Social Security COLA (cost-of-living adjustment)

By now you have likely heard that there will not be a COLA (cost of living adjustment) to Social Security benefits for 2016.  The COLA is determined each year based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year a COLA was determined to the third quarter of the current year (source: SSA.gov).  Due to the drop in the price of oil this year, and the related drop in gasoline prices, the CPI-W at the end of September 2015 showed no increase.

Medicare premiums

Medicare has 4 parts:

·         Part A – Hospital

·         Part B – Medical (doctors, labs, outpatient, etc.)

·         Part D – Prescriptions

·         Part C – Medicare Advantage (HMO type coverage that covers hospitals, doctors, and prescriptions in 1 plan)

 Medicare Part A has no premium. Medicare Part D premiums range from $0 – $50/month depending on the plan you choose.  Medicare Part C premiums are based on the plan you choose.

 Medicare Part B premiums, which are based on a complex calculation over a 2 year period, can and will change regardless of whether Social Security benefits get a COLA.  However,  there is a provision in the Social Security law that prohibits the net amount of a Social Security check from decreasing due to increases in Medicare premiums. Often referred to as the “hold harmless” provision, it’s rarely an issue because there is a COLA in more years than not, and the increase in gross Social Security benefits is greater than the increase in Medicare premiums in most years.

 But there can be a problem in years when there will not be a COLA for Social Security but Medicare premiums need to increase due to expenditures. 2016 appears to be one of these years.

 The “hold harmless” provision will protect approximately 70% of Medicare beneficiaries (source: SSA.gov).  These beneficiaries will NOT see any increase in their Part B premiums in 2016.  To be in this group you must be:

1.       Currently receiving Social Security benefits as of November 2015, AND

2.       Having your Part B premiums deducted from your Social Security check, AND

3.       You do not exceed the first income threshold –  currently $170,000 (adjusted gross income + tax-exempt income) for couples and $85,000 for single.

 However several groups of Medicare beneficiaries will likely see higher premiums for Medicare Part B.  These groups are:

·         New Medicare Part B beneficiaries who enroll in Medicare in or after November 2015

·         Current Medicare Part B beneficiaries who do not have the premium withheld from their Social Security check.

·         Current Medicare Part B beneficiaries who exceed the first level of income thresholds – (see above)

 The 2015 Medicare Part B base premium is $104.95/month.  Estimates of the increase for 2016 are as high as 52% or approximately $159/month for the base premium.

 There are 5 income thresholds for Medicare Part B premiums. They use your Federal tax return from 2 years prior to determine the income threshold.

MAGI stands for Modified Adjusted Gross Income, which is your adjusted gross income from your tax return plus any tax-exempt interest your earned during 2014.

The chart below are estimated premiums for 2016.

2016 Medicare Part B premiums.JPG

 Please call me if you have any questions or want to discuss how this may impact you.  Feel free to share it with family, friends, and colleagues who may be affected.

 Sources:  SSA.gov; Social Security Solutions, Inc.

Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

 

Health and other non-variable insurance products are not offered through WSFG.

 

Information provided should not be construed as legal or tax advice.  You should discuss any tax or legal matter with the appropriate professional.

 

 Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk and you may incur a profit or a loss. Diversification does not ensure a profit or ensure against a loss. There is no assurance that any investment strategy will be successful.  Past performance is no assurance of future results.

 

Please consider the charges, risks, expenses and investment objectives carefully before investing. Please see a prospectus containing this and other information. Read it carefully before you invest or send money.

 

Information provided should not be construed as legal or tax advice.  You should discuss any tax or legal matter with the appropriate professional.

October 2015 Monthly Outlook – The price we pay

“The price we pay for the higher returns that stocks have delivered over time is the uncertainty of when those returns will come and the volatility of the journey”    Rod Smyth of RiverFront Investment Group

Despite the solid rally in equities on 9/30/15, the U.S. equity markets (basis S&P 500) had their worst quarter since 2011.

I have previously written that the process of establishing a low in the stock market is one of price and time.  The selloff on Monday 9/28/15 brought the market down to retest the lows from 8/24/15 of 1,867.01 (intraday low on 9/29/15 was 1,871.91).  The rally on 9/30/15 was most likely ‘window dressing’ at the end of the quarter by portfolio managers.

So was this a “successful” retest and are the lows in for the year?  It’s too soon to tell. A double bottom pattern, as defined by Investopedia:  “The double bottom is formed when a downtrend sets a new low in the price movement. This downward move will find support, which prevents the security from moving lower. Upon finding support, the security will rally to a new high, which forms the security’s resistance point. The next stage of this pattern is another sell-off that takes the security down to the previous low. These two support tests form the two bottoms in the chart pattern. But again, the security finds support and heads back up. The pattern is confirmed when the price moves above the resistance the security faced on the prior move up. Remember that the security needs to break through the resistance line to signal a reversal in the downward trend and should be done on higher volume.”

Oct 2015 Outlook2

To follow the  “normal” pattern,  the market now needs to rally and get above approximately 2,021 to confirm the “W” pattern.  (source: Raymond James & Associations)

If that happens, perhaps the pattern of the last several years will repeat. Please note: we need a 7.2% rally from the 9/30/15 close to breakeven for the year. I think this is possible but I remain cautious.

Oct 2015 Outlook1

(source: Yahoo Finance)

On the economic front,  recent U.S. economic data has been mixed.  (source: CNBC)

  1. U.S. GDP (gross domestic product) for the 2nd quarter of 2015 was again revised higher to 3.9% (from 3.7%) driven primarily by an increase in consumer spending.
  2. Even with the recent stock market volatility, consumer confidence increased in September.
  3. In September, U.S. auto sales had best month since July 2005.
  4. In August, pending home sales and orders for durable goods declined 1.4% and 2.0%, respectively.
  5. Perhaps most importantly, a disappointing jobs report for September.

The outlook for the global economy is not as promising. On Wednesday 9/30/15 the IMF (International Monetary Fund) Managing Director Christine Lagarde stated  “On the economic front, there is also reason to be concerned. The prospect of rising interest rates in the United States and China’s slowdown are contributing to uncertainty and higher market volatility,” she said. “There has been a sharp deceleration in the growth of global trade. And the rapid drop in commodity prices is posing problems for resource-based economies.”  Concurrently the World Trade Organization (WTO) said it sees world trade growth of 2.8 percent this year and 3.9 percent in 2016, revised down from the forecasts it made in April of 3.3 percent and 4.0 percent, respectively.

On the geo-political front, there are 2 main issues:

  1. Congress managed to avoid a government shutdown on 9/30/15 but only for the next 3 months (thru 12/11/15).
  2. Russia taking military action in Syria is a concern.

So in summary, I remain cautiously optimistic on the U.S. economy and financial markets but am keeping a close eye on key levels on the S&P and US 10yr Treasury.  I expect volatility to continue at elevated levels. I will be in touch with you if I feel any action is necessary.  Please call me with any questions or concerns.

October Calendar of Events   (comments and additions for future months are always welcome)

October is Breast Cancer Awareness and Domestic Violence Awareness month.

October 12th    Columbus Day

October 15th           Medicare open enrollment    thru 12/7/15 – you can switch from original Medicare to Medicare Advantage, or vice versa. You can also switch from one Medicare Advantage plan to another, or from one Medicare Part D (prescription drug) plan to another, or drop your Medicare Part D coverage altogether.

October 22nd   National Nut Day – only in America can you have a day to celebrate nuts.  Ps: peanuts are legumes, not nuts!

October 31st    Halloween

Sources: RiverFront Investment Group, Raymond James & Associates,  CNBC

Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

 Investing involves risk and you may incur a profit or a loss. Diversification does not ensure a profit or ensure against a loss. There is no assurance that any investment strategy will be successful.  Past performance is no assurance of future results.

 Please consider the charges, risks, expenses and investment objectives carefully before investing. Please see a prospectus containing this and other information. Read it carefully before you invest or send money.

 Information provided should not be construed as legal or tax advice.  You should discuss any tax or legal matter with the appropriate professional.