Social Security Mistakes (from Motley Fool)

The Social Security Decision You Might Regret

By Sean Williams 
October 25, 2014 

Investing for your retirement can require decades of planning, but perhaps no question is more important to your financial well-being in your golden years than when you choose to begin taking your Social Security benefits.

The maximum benefit a full-retirement-age retiree can receive from Social Security as of 2014 is $2,642 per month, or $31,700 per year, and while that may not sound like a lot on the surface, the Social Security Administration estimates that Social Security benefits represent 38% of the annual income of the elderly. In other words, Social Security income tends to provide a substantial chunk of Americans' income later in life, so making the right call on when to take your benefits is crucial to being comfortable in your golden years.

The conundrum: Take your benefits now or later?
The reason this isn't such a cut-and-dried decision is that no two people are on identical financial paths, and there are pros and cons to both taking your distributions early and waiting as long as possible.

Of course, taking your benefits early as opposed to waiting can give retirees access to their benefits much sooner. For those without a large amount of retirement savings, this income can be a lifesaver.For example, eligible Americans can begin taking Social Security income as early as age 62 (or earlier if they qualify for disability benefits, survivor benefits, or retired worker benefits based on someone else's income), but they'll receive a lower monthly payment than they would if they waited. According to the SSA, with each year eligible citizens wait to take their benefits up until age 70, their benefit increases by about 8%. The benefit difference between claiming your benefit at age 62 and waiting until age 70 can be a mammoth 76%!

Conversely, waiting until age 70 would give eligible retirees a much larger payout that, if they lived to be 100 years old, could result in a lifetime Social Security income boost of nearly 40% compared to taking benefits at age 62. Additionally, people are living longer than ever, so as life expectancies grow, the allure of the beefier payout that comes with waiting continues to look more attractive.

On the flip side, waiting until age 70 to take your Social Security income simply isn't possible for low-income individuals. Besides -- and I'm playing devil's advocate, here -- unless you feel confident you'll live past 80 years old, waiting until age 70 to take your benefits doesn't make sense.

The Social Security decision you might regretWith this conundrum in mind, Harris Interactive, on behalf of Nationwide, recently polled more than 900 retirees and persons who were within 10 years of retirement and discovered that a good many retirees regretted their decision to take their disbursement early.

The primary income concern these respondents cited was growing healthcare costs. Based on the data from this study, a healthy middle-income couple retiring at full retirement age in 2015 will see 69% of their benefits disappear because of rising healthcare costs. Projections show that in a decade, healthcare costs will engulf 98% of this couple's annual Social Security benefits, and in 20 years, healthcare counts will amount to 127% of their annual Social Security benefits. And yet three-quarters of Americans expect Social Security income to be their primary source of funding for out-of-pocket healthcare costs.According to the statistics, respondents who took their Social Security benefits early received an average of $1,190 per month, those who began at full retirement age received an average of $1,506 per month, and those who waited until about age 70 received an average of $1,924 per month. Cumulatively, 38% of respondents told Harris Interactive that they regretted not waiting longer to take their disbursement.

Breaking the cycleHow can Americans avoid this regret? Nationwide's survey would suggest that the answer involves seeking financial assistance. Based on its study, a third of retirees who noted that healthcare costs kept them from living the retirement they wanted didn't have a financial advisor, compared to just 13% who said they did have a financial advisor.

Furthermore, retirees without a financial advisor were more than twice as likely to be disappointed with their monthly Social Security payment than those who did have an advisor.

While I couldn't agree more that seeking out multiple perspectives is a great idea, I also firmly believe that you can remain in control of your financial future by following a few basic steps.

Secondly, it pays to start thinking about investing early. There is no wrong time to start investing for your retirement, though the earlier, the better: Time is your ally, and the longer you can allow time to work in your favor and compound your gains, the better position you'll be in when you do retire. If you can comfortably live off of your IRA, 401(k), or other retirement plan funds through age 70, then waiting to take your Social Security benefits could prove to be a smart move.First, you need to be smart with your money now and have a monthly budget. With a better understanding of how much money comes in and goes out on a monthly basis, you'll better be able to save for your retirement, and you'll likely be able to wait until full retirement age, or perhaps even age 70, to claim Social Security benefits.

Lastly, remember that your financial future comes first. This past summer, we looked at one of the most common money mistakes made by retirees, which is financially supporting family and friends when they don't have the spare funds to do so. This doesn't mean giving the people you love the cold shoulder, but it does mean putting your own financial future in the foreground so things like medical costs don't become a problem once you hit age 62.

Smart Medicare Choices (New York Times)

Beware of Shifting Options Within Medicare Plans

By TARA SIEGEL BERNARD

OCT. 3, 2014

For millions of older Americans, it is time to sift through the mind-boggling array of Medicare plans. There is an average of 29 drug plans to digest, and about 18 options for Medicare Advantage, the plans delivered through private insurers. Then there are the 10 supplemental plans that cover what traditional Medicare does not.

The choices can be paralyzing for anyone, and they can be even more challenging as you age. The Medicare open enrollment season, which runs from Oct. 15 through Dec. 7, gives individuals a chance to rethink it all and reassess whether their plan still fits their needs.

While no broad-based changes are expected, there could be meaningful shifts within individual plans. Maybe your Part D prescription plan will no longer pay for one of your drugs, or you started a new one. Perhaps your Medicare Advantage plan dropped your favorite doctor (or worse, a cancer treatment center) from network.

“People treat this as a momentous decision but they get scared of it, and the thing that worries me is that they don’t make the changes that they should,” said Joe Baker, president of the Medicare Rights Center in New York. “Don’t stay in a plan because you’re overwhelmed with the choices.”

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Elizabeth Cooper, a 68-year-old former elementary schoolteacher, weighs her options each year. She has already tried a couple of plans, including one through Medicare Advantage, which lured her in because it had no monthly premium. But the plan required her to shoulder a significant share of her medical costs.

She is healthy now, but she has a history of skin cancer. “I didn’t feel that would give me a sense of ease because of the co-pays and the possible unexpected expenses that can crop up,” said Ms. Cooper, of Birmingham, Ala.

So she backed out of that plan during the trial period, and opted for peace of mind. She enrolled in original Medicare, and bought a supplemental policy for about $135 a month that covers items like deductibles and her share of each bill. After having a few diagnostic tests this year, her decision already paid off.

“Had I been on the Advantage plan, I would have had to come up with the money for each test,” she said. “It turned out to be a reasonable plan for me. And for that reason, I plan to stick with it.”

Here are some ideas on how to approach the decision-making process.

A REFRESHER COURSE Before delving into the details, here is a quick primer on original Medicare: Part A covers hospital and skilled nursing facility stays, as well as some home health visits and hospice care. Part B covers preventive care, doctor visits and outpatient services. Premiums, for most retirees, were $104.90 a month last year and are projected to be the same in 2015.

Deductibles, co-payments and coinsurance (that is when you pay for a percentage of medical services) can be burdensome since there is no out-of-pocket ceiling, experts said. That is one of the reasons most people buy supplemental coverage, known as Medigap, to cover out-of-pocket costs on Parts A and B. People lucky enough to have retiree employer coverage rely on that instead.

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Medicare Part D, which is offered only through private insurers, covers drugs. The average monthly premium for such plans is estimated at $32 in 2015, according to the Centers for Medicare and Medicaid Services.

Alternatively, you can just buy a Medicare Advantage plan from a private insurer, also referred to as Part C. It can serve as a one-stop shop because it covers Parts A, B and often a drug plan — and sometimes throws in extras like dental and vision coverage. Average monthly premiums for Advantage plans are estimated to rise to $33.90, a $2.94 increase, in 2015, according to the Centers for Medicare and Medicaid Services. (You pay that in addition to the Part B premium).

ORIGINAL OR ADVANTAGE? Some consumer advocates favor using traditional Medicare with a supplemental plan, largely because it is more predictable and you are free to see any doctor who accepts Medicare.

That is what Mr. Baker said he would recommend for his own grandmother. “I would say enroll in original Medicare and let’s get you the Medigap plan you might need when you are older or sicker,” he said. “If you are in original Medicare and you have a Medigap plan, you are pretty much set for life if you are happy with those things.”

Medigap, with 10 plan levels that are labeled with letters from A to N, is federally standardized coverage, which means coverage must be exactly the same across insurers. For instance, the option known as Plan F will pay for your Part A and Part B deductibles. “This is one area, once you decide on the level of coverage you want, where you can go for the lowest price because you know Plan F will be exactly like any other Plan F,” said Jocelyne Watrous, advocate at the for the Center for Medicare Advocacy.

Depending on the plan, the total cost of your premiums could come close to your final out-of-pocket cost for the year. In Connecticut, for instance, one of the most comprehensive Medigap policies is called Plan F. It costs an individual about $218 a month, or $2,622 annually. “But that’s it,” Ms. Watrous said. “You will pay that premium and it will cover all of your co-payments and deductibles.”

If you are contemplating switching from Medicare Advantage back to original Medicare — and you want to buy a supplemental policy — that is something you may want to do while you are younger and healthier. Later on, coverage may become more expensive or you can be denied altogether. With some exceptions, individuals are guaranteed coverage only if they buy it during a special period six months after their 65th birthday. During that time, insurers cannot refuse to sell you a policy because of a pre-existing condition or other medical issue, nor can they charge you more.

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Outside of that safe period, you aren’t guaranteed coverage under federal law, though many states, including New York, extend greater protections. It is important to ask your local State Health Insurance Assistance Program, or SHIP agency, for more details. After you buy a Medigap policy, it generally cannot be canceled because you are old or sick.

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ADVANTAGE Nearly 16 million people, or 30 percent of all Medicare beneficiaries, enroll in a Medicare Advantage plan. Most people are attracted by the plans’ enticingly low and sometimes zero premiums and, for certain services, low co-payments. Some even offer limited dental or vision coverage, advocates said.

The drawback of Advantage plans are their limited networks of providers. Doctors can drop out midyear. And consumers are responsible for all cost-sharing, which can be unpredictable. Those are capped at an out-of-pocket limit for in-network services of $6,700 in 2015, although the Center for Medicare and Medicaid Services recommends a limit of $3,400, according to Kaiser.

But it is difficult to calculate how fast you might reach those ceilings. “The cost-sharing requirements are often harder to compare because it requires consumers to anticipate what their health care needs might be,” said Tricia Neuman, director of the Medicare policy program at Kaiser. “Some advisers suggest considering what services you would need if you were sick and take a careful look at potential costs under various plans.”

People who travel frequently or who spend a significant chunk of time in another state also need to ensure that they will be covered. “Snowbirds need to consider whether the networks and coverage extends to two places,” said Nicole Duritz, vice president for health, education and outreach at AARP.

If you are already enrolled, the “annual notice of change” sent to plan enrollees will detail changes in coverage, costs and networks. But if you are dissatisfied with your Advantage plan for any reason, you can unenroll from Jan. 1 to Feb. 14 and switch to original Medicare.

DRUGS Even if you are happy with your Part D coverage, don’t assume it will remain exactly the same. Lists of covered drugs often change or the company may insert new restrictions, limiting quantities or requiring you to try another drug first.

Go to the Medicare website’s Plan Finder, where you can enter your drugs, the dosage and frequency, as well as where you like to buy them. It will then show you what the plans cover and your total estimated costs for the year. “The plans are so complicated and there is so much variation and the only way to really compare is to use the Plan Finder,” Ms. Watrous said.

Don’t shop on price alone. “The best and cheapest plan for you is the one that covers your drugs the best,” said Mr. Baker, who advised calling the plan, or even your doctor or pharmacist, who has a lot of interaction with the different plans.

RESOURCES Besides local SHIP agencies, advocates suggest that people check out the latest Medicare & You booklet, which all 54 million enrollees should have received in the mail by now. It’s remarkably clear. To talk to someone live, call 1-800-Medicare. Whatever you do, Mr. Baker advised, “Don’t renew blindly.”

The Best ETFs to play China (Barrons)

ETF FOCUS

How and When to Use China ETFs

As China loosens its restrictions on foreign investments and continues to execute on its five-year plan, investors have many opportunities to take advantage of a rising Chinese stock market.

By LEWIS BRAHAM

Sept. 6, 2014 2:11 a.m. ET

By most counts, Westerners are woefully underinvested in China. It's the second largest economy in the world, but because the People's Republic restricts foreign investment, Chinese stocks only account for 2% of the MSCI All Country World Index. That's about to change as the government begins easing its restrictions with the Shanghai-Hong Kong Stock Connect program this October.

Whether you feel grateful or confused that there are now 34 different Chinese stock ETFs to play this trend depends on your sophistication. Count Brian Singer as among the grateful. The manager of the William Blair Macro Allocation fund (ticker: WMCNX) likes the iShares China Large-Cap ETF (FXI) and the Guggenheim China Small Cap(HAO) for maximum flexibility. Currently, Singer favors FXI because large Chinese stocks will benefit most from the Connect program. Only 254 "Qualified Foreign Institutional Investors" are allowed to invest in stocks listed in mainland China, known as A shares. That amounts to $60 billion. The new program will allow an additional 300 billion yuan -- about $48 billion -- worth of foreign investment. "Institutional investors coming into the China market will favor large-cap stocks," Singer says.

ETFs by Category

Long-term, Singer prefers the Guggenheim fund because smaller companies are more exposed to the local Chinese economy than large multinationals. Overall, he says the Chinese stock market is priced 25% below his estimate of fair value.

The iShares and Guggenheim ETFs are not, however, invested in mainland China, but in Hong Kong-listed H shares. Singer says that the cost and red tape of investing on the mainland remain too high. Some ETF providers disagree: "There are 66 dually-listed stocks, which are available in both mainland China and in Hong Kong," says Brendan Ahern, managing director of KraneShares, which offers three China ETFs. "The mainland stocks trade at a 10% valuation discount." Ahern argues there is an arbitrage to exploit by buying A-shares and betting that the valuation gap closes as investment restrictions ease.

China A-shares also add necessary diversification. Since so few Westerners own them, they behave differently from other emerging-market stocks. Unlike H shares, A shares are priced in Chinese yuan instead of the Hong Kong dollar. The mainland currency is not pegged to the U.S. dollar. That's why the Market Vectors ChinaAMC A-Share ETF (PEK), the oldest A-share ETF, has a correlation of only 16% to other international stocks in the MSCI EAFE Index while the iShares China Large-Cap ETF has a 63% correlation, Morningstar notes.

There's another advantage to A shares: Easy exposure to China's strengthening currency. Of the five available, the PowerShares China A-Share Portfolio (CHNA) has the lowest expense ratio at 0.51%.

IN SMALLER EMERGING MARKETS, stocks tend to move in tandem, but in China there are large variations in returns depending on which sector you're in. TheGuggenheim China Technology ETF (CQQQ) has returned an annualized 18.3% over the past three years as dotcoms soared from the nation's increasing web usage. Meanwhile, Global X China Materials (CHIM) lost 7.7% annually.

New-economy tech, health care, and renewable energy companies have benefited in part because they are the focus of the government's most recent five- year plan for economic development. KraneShares CSI New China ETF (KFYP) only invests in sectors the plan highlights. Since China remains ostensibly a communist nation, it's good to pay attention to what the central planners are thinking. 

E-mail: editors@barrons.com