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The Independent Investor: Medicare Premiums and Your Income

By Bill Schmick
iBerkshires columnist
We all know that Medicare is not free. Once we enroll in Part B and D, we start paying monthly premiums. What many consumers fail to realize is that how much you pay depends on how much you make.
 
For most of us, this is a moot point. We assume that we will be retiring at 65 years old (at the same time Medicare kicks in) but that assumption is no longer accurate. The reality is that Social Security, retirement, and Medicare can happen at different times in your life.
 
Take, for example, Social Security benefits. Every year the target date for full retirement creeps higher. It used to be 65, but now, for many, it is edging up to almost 67 over the next few years. When that occurs, workers will usually sign up for Medicare A but delay enrolling in Parts B and D until after they retire and are no longer covered by their company's health insurance program.
 
What most applicants don't know, until it is too late, is that your monthly Medicare premiums will be based on your last two years' annual income. But the actual logistics of that can be confusing. Here's why.
 
Your reported income follows a governmental processing chain where once the IRS processes your tax returns, they pass that information on to Social Security, which, in turn, feeds the data to Medicare, which then determines your premiums based on those numbers.
 
Let's say you are applying for Medicare B and D right now. For starters, most of us are just now filing our tax returns for 2017 (even though we are already approaching the second quarter of 2018). It will take months before the IRS gives Social Security your 2017 tax returns and even more time before that data gets to Medicare. Bottom line: there is a big-time lag between your current income and when it shows up in your Medicare premiums.
 
That means if you are retiring now and made less than $85,000 (as a single taxpayer or $170,000 filing jointly) in the calendar year 2016, your premiums would qualify at the base rate of $134 a month for Part B and $13 a month for Part D.
 
Above that income level, your premiums increase to $267.90 and $33.60, if you make over $85,000-$107,000 ($170,000-$214,000 jointly). They jump again above $133,500 or $267,000 jointly. And again, and again, until you can be paying as much as $428.60 and $74.80 per month when your income exceeds $160,000 or $320,000 jointly. If your spouse is also retired and on Medicare, then double that premium amount. For those couples making above $320,000 a year, for example, they will be paying $503.40 per month or $6,040.80 a year.
 
Social Security determines what you pay each year, based on your modified adjusted gross income (MAGI) as reported to the IRS. MAGI would include things like wages, dividends, rental income, capital gains and non-taxable Social Security benefits. If you earn more (or less) the following year, Social Security will adjust your monthly premiums. They call it your income-related monthly adjusted amount.  That premium will be deducted from your Social Security income check or, if you are not taking Social Security yet, it will be billed to you.
 
Theoretically, your premiums should be adjusted every year with a lag. So, if you report a high-income number to the IRS for the two years prior to retirement, you can expect to pay a lot in Medicare premiums. What happens when your income drops, as it usually does once you retire?
 
You can petition for a Request for Reconsideration to reduce your Part B premium if you feel there is a compelling reason why you should not be paying a higher premium. The most common reason most petition is that income has dropped dramatically in retirement. Other reasons might include marriage, divorce or being widowed. The loss of income-producing property and changes or termination of a pension would also count. 
 
Appeals work some of the time, but not all the time. It is a lengthy process and you still must pay your premiums while the petition makes its tortuous way through this process. It costs nothing to petition, however, and you might win in the end.
 
A much better approach, if you can manage it, is to reduce your income as much as possible two years prior to signing up for Medicare B and D. That is not always easy to pull off. You might reduce your hours and compensation, for example, if your employer is flexible, or, if your spouse works, and has family health coverage, you could retire, delay Medicare coverage for two years, and then apply. It comes down to what you can afford to give up now for future benefits in the years ahead.
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
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@themarket: Trump's Tariff Talk Trashes Global Markets

By Bill Schmick
iBerkshires columnist
Stocks declined this week. This is a typical and largely expected reaction that should see the averages re-test the lows suffered in early February.  Investors should understand that this is no cause for alarm.
 
In past columns, I had warned investors that there may be another shoe to drop before the correction in the markets was truly completed. Typically, stocks make a low, which we did when the S&P 500 Index hitting the 200-day moving average (DMA) before rebounding. We subsequently regained about half that loss quickly. And now we are in the process of re-testing the lows. This is a classic stock market pattern, so don't fret.
 
Volatility reigns supreme right now as it should. The Dow, for example, rose or fell a minimum of 300 points in six out of the last seven sessions. Sickening declines, followed by nerve-rattling rises, have most investors on a roller coaster of emotions. If you can't take the ups and downs, my advice is to turn off the financial news flow and do something productive.
 
Investors might recall that the stock market exhibited similar behavior in 2016 when the averages declined 10 percent in January, regained their losses and then declined again in February. Those who panicked and sold made a terrible mistake, because all the stock indexes went on to move much higher in the ensuing years. 
 
Since markets always need an excuse to go down, this week the testimony of our new Federal Reserve chairman, Jerome Powell, gave traders a chance to do a little profit-taking. The new Fed chieftain, in his Humphrey Hawkins testimony before both houses of Congress, said nothing new or earth-shaking. The entire session was really a grandstanding play by Democrats to trash the tax cut and ask the new chairman questions that were entirely outside of his job description.
 
He did say that a fourth rate hike may be in the cards, if conditions warranted it. Fed officials have been saying that for months. The markets decided to hear it differently this time, however, and so, the markets sank. But it was Thursday afternoon's comments by the president that really triggered this latest waterfall decline in equities.
 
"The Donald," in his own unpredictable fashion, announced (during what was supposed to be a listening session of gripes by U.S. steel executives) his intention to raise tariffs on foreign steel and aluminum producers by as much as 25 percent early next week. His unexpected announcement caught both his staff, the Republican party and global investors by surprise.
 
"Trade War" has become the new battle cry overnight and Friday's reason to sell all stocks, no matter how low, because the world's markets are never, ever going to come back. Sounds silly, doesn't it, but if you listen to the news that's what you hear. Why are we so surprised?
 
Donald Trump had campaigned on this issue. After the election, he promised to do something about what he believed to be unfair trade practices by our trading partners. He backed out of TPP, threatens to do the same with NAFTA, and has promised relief for our steel and aluminum sectors, specifically. So now he has gone and done it. There is no doubt in my mind that our trading partners will retaliate at some point.
 
Contrary to the myth that the U.S. is the only country in the world to practice "fair" trade policies, we don't. We dump our products overseas to support our producers here at home just like China or the European Community does. We dump our agricultural products, such as wheat and soybeans, overseas and do so year after year to protect our farmers. Most of which are no longer the actors you see in commercials wearing overalls. The guys we protect are more like the Koch brothers or mega-cap, corporate conglomerates like Cargill.
 
In the real world, we protect our farmers and they protect their steel producers. It is the way the game is played. God forbid a politician should tell us the truth!  But tariffs are inflationary. Prices go up every time another tariff is enacted. If this tit for tat were to continue, and it might, commodity prices should start to move higher.
 
In the meantime, take a deep breath, accept that your portfolio will suffer losses, (because that's what is supposed to happen every now and then) and expect a rebound.
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
 

 

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The Independent Investor: The Economy and What Could Go Right

By Bill Schmick
iBerkshires columnist
The markets are in a funk. Concern that Trump's tax cut will be too much, too late, has investors riled up. But there may be a flip side to this argument that bears watching.
 
First, the negatives, as authored by me way back when the tax cut was still being contemplated and the markets were riding high in anticipation of such. At the time, I voiced my concerns and it is worth repeating them.
 
Fiscal spending because of the Republican-inspired tax cut adds $1.5 trillion of stimulus to an economy that is already growing at a 3 percent clip. I bemoaned the fact that this tax cut was about eight years too late. Back then, I wrote that the fastest way to pull the economy out of recession and reduce the unemployment rate was by the passage of a massive fiscal stimulus package. The Federal Reserve Bank agreed with that strategy.
 
But it was the Obama years and Republicans voted down everything and anything that might have helped the economy. Instead, they argued that the deficit had to be reduced, and, in the end, they cut spending at the absolute worst time. As a result, the economy and the employment rate languished for many years.
 
The Fed continued to single-handedly pull the country out of recession. The economy started to finally gain momentum last year, and that growth is accelerating. At the same time, unemployment has shrunk to historically low levels, while the deficit grew anyway, despite the spending cuts.
 
Now that Republicans control the House, Senate and White House, they passed a tax cut, which economists say should have never been done this late in the economic cycle. This unprecedented fiscal stimulus, economists fear, will lead to too much growth. The economy will overheat, which will cause wages in a tight market to spike higher causing inflation.
 
This will cause the central bank to raise rates much higher than expected. In turn, these higher rates will cause the stock market to crash and the economy to fall until recession is all but inevitable. The tax cut will, contrary to GOP expectations, be the demise of both the economy and the market.
 
However, the flip side of this doom and gloom scenario could result in an opposite conclusion. Clearly, tax cuts increase productivity by increasing business spending on things like capital equipment, technology and the like. New equipment allows businesses to produce goods at lower costs. As such, managers can raise wages and keep their selling price the same. Why is that important?
 
If the end price of a company's product does not increase, inflation should not rise. Instead, you get higher economic growth, higher wages and lower costs, which results in the same end price to the consumer. It would be the best of all worlds: lower taxes, coupled with lower regulations. It is normally called "supply side" economics. We have heard little to nothing from this side of the economic argument for many years. Maybe it's time to consider the possibilities?
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
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@theMarket: Interest Rates and Stock Market

By Bill Schmick
iBerkshires columnist
After years and years of historically low-interest rates both here and abroad, stock investors are suddenly paying attention to the day-to-day movements of the world's bond markets. They may be getting a little too obsessive for their own good. 
 
This week, the 10-year Treasury note and the equity averages moved hand in hand. As the yield on the U.S. Treasury moved higher, stocks moved lower. As the yield fell, stocks gained ground. This change in behavior is causing a great deal of needless volatility but I believe it is all part of the "normalization" process.
 
That is a term coined by investors to explain what happens when our central banks begin to back off the last ten years' worth of monetary stimulus and let the markets begin to dictate the level of interest rates. Now, historically, bond and stock holders have had a symbiotic relationship.
 
As interest rates rise, stock holders would take account of the rising yield on bonds and compare it to what they can get in the stock market. If they deem that bonds are a better deal than stocks, they sell equities and buy bonds. Usually, investors take into account the longevity of these investments -- one, five, seven, ten, twenty or thirty years, while what happens to yields on a day-to-day basis does not tend to move stocks. But these are not normal times.
 
The controversial but largely successful actions of the world's central banks to stave off a second global depression brought on by the U.S. financial crisis is now being unwound. Since there were no precedents for the Fed's massive market "save" over the past decade, there is no surety that reversing the process will work without tipping us into some unforeseen calamity.
 
Remember too, that we now have an entire generation of financial sector players from retail brokers to institutional proprietary traders that have never experienced a rising interest rate environment. It has been almost 45 years since interest rates topped out during the Jimmy Carter years. Since then, rates have fallen lower and lower until quite recently.
 
At the same time, the wide spread use of algorithms, computer-driven trading and the like has largely replaced human thought and behavior in over 70 percent of daily trading volume. These computers are driven by software programs created by extremely young and unseasoned "quants" that simply look at numbers. They instruct their machines to sell if "X" price falls or rises by a certain amount.
 
They have neither context nor history to adjust their programs for a rising interest rate environment, so they treat bonds just like they were stocks. These technicians are running around building "models" to trade these short-term blips in bond movements, while trying to figure out their impact on individual stocks and indexes. There is no doubt in my mind that they will succeed. The problem is that bonds are not stocks.
 
Unlike the majority of stocks today, bonds are meant to be held, sometimes, until they mature (which can be as much as 30 years). Daily price movements are simply "noise" in the grand scheme of things in the bond world.  But, today, young Turks act and trade like a 4-5 basis point move in bond yields will mean that the trillions of dollars invested in these instruments will be sold or bought in the next minute or so.
 
For you and me, what this development will provide is another reason why daily and weekly moves in the equity markets will have little to do with reality. The day's stock market results will simply be a reflection of a schoolyard full of little boys and girls playing with their toys. Some will make money doing it, while others will lose.
 
As for the markets, this week I expected them to pull back some. They did. During the last four days, stocks traded up and down in huge intra-day moves. On Tuesday alone, the Dow gained over three hundred points, dropped almost the same amount, before gaining half of it back. This kind of volatility tells me this consolidation period may not be over. We could still see a little more damage in the very short term, but overall, I am still convinced we are going higher and fairly soon.
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
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The Independent Investor: Is America Back in the Space Business?

By Bill Schmick
iBerkshires columnist
If you were watching television this Thursday, you may have caught the launching of a low-orbit Spanish government-commissioned satellite launched from Vandenberg Air Force Base in California. The difference between today and 25 years ago is that it was a private company called Space X, rather than NASA, that made it happen.
 
For old guys like me, space exploration was a big deal while growing up. Americans my age cheered and cried as the U.S. raced for space from the tragic death of the crew of Apollo One in 1967, to the first moon walk in 1969 (and no, I don't mean Michael Jackson). The work day would be put on pause as everyone watched the latest rocket launch from Cape Canaveral.  If the launch was on the weekend, the family would gather around the television to applaud our latest leap into space.
 
But America's interest and commitment to space waned as the years went by. The space shuttle program was expensive and the government had other wars to fight. Building new space craft required lots of new technology with no guarantee of success. And there was a limited pool of people that had the expertise in space flight operations and even less who were capable of space flight operations.
 
Yet, there were some among us, call them entrepreneurs, visionaries or just good businessmen, that still believed in space. But in addition, they believed that there were economic possibilities in pursuing space. People like Elon Musk (the electric car guy) who was willing to go where others feared to tread. A flood of new private money began to flow into private space projects. Rather than construct the behemoth rockets and huge space ports of yesteryear, today companies such as the Musk-owned Space X make do with a few trailers and super-thin rockets topped by large payload capacities.
 
In a new approach to cost savings, rocket parts are designed to be reusable (like the old space shuttles). Space X, for example, tries to save the first stage of its rockets.  New technologies also allow for many of these modern rockets to land once their mission is over, which saves even more money.
 
Thursday's successful launch, for example, is the second time Falcon 9 is being used for space duty.  It is the same rocket that was launched in 2016 on a cargo resupply mission for NASA. Its payload this time is a satellite for the Spanish government.
 
Space X is reported to be charging $60 million for the service, plus launching costs. There have been other cargos that commanded even more (upwards of $160 million), depending upon the amount of cargo involved. The cost to make the Falcon 9 was roughly $60 million, plus $200,000 to fuel it.
 
These private efforts were spurred on last year by a series of actions by the federal government and a president who has long harbored a soft spot in his heart for space. The difference this time around is that President Trump, while rededicating the U.S. to the exploration and utilization of the moon, Mars, and space in general, will rely on private companies to achieve that goal. He wants to make the U.S. "the most attractive jurisdiction in the world for private-sector investment and innovation in outer space."
 
Space exploration is a goal that all of us can get excited about, something that could pull us together again and provide an enormous pay-off in ways we cannot even begin to imagine. I don't care how we get there, just as long as we do.  As one of my heroes once said "to infinity and beyond" – let's do it! 
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
 

 

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Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



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