Open Enrollment Highlights

Happy Fall! Thanksgiving is fast approaching, and we are wishing you a very Happy Holiday Season!

We are in the middle of open enrollment. Here are some highlights from the trenches….

Individual and Family Plans
Oscar prices have gone up on average 10%. They are the least expensive plan on the market. Just about all our clients who have Oscar are staying with them. They have a very nice app to allow you to schedule appointments and their Teladoc feature allows you to talk to a doctor for free at any time from the comfort of being in front of your computer or phone.

Blue Shield prices have gone up on average 10-15%. We are not happy with this price increase, but they give you access to the widest range of doctors, and they remain the only option if you want to use Cedars-Sinai Hospital and networks.

If you want your coverage to continue and you are okay with the new rates, you do not need to do anything.

If you want to look at your options or adjust your income on Covered CA, we need to talk to you by Friday, December 14 for your new plan to start January 1st.

Please book your appointment here so that Phyllis Hyde or Tim Peterson can review your coverage:

Medicare Drug Plan
If you are on a Humana drug plan their rate is going up to $29.90. If you are interested in finding out if there is a less expensive option based on your needs, please call or email us.

We are moving a lot of people to an Aetna plan for $19.10. All our recommendations are based on your medications, the pharmacy you go to and your home zip code. We do not take a cookie-cutter approach and put everyone on the lower premium plan since that might increase your overall cost.

Open enrollment period for Medicare (AEP) goes from October 15 to December 7th. New plans begin January 1.

Please note that some news sources saying the government has shortened the window for open enrollment DOES NOT apply to California as we have our own enrollment period which runs from October 15 - January 15, 2019.

Is Estate Planning Needed Under the New Tax Law?

If you have not already implemented a proper estate plan, then you may be wondering to yourself do you need to bother doing one due to the changes in the tax law?

The major change in the law comes in the form of gift and estate tax exemptions. The exemption went up to $11.2 million per individual in 2018.

When many people think of estate planning, they think of avoiding estate taxes at death. Therefore, when people see that the exemption is at $11.2 million per individual, many will turn off to the idea of doing an estate plan. Don’t be one of those people.

A proper estate plan will be different due to the new tax law change for some, but the need for an estate plan has not gone away.

What Basic Tools Should Every Estate Plan Have?

  1. A will. Everyone should have a will. Without a will the state will dictate who gets your money at death. If you have children who are minors, a will is a must because the will determines who gets custody of the children in the event of a tragic death of both parents (which happens more than you would think).

  2. Legal and medical powers. This is an absolute must for everyone. Legal powers allow someone to be appointed on your behalf to sign documents, cut checks, etc. This is critical so someone can continue to pay bills while you are incapacitated (bills like a mortgage, credit card, etc.). Medical powers dictate how life sustaining care will be provided. So, if you are mentally not there anymore and could be kept alive through life support, through your medical power, your appointee could direct a care giver to stop giving care which would let you pass.

  3. Trusts. Living trusts, marital trusts, and A&B trusts (all are the same) are vital to any estate plan. Without a trust, your estate upon death will be probated. Probating an estate through the court system is expensive and there is no privacy. Assets owned by a trust avoid the probate process which saves heirs time, money, and headaches.

For those who have or will have estate tax problems, trusts, when designed correctly, will maximize the $11.2 million per person exemption (meaning a married couple will be able to pass $22.4 million to their heirs without estate taxes).

Advanced Planning Tools
For those who have large estates, the use of Limited Liability Companies (LLCs) or Family Limited Partnerships (FLPs) can be used to discount the value of the estate for gifting as well as estate tax valuation purposes.

LLCs and FLPs can also be useful tools inside IRAs to control assets from the grave. If this concept intrigues you, let us know and we will forward you a newsletter on this topic.

Bottom Line
The bottom line is that everyone should have the basic estate planning tools in place regardless of the size of estate you have. Waiting will only cause you and/or your heirs' grief, so don’t put it off.

If you would like help designing a proper estate plan or if you would like help designing a proper financial plan to meet your retirement planning goals, please get in touch and we can set up a time to go over your situation.

Open Enrollment Season Begins

The busy season of Open Enrollment is upon us. Open enrollment for Medicare and individuals under 65 starts on October 15th!

Please book your appointment here so that Phyllis Hyde or Tim Peterson can review your coverage:

It is turning out to be a relatively quiet year without a lot of major changes, but here are the most notable ones:

Medicare Advantage Updates for 2019
If you’re on a SCAN Classic I Plan your premium is not going to change. If you’re on a SCAN Classic II Plan, so that you can go to UCLA, your premium is going to $32 and you will have expanded access to UCLA primary care physicians.

Medicare Drug Plan Updates for 2019
If you’re on the Humana Walmart Drug Plan your premium is going from $20.40 to $29.90. If you’re on the SilverScript Choice Plan, your premium is going from $28.50 to $34.80. Aetna's Medicare Rx Select (PDP) is going down from $19.70 to $19.10.

Open enrollment period for Medicare (AEP) goes from October 15 to December 7th. New plans begin January 1.

IFP Enrollment News and Information
For Individual and Family Plans for people under age 65, your Open Enrollment period begins early this year on October 15th and ends on January 15th. If you want your plan to begin January 1, you must have a completed application by December 15th. There are no exceptions to this deadline. This gives you the window of October 15 - December 15th to make an appointment with us.

Please note that some news sources saying the government has shortened the window for open enrollment DOES NOT apply to California as we have our own enrollment period which runs from October 15 - January 15, 2019.

The 2019 prices and offerings are available to us now through one source but not our major quoting source. If you are on Covered California, we can meet either by phone or in person to renew your coverage. If you want to switch plans, we must wait until October 15th.

Here’s to a successful Open Enrollment for your Healthcare in 2019.

Controlling Your IRA Assets from the Grave: Protect IRA Assets from Your Children’s Poor Decisions

More and more wealth over the coming years will transfer between generations as our population ages. Investment News stated recently that there will be more wealth transferred from one generation to the next over the next 20 years than in any time in our country’s history. Much of the assets transferred will be IRA money.

Many readers of this newsletter will pass IRAs with balances over $100,000 to their children, and many readers will have balances of $1,000,000+. So, what’s the big deal?

You know your children better than we do, but what do you think your children will do with $100,000 - $1,000,000+ cash in an IRA after you are gone? Will your children continue to invest the money wisely and use it in their retirement?

What many of you should fear is the reality that your children will do things with that money that you would NOT approve of or would make you roll over in your grave; but don’t worry about it. Just because it took you 30+ years to accumulate the money, shouldn’t your children have the right to burn through that money in a weekend in Vegas?

If your children do not blow it all at once (and don’t forget there will be income tax due on that money and potentially estate tax penalties), maybe they will slowly burn through it over a several-year period by taking trips around the world, buying expensive cars, throwing lavish parties and, otherwise, living well above their normal standard of living. Heck, why would they want to use that money for their grandkids education when they can buy a new SUV to drive around in or schedule a month-long trip to Europe.

Question: If you had the ability to control your IRA assets from the grave, would you?

Our guess is that well over 90% of those reading this will say yes. But how can you control IRA assets from the grave? By using a simple Limited Liability Company (LLC).

While you may not be aware of this, an IRA can invest in all sorts of interesting assets including an interest in an LLC. You do need to know, however, that there is a specific way an IRA needs to buy the LLC interest; but that is outside the scope of this newsletter. We want you to simply assume it’s not difficult to accomplish.

Why have an IRA transfer all of its assets to an LLC? The reason is simple and powerful. Once the money is funded into the LLC, the manager of the LLC will control what happens to the LLC assets, NOT the IRA owner. In fact, the IRA owner cannot be the manager of the LLC.

Think about that for a second. It makes sense, doesn’t it?

You may be saying to yourself, this doesn’t prohibit my son or daughter in the above example from distributing the IRA assets and getting the money, does it? It does. When the IRA distributes assets, what is it distributing? It is distributing the LLC interest. An IRA distribution DOES NOT remove the money from the LLC.

So, your son or daughter in the above example now has ownership of the LLC interest, yet the manager of the LLC still controls the money, including distributions to pay estate and income taxes. If the LLC manager has enough discretion in the LLC operating agreement, the manager does not have to take money out of the LLC for any reason he/she does not feel is appropriate.

What’s not appropriate? The list is long and would probably include a week-long bender to Vegas, a Ferrari, a new 60-foot speed boat, diamonds for a part-time girlfriend, etc.

Hopefully you are getting the drift. The LLC structure acts similarly to an irrevocable trust (IT) after an IRA owner dies. You are probably familiar with how ITs are used to make sure children spend inherited money wisely (per the trust agreement and with the watchful/discretionary eye of a trusted trustee).

The LLC structure with an IRA basically does the same thing. An IRA owner will set up this structure inside an IRA and have a trusted person or institution act as the managing member of the LLC. Direction will be given to the manager of the LLC through a well-written operating agreement. The manager, not the child/heir, controls the money in the LLC.

So we'll ask again, would you like to control your IRA assets from the grave to make sure the money it took you 30+ years to build is spent wisely by your heirs? Our guess is yes. If that is the case and you would like to learn more about how to use an LLC inside an IRA to control your assets from the grave, please contact us to discuss at or 424-288-4254.

How Long Will Your Retirement Nest Egg Last? (You’ll Be Surprised)

As you may know, the average person has not saved very much for retirement.

For this newsletter however, we are going to assume that those who read it have diligently saved and will have $500,000 in savings by the time they retire.

This is meant to get you thinking about how long a saved-up retirement nest egg will last. Here’s a hint: not as long as you think.

If you are 65-years old and have saved $500,000, and you want to withdraw $30,000 a year from the account, how long will it last?

With NO Growth and a $30,000 withdrawal, you run out of money at age 79.

With a 3% rate of return and a $30,000 withdrawal, you run out of money at age 82.

With a 6% rate of return, and a $30,000 withdrawal, you run out of money at age 90.

This should scare you. A 65 year-old couple has a 45 percent chance -- almost 50-50 -- that one of them will survive to age 90.* There’s a 25% chance that a 65-year-old man will live to 93; a 25% chance that a 65-year-old woman will live to 96; and for a couple 65 years old, there’s a 25% chance that the surviving spouse lives to age 98.**

Do you know what kind of investment risk historically you’d have to take in order to generate a 6% average rate of return over time?

If we look back only 12 years, you’d have to risk a stock market loss in excess of 20%.

What happens if the year you retire you sustain a 20% loss instead of a 6% gain? Then you’d run out of money at age 83 (assuming all future years generated a 6% rate of return).

What is a guaranteed income for life worth?

The age-old debate in the financial services industry is whether it’s better to have clients invest their money in a properly balanced mix of stocks, bonds, mutual funds, etc. while in retirement, or they should be using “guaranteed income for life” annuities for some or a good portion of their money.

It’s a difficult discussion. When you use fixed annuities, you get a “guaranteethat you will never run out of money.

Using my example, if you put $500,000 in the best guaranteed income annuity for the life of both spouses (meaning it will pay until both spouses die), the couple could receive an annual income of about $28,000 for the rest of their lives.

When you invest in stocks/bonds/mutual funds, etc. the upside growth potential is much higher, but the chances of a stock market crash are very real.

When you couple the danger of a stock market crash with the chances that you or a spouse will live well into your 90s, it makes for a very compelling reason to strongly consider looking at guaranteed income for life payments when planning for retirement.

You give up potential for growth, but you get to sleep at night knowing that you will never run out of money no matter how long you live.

So, I’ll ask the question again, what is a guaranteed income for life worth?

If you would like to discuss fixed products that will guarantee you an income for life and whether they may fit into your retirement plan, please feel free to email us at

Past performance is no guarantee of future results.

Oscar Announcement

Oscar continues to be a viable health insurance carrier in Los Angeles, with a strong network that includes UCLA, Providence St. John's and USC hospitals.  We recently received this news from them:

We are thrilled to announce that Google’s parent company, Alphabet, is planning to invest $375 million in Oscar.

Alphabet has been a supporter of Oscar for years and this reflects an incredible vote of confidence in Oscar’s unique ability to deliver a consumer-focused, tech-driven member experience in health care. This investment will allow Oscar to continue to invest in and bring Oscar’s unique product to more people, markets, and business lines. For more details, check out our CEO Mario’s interview in the Wired story: Health Care is Broken. Google Thinks Oscar Health Can Fix It.

Should You Avoid Fee-Only Advisors?

What is a “fee-only” advisor? A fee-only financial advisor is one who is compensated solely by the client with neither the advisor nor any related party receiving compensation that is contingent on the purchase or sale of a financial product. Fee-only advisors may not receive commissions, rebates, awards, finder’s fees, bonuses or other forms of compensation from others as a result of a client’s implementation of the advisor’s planning recommendations.

FREE CHAPTER—Roccy DeFrancesco, JD, wrote a very compelling book called Bad Advisors: How to Identify Them; How to Avoid Them. He has allowed us to give away the chapter in his book on “fee-only” advisors. If you would like to read that chapter (recommended!), please click this link.

The sales pitch—the sales pitch of using a “fee-only” advisor at first blush sounds like it makes sense. Wouldn’t it be better to use an advisor who isn’t “biased” because they CAN’T make money from commissions or other types of fees paid when a client invests money somewhere?

I mean, if an advisor could choose between a loaded mutual fund or one that’s not, wouldn’t the advisor always choose the loaded fund because he/she can make more money? Wouldn’t it be better to work with an advisor who uses no-load mutual funds as well as no-load life insurance or annuities instead of ones that pay commissions?

The problem with “fee-only” advisors (while in theory the concept of an unbiased advisor makes sense), “fee-only” advisors are unfortunately far from unbiased. Just about every “fee-only” advisor is, in fact, extremely biased against commission-based products.

Let’s use Fixed Indexed Annuities with guaranteed income benefit riders as an example. In the market today, you can find Fixed Indexed Annuities that will guarantee a roll-up rate of return of between 6%-7% for up to 10 years coupled with a guaranteed income for life of 5.5% for someone kicking in income at age 70.

Here's an important question: Should anyone giving financial planning advice be familiar with Fixed Indexed Annuities with Guaranteed Income Benefit riders? Answer: Absolutely. To give retirement advice without knowing these products inside and out would be an outrage.

And here is the million-dollar question for this article: Will a “fee-only” advisor recommend an Fixed Indexed Annuity to a client? Answer: Doubtful.

Why is it highly doubtful? Because “fee-only” advisors have no reason to learn about Fixed Indexed Annuities.

Why? Because they really can’t recommend them because Fixed Indexed Annuities pay commissions.

While “fee-only” advisors could recommend Fixed Indexed Annuities, they’d have to charge the client a fee to give the advice. Why is that bad? Because, if the client would have purchased the Fixed Income Annuity from an advisor who could earn commissions, there would be no additional fee (and the chances that the insurance licensed advisors actually understands the product and will recommend the best one is much greater than the “fee-only” advisor).


While in theory the concept of using a “fee-only” advisor make sense (because they do not make money from commissions or sales loads), in reality, a “fee-only” advisor is one of the most biased advisors you can use (biased against commission-based products as well as ignorant of them).

Because virtually all of the best fixed annuities and life insurance policies in the market pay commissions, the chances of receiving the “best advice” on such products (which can be an integral part to a balanced and protected wealth-building platform) from a “fee-only” advisor is slim to none.

You can use a “fee-only” advisor at your own peril, but now at least you are forewarned.

Tax Traps to Avoid in Retirement

By Charles Sherry, M.Sc.

“Our new Constitution is now established, and has an appearance that promises permanency; but in this world, nothing can be said to be certain, except death and taxes.”
It’s a quote that comes down to us from Benjamin Franklin, who uttered the phrase in 1789.
Taxes–federal, state, local, sales tax, property tax, gasoline tax, payroll tax, tolls, fees, taxes on capital gains, dividends and interest, gift tax, inheritance tax, and taxes cigarettes and alcohol. There has even been a rising chorus that is calling for a special tax on junk food.
Yes, Ben Franklin nailed it. We can’t escape taxes.
If you have already retired, you are aware that taxes don’t end when retirement begins. For those who are nearing retirement, it is important to recognize, plan for, and minimize the tax bite that awaits.
Before we jump in, we want to point out that this is a high-level summary. It’s designed to educate and avert surprises. Planning for tax outlays doesn’t reduce the discomfort that goes with paying Uncle Sam. But preparation can reduce the tax bite and eliminate unexpected surprises.
As we always emphasize, feel free to reach out to us with specific questions, or consult with your tax advisor.
That said, let’s get started.

1. Estimated quarterly tax payments may be required

If you have never been self-employed, you are accustomed to having federal, state (if your state has an income tax), and payroll taxes withheld from each paycheck.
When you stop working, there are no more W-4s to complete and no one is withholding taxes for you. But that doesn’t absolve you of your year-end tax liability.
You can make estimated payments each quarter. You can also have taxes withheld from your pension, social security, or IRA distribution.
If you have yet to file for social security, you may choose to have Social Security withhold 7%, 10%, 12% or 22% of your monthly benefit for taxes. Or you may decide not to have anything withheld.
But make sure enough is withheld or your estimated quarterly payments are sufficient. Otherwise, you may face a penalty.
Does it sound complicated? You don’t have to go it alone. Tax planning is a part of retirement income planning. If you have any concerns or questions, please reach out to us.

2. Social security may be taxed
If you file as an individual and your combined income (adjusted gross income + nontaxable interest + half of your Social Security benefits) is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits.
If the total is more than $34,000, up to 85% of your benefits may be taxable.
If you file a joint return and you and your spouse have a combined income that is
between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits. If combined income is more than $44,000, up to 85% of your benefits may be taxable. (Ref: Benefits Planner: Income Taxes and Your Social Security Benefits). 
3. Beware of the required IRA minimum distribution
Let's put this right up front: Failure to take the required distribution could subject you to a steep penalty.
Required minimum distributions (RMDs) are minimum amounts that retirement plan account owners must withdraw annually starting with the year they reach 70½ years of age or, if later, the year in which they retire.
However, if the retirement plan account is an IRA or the account owner is a 5% owner of the business sponsoring the retirement plan, Required Minimum Distributions must begin once the account holder is 70½, regardless of whether he or she is retired (Ref: IRS: Retirement Plan and IRA Required Minimum Distributions FAQs).
Distributions are not required from a Roth IRA.
The first payment can be delayed until April 1 of the year following the year in which you turn 70½. For all subsequent years, including the year in which you were paid the first Required Minimum Distribution by April 1, you must take the Required Minimum Distribution by December 31 of the year.
The Required Minimum Distribution rules also apply to SEP IRAs and Simple IRAs, 401(k), profit-sharing, 403(b), 457(b), profit sharing plans, and other defined contribution plans.
If you expect to have large Required Minimum Distributions that could push you into a higher tax bracket, it may be beneficial to begin taking distributions prior to 70½. Or, you could convert some of your IRA into a Roth, which will help shelter gains and future distributions from taxes. You pay a tax upfront, but it’s one strategy that can help minimize taxes long-term.
4. The hidden cost of selling your primary residence
Downsizing can generate cash and reduce your daily expenses. But beware that it may also trigger a tax liability.
If you’ve lived in your primary residence for at least two of the last five years prior to selling, you can exempt up to $250,000 of the profit from taxes if you are single and up to $500,000 if you are married. If you are widowed, you may still qualify for the $500,000 exemption (Ref: IRS Publication 523 (2017), Selling Your Home).
The sale may also trigger the 3.8% tax on investment income. It’s a complex calculation that can ensnare single filers who have net investment income and modified adjusted gross income above $200,000 and $250,000 for married filers. (Ref: IRS: Questions and Answers on the Net Investment Income Tax).
The decision to sell shouldn’t be strictly governed by the tax code. However, it’s important to understand the tax ramifications. Timing income streams might be beneficial if a sale will trigger a taxable event.
There are other methods to lower your taxes, including charitable donations. How we structure retirement income, your investments, and distributions from retirement accounts can help to reduce the tax burden. If you need assistance on any of the points shared here, we are happy to assist. Please email us at or call us at 424-288-4254 and we can talk.

Market Crosscurrents

Shorter term, we believe the market is trying to push higher. The tech-heavy NASDAQ Composite, and key measures of mid-sized and small companies touched new highs in June (Ref: MarketWatch data).
Much of the underlying momentum can be traced to faster economic growth, rising corporate profits, and still-low interest rates.
Another factor that lends support–S&P 500 companies repurchased a record $189.1 billion of their own shares in the first quarter, according to S&P Dow Jones Indexes Senior Analyst Howard Silverblatt. He expects buybacks to remain strong through the rest of 2018.
But the Dow Jones Industrials and the S&P 500 Index failed to recapture their January highs. These indexes are made up of the nation’s largest companies, some of which derive a significant share of sales from overseas.
Though not far from the January highs, a strong dollar may be putting modest pressure on these stocks. Moderation in overseas growth may also be a factor.
We believe much of the uncertainty stems from escalating trade tensions between the U.S. and its major trading partners.
Free trade/fair trade–it’s a very complex issue that’s being fought with simple soundbites. The President believes America has not been treated fairly, and he is using his authority to selectively levy tariffs against offending nations.
It’s a risky strategy that may eventually break down barriers. Or, it could escalate into a series of retaliatory measures that impede the U.S. and global economy.
But a quick review of the economic data strongly suggests the noise from the trade headlines isn’t affecting the U.S. economy, and GDP growth in the second quarter appears poised to surpass 4%.
You may agree or disagree with the President’s actions. But the market, which is collectively made up of millions of large and small investors, hates heightened uncertainty. Tit-for-tat levies increase short-term economic uncertainty.
Currently, it has injected volatility and uncertainty into the headline-grabbing major averages. Like many obstacles that will crop up, we believe this will eventually pass.

If you have any concerns or questions, please feel free to reach out to us at 424-288-4254 or

Should You be Using Target Date Funds for Retirement?

Target date retirement funds seem to be getting a lot of press these days and as such, investors are pouring billions of dollars into them.

The question is, should they?

What are target date funds? It's a mutual fund seeking to grow assets for a future target date. For example, someone who wants to retire in 12 years might use a 2030 target date fund.

Most investors would agree that assets are "supposed to" be managed in the fund to maximize growth and minimize loss in a manner that is prudent given the years left until the target is reached. A target date fund's risk tolerance is "supposed to" become more conservative through reallocation as it approaches its target date.

Target date funds are essentially asset allocated funds. Depending on the age of the investor and the target date, the mix might be 60/40, 70/30, 50/50, etc. stocks to bonds.

Target date funds are the epitome of K-I-S-S (Keep It Super Simple).

Target date funds are pure genius from a marketing perspective. The sales pitch is...investor, if you give us your money and keep it with us for 15, 20, 35+ years, we will:

  1. Help you achieve your retirement goal
  2. Generate good returns in up years and provide some protection in down years             
  3. Reallocate to lessen your risk of loss as you age.

And if the client uses Vanguard's target date funds, the cost per year will be very small.

But will target date funds fulfill as promised? We don't think so.

Using examples is usually the best way to get the point across in newsletters. Let's look at Vanguard's target date funds ending in 2030, 2025, and 2020. That means the current age of each investor would retire in 12, 7, and 2 years respectively. I chose these examples to show how risky each fund is and why we do NOT find them suitable investments.

We used our OnPointe Investment Risk program to run the numbers to score each mutual fund and calculate the maximum drawdown risk going back to the last crash as well as the compound annual growth rate (CAGR) going back 10 years.


What is wrong with these numbers?

Keep in mind that the three examples we are using are clients who are 53, 58, and 63 years old, if their target retirement age is 65. To us, this means these clients should NOT be in an investment mix that will risk a big stock market loss.

All three have a risk score on the OnPointe 1-100 scale of more than 50. Click here to find your risk score.

The maximum drawdown is huge for all three (-38%, -42%, -46%).

The compound annual growth rate (CAGR) over time is not suitable for the risk taken.

A classic 60/40 mix of stock/bond yielded a higher CAGR and had lower drawdown risk.

While the S&P 500 had slightly more risk than two of the target date funds, at least it generates a much higher CAGR.

If you just looked at the numbers above would you use a target date fund for your retirement?

We wouldn't. As the numbers indicate, target date funds have not performed well historically and, in our opinion, have far too much risk for the returns generated.

If you would like to discuss your retirement goals and the best way to reach those goals, please feel free to email us at or give us a call 424-288-4254.

"There's always an element of risk. No one has a crystal ball. OK, I have one, but no one knows how it works."

"There's always an element of risk. No one has a crystal ball. OK, I have one, but no one knows how it works."