Having enough cash to make it through an illness, injury, job loss, or other financial emergency can help you avoid taking on debt or tapping your retirement assets. However, given the relatively low interest rates offered on cash instruments, having more cash in your portfolio than would be necessary to cover three to six months of expenses could actually say something about your long-term outlook.

If you have been increasing your cash position, it’s a good idea to be honest with yourself about your motives. Ask yourself some critical questions.

What am I saving for? Building up a cash reserve to help defend against the unexpected is a smart move. But are you working to accumulate a particular sum, or is there no end in sight? You run the risk of not reaching long-term financial goals when your portfolio is too heavily allocated to cash.

Am I increasing my cash position because of fear? It’s usually not a good idea to keep the bulk of your wealth and/or retirement assets on the sidelines, in low-yielding cash instruments, just because you fear market volatility. Of course, as retirement approaches, it’s a good idea to begin shifting assets into more conservative positions. But this process should be based on a forward-looking strategy that takes into account your time horizon and risk tolerance, rather than on an emotional reaction to market fluctuations. As you can see in the chart above, trying to pick the right moment to flee and the right moment to reinvest is a costly practice that can cause you to miss out on market gains.

What’s my real rate of return? Despite the fact that inflation has been fairly low over the past few years, it is still growing at a faster rate than most cash instruments. For example, in 2009 the rate of inflation was 2.72% and the annual yield on six-month certificates of deposit was 0.81%.² What this means is that the combined principal and interest that was returned to the CD owner on the maturity date had less spending power than the principal that was invested six months earlier. When you also consider the effects of income taxes on the interest earned, it’s easy to see how expensive “safety” can be.

The FDIC insures bank savings accounts and CDs, which generally provide a fixed rate of return, up to $250,000 (per depositor, per institution). The return and principal value of an investment in stocks and bonds fluctuate with changes in market conditions. When sold, these securities may be worth more or less than the original investment amount.

There’s a big difference between being prepared for unexpected expenses and stockpiling cash because of fear. We can help you evaluate the role that cash plays in your portfolio.

1) Journal of Financial Planning, March 2010
2) Thomson Reuters, 2010, for the period 12/31/2008 to 12/31/2009. Inflation is represented by the U.S. Consumer Price Index. CDs are represented by the 180-Day Certificate of Deposit Index. The performance of an unmanaged index is not indicative of the performance of any particular investment. Individuals cannot invest directly in an index. Past performance is no guarantee of future results. Actual results will vary.

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2010 Emerald.

Of course, you still have to fill out the right forms, but the process is nowhere near as complicated as writing a will. In fact, your retirement assets, life insurance, and some other account types should convey to whomever you named as a beneficiary, regardless of what it says in your will or whether you even have a will.

However, be advised that failing to designate your beneficiaries correctly can create problems for your heirs that will make probate seem like a Caribbean cruise.

Don’t Default to Default Beneficiaries

Generally, when you set up a retirement account or purchase a life insurance policy, you are given an opportunity to name primary and secondary beneficiaries. Although it would be unlikely for someone to buy life insurance without designating a beneficiary, it’s not uncommon for people to leave their retirement account beneficiary forms blank.

Most people assume that their IRAs and employer-sponsored retirement plans will go to their spouses. It’s true that these types of accounts have provisions for default beneficiaries, but who exactly qualifies as a default beneficiary can vary based on the account type and custodian — and there’s no guarantee that it will be your spouse.

It can be dangerous to assume that the default beneficiary is the person whom you want to inherit your assets. If it isn’t, the person who was expecting to inherit your retirement assets may have to mount a legal challenge to attempt to change the outcome. If the default beneficiary turns out to be your estate, your intended heirs could lose valuable tax benefits.

Although it’s still important to have a current will in place, a will won’t settle all estate conservation matters. It’s a good idea to review your beneficiary designations on a regular basis to help ensure there is no debate over who will inherit your retirement assets and receive your life insurance benefits.

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2010 Emerald.

In 2010, the present value of lifetime benefits from Medicare was about $376,000 for a 65-year-old married couple. Because Medicare covers about half of a beneficiary’s medical costs in retirement, on average, does this mean you’ll need $376,000 to pay for your share?¹

As large as this estimate might seem, there’s evidence to suggest that many people will need even more savings to cover medical expenses in retirement, especially people who don’t expect to retire for at least another decade.

How Certain Do You Want to Be?

The Employee Benefit Research Institute estimates that a man will need between $144,000 and $290,000 and a woman will need between $210,000 and $406,000 in savings to have a 50% chance of affording health care in retirement, assuming retirement at age 65 in 2019.²

These estimates are for the projected median savings needed to pay premiums for Medigap, Medicare Part B and Part D, and out-of-pocket prescription drug expenses. Since half of the population would be above the median, half could need more than these amounts. Some people may need to save even more if they live longer than the average life expectancy, have above-average prescription drug costs, or want greater certainty that they will be able to pay for health care.

The estimates tend to be higher for women because they have longer life expectancies. In fact, a woman who wants to be 90% certain that she will be able to afford her health-care expenses in retirement would need an estimated $370,000 in savings (again, assuming retirement in 2019 at age 65). If her prescription drug costs are above the median, she could need even more.³

You might be wondering whether the health reform legislation that became law in March 2010 will reduce the amount that tomorrow’s retirees will need to pay for health care. Because the law relies on $415 billion in cuts to Medicare, it’s entirely possible that the percentage of medical expenses covered by Medicare benefits could fall in the future.⁴

Of course, your situation is likely to be different. What do these estimates mean if you know that you are almost certain to retire at a different age and/or in a different year? In that case, these numbers might make a good starting point for calculating how much money you may need to accumulate.

1–3) Employee Benefit Research Institute, 2010
4) Tax Foundation, 2010

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2010 Emerald.

Please feel free to call my office with any questions you might have.

Below are some of the key provisions that will take effect immediately, under the legislative package the House passed this weekend (the Senate health bill as amended by the reconciliation bill). The reconciliation bill is based largely on the improvements put forward by the President’s proposal – moving towards the House bill in certain critical areas.

1.
SMALL BUSINESS TAX CREDITS—Offers tax credits to small businesses to make employee coverage more affordable. Tax credits of up to 35 percent of premiums will be immediately available to firms that choose to offer coverage. Effective beginning for calendar year 2010. (Beginning in 2014, the small business tax credits will cover 50 percent of premiums.)

2.
BEGINS TO CLOSE THE MEDICARE PART D DONUT HOLE—Provides a $250 rebate to Medicare beneficiaries who hit the donut hole in 2010. Effective for calendar year 2010. (Beginning in 2011, institutes a 50% discount on brand?name drugs in the donut hole; also completely closes the donut hole by 2020.)

3.
FREE PREVENTIVE CARE UNDER MEDICARE—Eliminates co?payments for preventive services and exempts preventive services from deductibles under the Medicare program. Effective beginning January 1, 2011.

4.
HELP FOR EARLY RETIREES—Creates a temporary re?insurance program (until the Exchanges are available) to help offset the costs of expensive health claims for employers that provide health benefits for retirees age 55?64. Effective 90 days after enactment

5.
ENDS RESCISSIONS—Bans health plans from dropping people from coverage when they get sick. Effective 6 months after enactment.

6.
NO DISCRIMINATON AGAINST CHILDREN WITH PRE?EXISTING CONDITIONS—Prohibits health plans from denying coverage to children with pre?existing conditions. Effective 6 months after enactment. (Beginning in 2014, this prohibition would apply to all persons.)

7.
BANS LIFETIME LIMITS ON COVERAGE—Prohibits health plans from placing lifetime caps on coverage. Effective 6 months after enactment.

8.
BANS RESTRICTIVE ANNUAL LIMITS ON COVERAGE—Tightly restricts new plans’ use of annual limits to ensure access to needed care. These tight restrictions will be defined by HHS. Effective 6 months after enactment. (Beginning in 2014, the use of any annual limits would be prohibited for all plans.)

9.
FREE PREVENTIVE CARE UNDER NEW PRIVATE PLANS—Requires new private plans to cover preventive services with no co?payments and with preventive services being exempt from deductibles. Effective 6 months after enactment.

10.
NEW, INDEPENDENT APPEALS PROCESS—Ensures consumers in new plans have access to an effective internal and external appeals process to appeal decisions by their health insurance plan. Effective 6 months after enactment.

11.
ENSURING VALUE FOR PREMIUM PAYMENTS—Requires plans in the individual and small group market to spend 80 percent of premium dollars on medical services, and plans in the large group market to spend 85 percent. Insurers that do not meet these thresholds must provide rebates to policyholders. Effective on January 1, 2011.

12.
IMMEDIATE HELP FOR THE UNINSURED UNTIL EXCHANGE IS AVAILABLE (INTERIM HIGH?RISK POOL)—Provides immediate access to insurance for Americans who are uninsured because of a pre?existing condition ? through a temporary high?risk pool. Effective 90 days after enactment.

13.
EXTENDS COVERAGE FOR YOUNG PEOPLE UP TO 26TH BIRTHDAY THROUGH PARENTS’ INSURANCE – Requires health plans to allow young people up to their 26th birthday to remain on their parents’ insurance policy, at the parents’ choice. Effective 6 months after enactment.

14.
COMMUNITY HEALTH CENTERS—Increases funding for Community Health Centers to allow for nearly a doubling of the number of patients seen by the centers over the next 5 years. Effective beginning in fiscal year 2010.

15.
INCREASING NUMBER OF PRIMARY CARE DOCTORS—Provides new investment in training programs to increase the number of primary care doctors, nurses, and public health professionals. Effective beginning in fiscal year 2010.

16.
PROHIBITING DISCRIMINATION BASED ON SALARY—Prohibits new group health plans from establishing any eligibility rules for health care coverage that have the effect of discriminating in favor of higher wage employees. Effective 6 months after enactment.

17.
HEALTH INSURANCE CONSUMER INFORMATION—Provides aid to states in establishing offices of health insurance consumer assistance in order to help individuals with the filing of complaints and appeals. Effective beginning in FY 2010.

18.
CREATES NEW, VOLUNTARY, PUBLIC LONG?TERM CARE INSURANCE PROGRAM—Creates a long?term care insurance program to be financed by voluntary payroll deductions to provide benefits to adults who become functionally disabled. Effective on January 1, 2011.

OFFICE OF SPEAKER NANCY PELOSI
MARCH 22, 2010

This may not come as a surprise to anyone who is married. The real news is that leaving such basic issues unsettled paves the way for confusion and missed opportunities. Funding a comfortable retirement is challenging enough without adding marital conflict to the mix.

Only 38% reported making decisions together about their retirement investments.² This could explain why 39% of couples disagreed about whether they owned annuities and 25% disagreed on whether they owned an IRA.³ When a couple pools their financial resources, they should also consider how the union will affect their combined risk tolerance and time horizon. Failing to do so could result in the couple having an improperly allocated portfolio without knowing it.

Forty-two percent don’t agree on the kind of lifestyle they will share in retirement.⁴ If she wants to move closer to the family and he wants to travel the open road, it will be difficult to determine whether they are saving enough to support their expected lifestyle because they still don’t have an accurate picture of their lifestyle goals.

Sixty percent could not agree on the husband’s or the wife’s expected retirement age.⁵ Obviously, choosing when to retire is a personal decision, based on health and career factors. But there are other important considerations that relate to age eligibility: Will each spouse begin taking Social Security benefits at 62, or should one or both wait until full retirement age? Will the older spouse’s retirement age affect the younger’s decision about when to tap tax-deferred retirement accounts, which carry penalties for withdrawals before age 59½?

Disagreements are natural in a healthy marriage. But allowing them to go unresolved can needlessly limit financial options and opportunities.

1–2) The Dallas Morning News, July 9, 2009
3–5) AARP, 2009

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2010 Emerald.

Happy 2010 from all of us at

Haronian Insurance & Financial Services

By RICARDO ALONSO-ZALDIVA

and ERICA WERNER

Associated Press Writers

A comparison of the health care bills before Congress:

The Senate Democratic bill

(Patient Protection and Affordable Care Act):

WHO’S COVERED: About 94 percent of legal residents under age 65 — compared with 83 percent now. Government subsidies to help buy coverage start in 2014.

COST: Coverage provisions cost $848 billion over 10 years.

HOW IT’S PAID FOR: Fees on insurance companies, drugmakers, medical device manufacturers. Medicare payroll tax increased to 1.95 percent on income over $200,000 a year for individuals; $250,000 for couples. New 5 percent tax on elective cosmetic surgery. Cuts to Medicare and Medicaid. Forty percent excise tax on insurance companies, keyed to premiums paid on health care plans costing more than $8,500 annually for individuals and $23,000 for families. Fees for employers whose workers receive government subsidies to help them pay premiums. Fines on people who fail to purchase coverage.

REQUIREMENTS FOR INDIVIDUALS:Almost everyone must get coverage through an employer, on their own or through a government plan. Exemptions for economic hardship. Those who are obligated to buy coverage and refuse to do so would pay a fine starting at $95 in 2014 and rising to $750.

REQUIREMENTS FOR EMPLOYERS: Not required to offer coverage, but companies with more than 50 employees would pay a fee of $750 per employee if the government ends up subsidizing employees’ coverage.

SUBSIDIES: Tax credits for individuals and families likely making up to 400 percent of the federal poverty level, which computes to $88,200 for a family of four. Tax credits for small employers.

BENEFITS PACKAGE: All plans sold to individuals and small businesses would have to cover basic benefits. The government would set four levels of coverage. The least generous would pay an estimated 60 percent of health care costs per year; the most generous would cover an estimated 90 percent.

INSURANCE INDUSTRY RESTRICTIONS: Starting in 2014: no denial of coverage based on pre-existing conditions. No higher premiums allowed for pre-existing conditions or gender. Limits on higher premiums based on age and family size. Starting upon enactment of legislation: children up to age 26 can stay on parents insurance; no lifetime limits on coverage.

GOVERNMENT-RUN PLAN: A new federal insurance plan would be offered to compete against private carriers. The government would negotiate — not dictate — payment rates for medical providers. Unlike the House bill, states could opt out of the plan. It’s not clear the proposal commands enough votes to survive. One compromise under consideration would replace it with national nonprofit health plans administered by the Office of Personnel Management, which oversees the popular Federal Employees Health Benefits Plan.

HOW YOU CHOOSE YOUR HEALTH INSURANCE: Self-employed people, uninsured individuals and small businesses could pick a plan offered through new state-based purchasing pools. Would generally encourage employees to keep work-provided coverage.

DRUGS: Grants 12 years of market protection to high-tech drugs used to combat cancer, Parkinson’s and other deadly diseases. Drug companies contribute $80 billion over 10 years with the majority of the money used to limit the prescription coverage gap in Medicare.

CHANGES TO MEDICAID: Income eligibility levels likely to be standardized to 133 percent of poverty — $29,327 a year for a family of four — for parents, children and pregnant women. Federal government would pick up the full cost of the expansion during the first three years. States could negotiate with insurers to arrange coverage for people with incomes slightly higher than the cutoff for Medicaid.

LONG-TERM CARE: New voluntary long-term care insurance program would provide a basic benefit designed to help seniors and disabled people avoid going into nursing homes.

ANTITRUST: Amendment expected to be offered on the Senate floor to strip the health insurance industry of its antitrust exemption.

ILLEGAL IMMIGRANTS: Would be barred from receiving government subsidies or using their own money to buy coverage offered by private companies in the exchanges.

ABORTION: Private companies in the exchange could offer abortion coverage, but people would have to use their own money — not federal subsidy money — to buy that coverage. Strict segregation of private from taxpayer funds would be required, and taxpayer dollars could only be used in cases of rape, incest or danger to the mother’s life. The new federal insurance plan also could offer abortion coverage. An amendment by Sen. Ben Nelson, D-Neb., would tighten those restrictions along the lines in the House bill, but the amendment is not expected to pass.

The House bill

(Affordable Health Care for America Act):

WHO’S COVERED: About 96 percent of legal residents under age 65 — compared with 83 percent now. Government subsidies to help buy coverage start in 2013. About one-third of the remaining 18 million people under age 65 left uninsured would be illegal immigrants.

COST:The Congressional Budget Office says the bill’s cost of expanding insurance coverage over 10 years is $1.055 trillion. The net cost is $894 billion, factoring in penalties on individuals and employers who don’t comply with new requirements. That’s under President Barack Obama’s $900 billion goal. However, those figures leave out a variety of new costs in the bill, including increased prescription drug coverage for seniors under Medicare, so the measure may be around $1.2 trillion.

HOW IT’S PAID FOR:$460 billion over the next decade from new income taxes on single people making more than $500,000 a year and couples making more than $1 million. The original House bill taxed individuals making $280,000 a year and couples making more than $350,000, but the threshold was increased in response to lawmakers’ concerns that the taxes would hit too many people and small businesses.

There are also more than $400 billion in cuts to Medicare and Medicaid; a new $20 billion fee on medical device makers; $13 billion from limiting contributions to flexible spending accounts; sizable penalties paid by individuals and employers who don’t obtain coverage; and a mix of other corporate taxes and fees.

REQUIREMENTS FOR INDIVIDUALS: Individuals must have insurance, enforced through a tax penalty of 2.5 percent of income. People can apply for hardship waivers if coverage is unaffordable.

REQUIREMENTS FOR EMPLOYERS: Employers must provide insurance to their employees or pay a penalty of 8 percent of payroll. Companies with payrolls under $500,000 annually are exempt — a change from the original $250,000 level to accommodate concerns of moderate Democrats — and the penalty is phased in for companies with payrolls between $500,000 and $750,000.

Small businesses — those with 10 or fewer workers — get tax credits to help them provide coverage.

SUBSIDIES: Individuals and families with annual income up to 400 percent of poverty level, or $88,000 for a family of four, would get sliding-scale subsidies to help them buy coverage. The subsidies would begin in 2013.

HOW YOU CHOOSE YOUR HEALTH INSURANCE: Beginning in 2013, through a new Health Insurance Exchange open to individuals and, initially, small employers. It could be expanded to large employers over time. States could opt to operate their own exchanges in place of the national exchange if they follow federal rules.

BENEFITS PACKAGE: A committee would recommend a so-called essential benefits package including preventive services. Out-of-pocket costs would be capped. The new benefit package would be the basic benefit package offered in the exchange.

INSURANCE INDUSTRY RESTRICTIONS: Starting in 2013, no denial of coverage based on pre-existing conditions. No higher premiums allowed for pre-existing conditions or gender. Limits on higher premiums based on age.

GOVERNMENT-RUN PLAN: A new public plan available through the insurance exchanges would be set up and run by the health and human services secretary. Democrats originally designed the plan to pay Medicare rates plus 5 percent to doctors. But the final version — preferred by moderate lawmakers — would let the HHS secretary negotiate rates with providers.

CHANGES TO MEDICAID: The federal-state insurance program for the poor would be expanded to cover all individuals under age 65 with incomes up to 150 percent of the federal poverty level, which is $33,075 per year for a family of four. The federal government would pick up the full cost of the expansion in 2013 and 2014; thereafter the federal government would pay 91 percent and states would pay 9 percent.

DRUGS: Grants 12 years of market protection to high-tech drugs used to combat cancer, Parkinson’s and other deadly diseases. Phases out the gap in Medicare prescription drug coverage by 2019. Requires the HHS secretary to negotiate drug prices on behalf of Medicare beneficiaries.

LONG-TERM CARE: New voluntary long-term care insurance program would provide a basic benefit designed to help seniors and disabled people avoid going into nursing homes.

ANTITRUST:Would strip the health insurance industry of a long-standing exemption from antitrust laws covering market allocation, price-fixing and bid rigging. The bill also would give the Federal Trade Commission authority to look into the health insurance industry at its own initiative.

ILLEGAL IMMIGRANTS: Would be barred from receiving government subsidies but permitted to use their own money to buy coverage offered by private companies in the exchange.

ABORTION: Private companies in the exchange could not offer plans covering abortion if those plans received federal subsidy money. Most plans in the exchange would be affected, because most consumers in the exchange would be using federal subsidy money to buy coverage. The new government plan could not offer abortion coverage. Insurance companies would be permitted to offer supplemental abortion coverage in separate plans that people could buy with their own money. Use of federal money for abortion coverage would be limited to cases of rape, incest or danger to the woman’s life.

The appropriate way to appraise a person’s entire life after he or she is gone is a topic that has been debated by philosophers throughout the ages. Certainly, there are as many factors as there are ways to approach them. One measure of a life is the effect that the person’s death has on those close to him or her. For those with dependents, this effect can be substantial.

One way to help mitigate the financial blow of the loss of a head of household is through life insurance. Yet in a recent survey, even though most people agreed that everyone should have some form of life insurance, only 20% felt that it should go beyond just covering bills and funeral costs and should replace the income of the deceased in order to support dependent family members.¹

However, if you have dependents, the loss of your income could put your family in the difficult position of trying to maintain its standard of living on a much smaller budget. Life insurance can be a tool to help replace the lost income. But how much insurance is enough?

No Rule of Thumb

Some people recommend that life insurance be high enough to replace an equivalent of seven or eight times the annual salary of the insured. Yet this old rule of thumb may not be the best guidepost for someone with no children.

To determine how much life insurance coverage may be appropriate for your family, consider your dependents and their ages. How long would they be expected to need support? Would there be enough funds for college? Would you want the mortgage to be paid off?

Don’t forget about other benefits that might be lost along with your salary. For example, if your health insurance is provided by your employer, your family may need replacement coverage.

Remember that the cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable and to consult a tax professional.

As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications.

1) U.S. News & World Report, March 31, 2009

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2009 Emerald.

Happy Rosh Hashanah

Jewish Year 5770: sunset September 18, 2009 – nightfall September 20, 2009