page that I read, but it didn’t mean much at the time because I didn’t understand the concept of amortization. It was 2009 during the financial crisis, and everyone was taking out student loans. Debt was the expectation.

Because my parents’ expected family contribution was high, I didn’t qualify for subsidized loans (loans that don’t accrue interest until after graduation) despite them not paying anything towards my college. I didn’t know my student loans were accruing interest the whole time I was in school.

 

Moorea: You’re in charge of writing your school’s curriculum. Are you doing anything to prepare your students to make financial decisions after high school?

Maddy: Yes! In addition to a traditional personal finance and college prep curriculum, I walk through how to fill out the FAFSA with students page by page. I do a cost benefit analysis with students where we compare the cost of tuition at three community colleges, three states schools, and one private university. I walk my students through how many hours of a minimum wage job you’d have to work to pay off the loan over a 10-year period and explain how loan amortization works.

 

Moorea: What advice do you have for students and parents to help offset the cost of college?

Maddy: Consider completing your general education requirements at community college. Many Oregon students qualify for free community college through the Oregon Promise Grant.

If you’re considering attending a state school and your high school covers the cost of community college classes or offers College Now classes, take these because the credits will transfer to a university.

If you’re considering a more prestigious school or private college, focus on taking AP classes and sitting for the AP exams.

All students should volunteer as it looks good on college, scholarship, and job applications.

 

While it is a highly valuable asset in life, college education is a big expense, and families should discuss and plan with their financial advisor to determine how to proceed with this important life decision. If you want assistance with this planning process, please reach out to us.

 

 

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual. Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Merriman. The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.