Avoid Medicare Mistakes (thinkadvisor)

jULY 18, 2016

11 Medicare Mistakes to Avoid

The rules of Medicare are complicated and laden with deadlines that are costly to miss

Understanding the alphabet soup of Medicare is hard enough without getting lost in the details. But understanding the options – and what mistakes not to make – can help your clients age gracefully and is an essential part of any retiree's financial plan 

First, let’s generally define the Parts of Medicare. Part A, referred to as original Medicare, focuses on hospital coverage. Part B is medical coverage. Part C (also called Medicare Advantage) is a different way of putting Parts A and B into one plan, offered by private companies. Part D is prescription drug coverage.

The rules of Medicare are complicated and laden with deadlines that are costly to miss. Via Kiplinger, here are 11 common Medicare mistakes to avoid:

1. Not reviewing your Part D Plan annually

 Medicare Part D is a headache for many to keep on top of. But remember these key points:

• Open enrollment runs from Oct. 15 to Dec. 7 every year.
• During open enrollment it’s essential to review options because there might be changes to your current plan, meaning your cost and coverage would vary. Be leery of plans that increase premiums, increase your percentage of cost for drugs, or other requirements, like having to use a specific pharmacy, to be covered.
• Make sure you check if any drugs you’re on have gone generic, as you might get a nice price reduction.
• Medicare also helps you to compare plans. Check out the various links on Medicare.govor AARP.org for more information, guidance and price comparison tools.

2. Picking the same Part D plan as your spouse

Not all Part D plans are alike, and just because a plan works for you it might not be the same for your spouse, who may be taking different prescriptions. Use the Medicare Plan Finder to determine your out-of-pocket costs on each plan. Also keep in mind that some plans require the use of specific pharmacies.

3. Going out of network on private Medicare Advantage plans

If using private Medicare Advantage plans, similar to PPOs or HMOs, you’ll need to utilize the network of doctors and hospitals within the plan to get the lowest co-payments. Be wary that if you go out of network, there may be no coverage at all.

4. Not knowing how to switch Medicare Advantage plans anytime if needed

Even outside the annual open enrollment period, it's possible to switch plans for life-changing events, like moving to a place that isn’t in your current plan’s geographical coverage. And if you’re in the five-star plan, you can make a switch any time during the year. Also, from Jan. 1 to Feb. 15, you may be able to switch from Medicare Advantage to traditional Medicare plus Part D prescription-drug plan. 

5. Not considering Medigap within 6 months

Once enrolling in Medicare Part B, you have six months to buy any Medicare supplement plan in your area even if you have pre-existing conditions (and at age 65, who doesn’t?). But after six months, insurers can reject you or charge more depending on your health. It depends on your state rules and insurer’s policies. Check at Medicare.gov for your options. 

6. Not opting for Medicare when you turn 65 (most of the time)

Forever young, so who needs Medicare? Well, you’re smart to take advantage of what the government is giving you, often for free. If you are getting Social Security already when you turn 65, you’ll automatically be enrolled in Medicare Part A and Part B. But if you aren’treceiving Social Security benefits, you’ll have to act on your own to sign up. There are reasons to delay: for example, you or your spouse have a full-time job and already get health care coverage as a part of that.  Be aware that if you aren’t collecting Social Security benefits, there’s a seven-month period to sign up for Medicare, which runs from three months before the month you turn 65 to three months after. 

7. Not signing up for Part B if you have retiree or COBRA coverage

Again, there are many tricky steps in the Medicare signup game. Unless you or your spouse are receiving insurance through a current employer (who has 20 or more employees),Medicare is considered your main health insurance coverage. Retiree coverage, COBRA or severance benefits are NOT primary, and if you don’t sign up for Medicare, you might have gaps in coverage and be late on your Part B premium. So pay attention.

8. Missing the Part B enrollment deadline after leaving your job

It’s an alphabet jungle out there, but this one is easy: if you still have insurance through a job when you turn 65, that’s fine. You don’t need to worry about Part B premiums. But within eight months of leaving your job, you need to sign up or you might have to wait for the next enrollment period, meaning a gap in coverage. Then there is also the possibility of a 10% lifetime late-enrollment penalty. 

9. Ignoring income thresholds

Most people pay the minimum of $140.90 a month for Part B premiums and $12.30 per month for Part D. This goes higher depending on your adjusted gross income. So if you are bringing in more than $85,000, that Part B premium could more than double per month, where as Part D could jump fivefold. Be mindful when you are withdrawing from tax-deferred accounts that you don’t go over the income threshold if possible.

10. Not fighting surcharge changes for the year you retire

The Social Security Administration uses your tax returns from the most recent two years to determine if you are subject to an income surcharge, that is you are making more than $85,000 a year. But you can protest it if you prove life-changing events, such as divorce, death of a spouse or retirement. 

11. Not minding your HSA contributions

You can’t contribute to HSAs if you are getting Medicare, but if you or your spouse have health insurance through a job (with 20 or more employees) and haven’t applied for Medicare or Social Security benefits, you still can continue to add to your HSA. That said, be careful about contributions in the year you leave your job and sign up for Medicare, as your HSA must be prorated by number of months on Medicare.

John Bogle INVESTMENT ADVICE (Vanguard)

JUNE 16, 2016

Bogle Offers Investor Do’s and Don’ts 

Vanguard titan John Bogle talks about the investing wisdom he’s gathered during his 65 years in financial services

John Bogle, the founder of Vanguard and champion of index funds, marked 65 years in the financial services industry with a special video webcast on Wednesday, talking about his career and evolution of the mutual fund industry and offering investment advice for the long-term.

The format was a Q&A with Rebecca Katz, head of Vanguard’s corporate marketing and communications, who mainly fielded questions that viewers had sent via the webcast or Twitter.

Changes in Market Landscape: Wall Street Rules

Bogle, 87, recalled that when he started in the business in 1951, the mutual industry had assets of $2 billion, turnover of assets was typically 25% a year, redemptions were about 8% on average, meaning the average holding period for investments was 12.5 years, and the weighted average expense ratio was about 60 basis points.

“When you multiply the higher fee rate to $16 trillion, it’s a bonanza for the fund industry,” said Bogle. He bemoaned an industry that is now “owned by financial conglomerates [which] used to be run by money managers.”Now, said Bogle, Vanguard alone has $3 trillion in assets, the average asset turnover for the industry is 250%, average redemptions are 25%, meaning the average holding period is four years, and the average expense ratio is 88 basis points, up nearly 50%.

Forty of the 50 fund companies are owned by financial conglomerates and they serve two masters: the conglomerates’ shareholders and the fund investors, said Bogle. “No man can serve two masters,” said Bogle. “The one that gets the love is the person who owns the management company. The others get what’s left.”

What Investors Should Do

Get ready for low returns. During his 65 years in the business – Bogle started in 1951 at the Wellington Fund, the predecessor of Vanguard, in 1951 and founded Vanguard in 1974 – stocks gained an average 12% annually, said Bogle.

“That is just not going to happen” now or in the near future, said Bogle. He expects stocks will return “closer to 4%” because of current high valuations – about 22 times earnings when the norm is 16 -- and 10-year bond yields, typically above 5.5%, will stay near 2% (they’re currently 1.6%). “We’ll be lucky to get a 4% to 5% return from balanced portfolios for the next 10 years,” said Bogle.

He explained that the reason for these expected low returns is the same reason the market can deliver high returns: the earnings power of corporations. “If dividend yields are lower, reinvestment returns will be lower.”

Still, Bogle said this ho-hum forecast is no reason for investors to get nervous. “Relax,” said Bogle. “The one thing that guarantees an asset value of zero is not investing at all.”

But low returns mean fees matter more, stressed the creator of the first U.S. stock index fund. “Once you get yields at this range – stocks at 2% and bonds 2.5% – what really matters is cost,” said Bogle. “If a stock fund is yielding 2% and has a 1.5% expense ratio you’ll just get half of 1%.”

He implored investors to know how much yield they’re getting and how much expenses they’re paying. “If a fund is taking three-quarters of a percent in yield and putting it in its own pocket, don’t go there.”

Costs trump performance, according to Bogle because “performance can go up and down or anything but costs are forever.”

Bogle advised investors to increase contributions to their savings plans along with rising income, and stay invested. “It’s remarkable what long-term compounding can do without tyranny of compounding costs. It’s magical mathematics.”

Stay invested to maximize the magic of compounding, said Bogle and “don’t peek” at your accounts. Don’t look at them daily or monthly.”

What Investors Should Not Do

In addition to avoiding high cost funds, Bogle warned against reaching for yield in the current low yield environment especially in retirement investments because investors depend on that money. It’s dangerous, according to Bogle. If you reach out too far on the limb on a tree, it snaps off.”

“You have to accept the market returns for what they are going to be. Don’t reach beyond. Don’t lever up.” Bogle denounced triple leverage funds. “All these tricks and shortcuts. Don’t do it,” said Bogle. “Stay the course, the main course.”

He also warned against commodities including precious metals. When asked if precious metals were a good investment, he responded, “No, no, no, with one exception. If you have a significant amount of wealth and are concerned about inflation it’s not the end of the world to put 5% of your money in precious metals funds, but not commodities.”

He suggested that investors take it a step further: creating two buckets for their money: a serious money account and a funny money account so that the latter doesn’t “ruin everything else.” Gold and other precious metals would have a home in the funny money account.

Bogle also warned about excessive trading. “Resist the temptation to move money around. Don’t trade back and forth. You’ll make a mistake.”

He also said investors shouldn’t get hung up on the idea that value is better than growth or vice versa because there have been periods as long as 15 years when growth does better than value. What does occur is a “reversion to the mean,” said Bogle, noting that value does better during some periods, then growth does better, then value again, and repeat.

Taking Stock of a Long Career

Despite his criticism of the mutual fund industry Bogle said he’s had an "unimaginably great" time working in the business and he crowed that "index investing has taken over the world."

Index investing, "the core of what we do" puts the client first, providing a "fair share of market returns" but "is not a free ride," said Bogle. "When the market is bad ... the index fund will give you that fair share of returns."

He ended by noting, that like the DOL fiduciary rule, Vanguard “puts the investor first, last and always.”