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The Independent Investor: Long-Term Planning Is Crucial to Caregiving

By Bill Schmick
iBerkshires columnist
The family is headed toward a crisis in caring for the elderly. It will impact all of us, so if you have aging parents, don't think you can just close your eyes and hope for the best. You are likely setting yourself up for a world of hurt.
 
 All too often, the adult children of aging parents are blind-sided when presented with the realities of taking care of parents in need. This is usually precipitated by some sort of health crisis. In my own business, I see it time and time again. What follows is pure chaos, anxiety and hard feelings. There is no way to stop the inevitable, because aging and declining health are part of living, so what can you do?
 
"It is critical that families begin the conversation now to create a long-term care plan. Do not wait for it to become an immediate crisis," says Annalee Kruger, president of Care Right, a Florida-based expert in the area.
 
The crisis in caregiving has grown exponentially in this country. So much so that Kruger and others like her have been able to establish thriving businesses by providing solutions for families caught up in a care crisis. Her line of work ranges from providing solutions in caring for aging loved ones to acting as a third-party facilitator in family meetings. She coaches family caregivers (who may be dealing with dementia or are just plain burnt out), but her most satisfying work is developing a plan for the future in order to avoid most of the pitfalls ahead.
 
Unfortunately, crisis management is still a large part of her business. In order to deal with that event, she first needs to understand the actual care needs of your family member going forward. In today's economy, there are innumerable options and choices to make ranging from private sector solutions (if you have the money) to public options. In any given state, there are a myriad of organizations that provide help and assistance to a family in need.
 
Just knowing the lay of the land in this area requires a great deal of expertise, while matching your family care giving needs with resources available can be a full-time job. Chief among them may be the financial implications of your choices.
 
If your family is like mine, everyone will have a different opinion of what direction to take and why. Some members of the family may already be at odds from past disagreements. In the best of cases, developing an aging plan that all can agree upon usually requires an outside mediator. As I mentioned in last week's column, many family members today live far apart, and just communicating with a California brother or sister in Maine on an on-going basis is sometimes impossible without help.
 
As you might imagine, all of the above would be easier on all of us if we didn't wait for an immediate crisis, like Dad falling on his head while cleaning the roof gutters, or Mom's fall in the garage. Logic dictates that we do not wait for an immediate crisis. Your first step is a family meeting.
 
Krueger suggests a serious meeting should be arranged with the family where three questions are agreed upon: "If mom or dad becomes incapacitated, where will they live? Who will take care of mom or dad? And if they need custodial care, how will the family pay for this care?"
 
"The answers will form the basis for a long-term care plan," Kruger explains. "If family members disagree regarding the answers, compromise must be made. The entire family must come to a consensus that everyone can live with or risk the disintegration of the family."
 
As I wrote last week, it is a serious issue that is only going to get worse in the future as more elderly 80-plus family members need help and less and less caregivers (45-64 years old) are around to provide it. Nearly 10 million caregivers are now over 50 years of age. That number is going to explode upward in the next decade. Over 86 percent of these caregivers saw a tremendous impact on their lifestyle. Sixty-four percent of them are funding their parent in some way; accounting for 33 percent of their monthly budget, according to AARP.
 
If those statistics don't convince you then nothing will. My advice: call that family meeting as soon as possible before it is too late and get some help.
 
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: Cost of Caregiving Keeps Climbing

By Bill Schmick
iBerkshires columnist
If you thought the nation has problems with Social Security and Medicare, you ain't seen nothing yet. Today, more than two-thirds of Americans assume they will be able to rely on a family member to meet their long-term care needs if needed. My advice: don't count on it, and here's why.
 
As it stands today, one-third of all U.S. families provide long-term care for a disabled or elderly family member. You may have guessed that two-thirds of those caregivers are women, although why it should be deemed a woman's task alone is beyond me.
 
If you want to look at the upside to care-giving, you could say that caring for a loved one who needs our help, is a chance to pay back all the love and support we received when growing up. On a good day of care-giving, there may be an immense satisfaction in helping to preserve an individual's quality of life, whom you love, while lifting their increasingly difficult burden of completing daily tasks.
 
The downside of care-giving is well-documented. The economic, emotional and mental strain of care-giving is, at times, overwhelming. And it snowballs. Family relationships often suffer and tension among spouses is commonplace. care-giving also takes a toll on your health and plays havoc with your work-life balance.
 
In 2013, according to the AARP, about 40 million families provided 37 billion hours of care, which was worth an estimated $470 billion. That nearly equaled the yearly revenues of the country's four largest tech companies combined. In 2016, AARP estimated that, in addition to the physical care-giving, the average out-of-pocket expense per family was almost $7,000 a year. That can amount to 20 percent of an average family's income per year.
 
The economic impact can be devastating. To cover the additional expense, many families have to cut back on their own spending. They usually do this by short-changing their retirement savings and contributions. Since it is the woman (who also happens to be a wage earner) that most of the burden falls upon, there is a higher chance that she will be forced to give up full-time work in order to become a caregiver.
 
It is estimated that 17 percent of caregivers dealing with a parent with dementia will quit their jobs. The majority of caregivers who maintain employment, arrive late to work or leave early. About 15 percent of them are forced to take a leave of absence and 7 percent lose job-related benefits.
 
More than 10 million caregivers, over 50 years old, lose $3 trillion in wages, pensions, retirement funds and other benefits. Of that, women lose an estimated $324,044, while men lose much less ($124,693).
 
If that sounds pretty grim, just wait. Digging deeper, we find that the caregiver support ratio back in 2010, was more than 7 potential caregivers for every person in the high-risk years of age 80-plus, according to AARP. By 2030, that ratio will fall to 4 to 1, and by 2050, it will drop to 3 to 1.
 
As such, the decade between the 2010s and 2020s will be a transition period when Baby Boomers age out of their peak care-giving years and the oldest Boomers transition into the 80-plus high-risk years. Now, here's the zinger:
 
"The departure of the boomers from the peak care-giving years will mean that the population aged 45-64 is projected to increase by only one percent between 2010-2030. During the same period, the 80-plus population is projected to increase by a whopping 79 percent," according to Annalee Kruger, the founder and president of Care Right, a Florida-based firm that provides advice and aging planning for caregivers and their families.
 
Kruger, an expert in the landscape of health care, (the subject of her master's thesis), fears that a real crisis is brewing in America. As the family unit in America continues to shrink while living further and further apart, seniors should not simply assume that a family member will take care of them when the time comes.
 
In my next column, I will provide more of Annalee Kruger's insights in how to plan and prepare for this coming crisis.
 
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: Don't Take Loans From Your Tax-Deferred Accounts

By Bill Schmick
iBerkshires columnist
It sounds too good to be true. Why borrow from a bank when you can take a loan out from your 401(k) or 403(b) and pay yourself back in both interest and principal? If that sounds like a great deal, it's not.
 
Money purchase plans, profit-sharing plans, 457(b) plans and both 401(k) and 403(b) plans may offer loans, but IRAs, SEP IRAs, and SIMPLE IRAs do not. The IRS does have some restrictions on the borrowing. It limits how much you can borrow at any one time. In general, you are limited to the smaller of 50 percent of your vested account balance, or $50,000. However, there is one exception (hardship) that allows you to borrow up to $10,000 even if it exceeds 50 percent of the balance. It also requires you to pay yourself a reasonable rate of interest on your loan. Generally, you have five years to repay the loan, although you are required to pay at least quarterly payments.
 
Recently a thirtysomething-year-old client told me he had taken out a $7,000 loan from his $50,000 403 (b) tax-deferred retirement plan years ago. He was surprised to find that it was not an interest-free loan and that he was required to pay off the loan in its entirety before he could draw from the account in retirement. What's worse, if he quit his job, his company required that he pay off the amount in 60 days. He thought it was the IRS that laid down the rule provisions, but that is not the case.
 
It is the company you work for that offers the plan. Some companies won't let you borrow. Others have limitations on how much much you can borrow and how much you pay in interest. What happens if you fail to repay the loan? The IRS will consider the loan a distribution from your plan. You will then need to pay income tax on the amount, plus a 10 percent penalty if you are not age 59 1/2 or older. 
 
There are only a few cases where borrowing from your tax-deferred account makes economic sense: If you have an immediate emergency, say a medical issue, that cannot be financed any other way, an immediate cash obligation and your credit score prevents you from borrowing in any other way, or an extremely high interest debt that is threatening to send you into bankruptcy, or worse, may require you to take out a loan.
 
Nearly 3 out of 10 Americans borrow from their retirement plans. The problem is that they erroneously view them as their own personal piggy bank, until something goes wrong. If you lose your job, for example, you not only have no income coming in, but the loan is due in 2-3 months. If you can't pay it back, you get slapped with additional taxes (as a distribution), which, unless you have a new job lined up, has to be paid out of whatever you have in your checking account.
 
Since these loans are paid back with your after-tax dollars, you end up paying taxes on the money twice. Once, out of your paycheck, to repay the loan and a second time, when you start withdrawing money in retirement.
 
Finally, these plans were established to provide you a winning combination of tax breaks, company matches, and the compounding of gains from your contributions, so that you can save for retirement. None of that occurs while you have a loan outstanding. Instead of a contribution each quarter, the loan repayment is taken out of your paycheck each quarter.
 
If you take the full five years to repay the loan, not only are you missing out on five years of savings and compounding, but also the opportunity costs that the markets provide you.
 
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: Epidemic Pulls Pork Prices Higher

By Bill Schmick
iBerkshires columnist
The African swine fever could cause prices in China to spike 70 percent or more this year. The highly infectious disease is spreading throughout Asia and could lead to a large increase in the price of pork here at home as well.
 
Before you ask, this highly infectious virus, while deadly to pigs, is not harmful to humans. The problem is that when even one pig is tested positive, the entire herd needs to be slaughtered as quickly as possible. There is no cure.
 
The government is taking this epidemic seriously, and well it should. Tough new government rules have been implemented this month in Chinese slaughterhouses and processing plants to identify and test for the virus.
 
The Chinese are the world's largest consumers of pork, accounting for 49 percent of all pork consumed. Domestic hog production, prior to the epidemic, was roughly 700 million pigs. To date, only about a million pigs have been infected, but those figures may be understated. A Shanghai-based consultant company, JCI, is forecasting that pork production will fall by almost 16 percent this year to 8.5 million metric tons. That would leave roughly a 7 million metric ton shortfall in supply.
 
The government's inspection efforts have slowed down business and reigned in demand, at least temporarily. But given the popularity of pork in China, most producers are believed to have large stockpiles of pork supplies, most of which are in cold storage. As such, Chinese producers are dipping into their cold storage supply to satisfy demand and keep prices somewhat reasonable, at least until the second half of the year.
 
Given the severity of the epidemic and the wrath of the government, if the present guidelines and restrictions are ignored, producers and distributors don't dare to buy fresh pigs, kill them, or sell the meat until the government gives them an all-clear. In the meantime, the epidemic has spread to Vietnam and Cambodia, which are also big pork consumers, as well as other nations in Asia.
 
In order to fill China's shortfalls in supply, pork producers in Europe and the U.S. are starting to increase shipments to China. That is despite the fact that U.S. pork exports are subject to a 62 percent tariff, thanks to the tariff war between the U.S. and China.
 
There are also other side effects to the pork crisis. Soybeans are the major source of pig feed. Less pigs means less demand for soybeans. That also hurts U.S. producers. China had already cut imports from American soybean farmers and the virus simply reduces demand for our exports even further.
 
Chinese consumers may also be forced to substitute beef and other proteins for pork. That could send prices of beef higher since China already represents 28 percent of the world's meat consumption.
 
While there have been no known cases of the African virus here, the U.S. is already taking precautions. The National Pork Producers Council recently canceled its 2019 World Pork Expo in Des Moines. Our government also announced increased safety measures to prevent the virus from entering our livestock supply. Most of their effort is focusing on what is called additional attention to "farm biosecurity."
 
About the only silver lining for America in this stormy situation is the present tariff war. As we plan to levy even higher tariffs on just about all Chinese imports, the risk of importing infected pigs has been dramatically reduced.
 
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: What Does Your 401(k) Investments Look Like?

By Nate Tomkiewicz and Bill Schmick
iBerkshires columnist
It might surprise you to know that many retirement savers religiously contribute to their tax-deferred savings plans but have no idea what investments they own. Many plan representatives simply suggest that if you don't know, just invest in a target date retirement fund. Is this a good idea?
 
Most 401(k)s and 403(B)s plans, for example, have between 20 and 30 investment options you can choose from.  This menu of choices normally includes bond and stock funds as well as international funds. There are also balanced or blended funds, which invest in a mixture of stocks and bonds. Many plans also have some kind of annuity-like investment as well as target date funds.
 
Supposedly, target date funds take the thinking out of investing. Let's say you plan to retire in 2040, so you select a target date fund that approximates that year. The rule of thumb states that the closer you get toward retirement, the more conservative one should be. That means you should have more bonds than stocks (according to Modern Portfolio Theory) in your investment portfolio as you age.  Each year you draw closer to retirement, the computer model that actually manages these funds simply put more bonds in your portfolio and less stocks.
 
As a diligent saver who wants to make as much as one can before retirement, let's look at the track record of bonds versus stocks over the last ten years. In this case we have used Vanguard's intermediate term bond fund versus Vanguard's S& P 500 Index fund.  But wait, you may say, the last ten years stocks have been up, up and away. So, let's make it 15 years, which includes the worst stock market plunge since the Great Depression. Bonds would have delivered a measly 4.88 percent versus 8.76 percent for stocks. That's almost a double.  Over 10 years, stocks gained almost 15 percent.
 
Let there be no mistake, stocks do hold more risk than bonds. Case in point, in 2008, stocks lost over 35 percent, while bonds delivered investors nearly 5 percent. Fear and greed are motivational issues that govern everything we do in the financial markets.  But, let's take a look at bond vs stock returns over the past 10 years.
 
10 Year Returns of $10,000
Rate of Return Ending Value % Gain        
4.88% $16,103.00 61.03%
8.76% $23,157.52 131.58%
 
Those investors who were able to stomach the declines during the Great Recession were rewarded handsomely over those investors who fled to "safer" bonds. You need to decide the returns that your retirement account requires to reach your goals. Likely, that will mean adding stocks to the portfolio.
 
Back to the target date funds, a look under the hood reveals that you may own more bonds than you thought.
 
JPMorgan SmartRetirement®
Year Stocks  percent  Bonds  percent
2020 37 percent 63 percent
2030 61 percent 39 percent
2040
76 percent
24 percent
2050
83 percent
17 percent
2060 80 percent 20 percent

More bonds will make your retirement account less volatile, thereby giving you a smoother ride towards retirement. The price of that smooth ride will be the length of time it takes before you can comfortably retire. In the case of investing in target date funds, it may mean adding a few more years of working before you get to your destination. Are you OK with that?

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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