Where the money is....

When Willie Sutton bank robber was asked why he robbed banks he said "Because that is where the money is". How things have changed.

The banker's Bank the Federal Reserve is now robbing savers with near zero interest rates. Why? Because that is where the money is. It is a hidden tax. No law was passed. Still you are having the your money stolen through near zero interest rates to restore bank's balance sheets. If you had $300,000 in an IRA (or 401k) earning 5% in 2007 ($18,000 a year with nearly no risk) you are lucky if you earn half that today. That is a $9,000 or more of hidden taxes.

I hope to expose these types of actions and others by the FED and government. Boomers need to be vigilant - because their savings is where the money is. I will also delve into other areas of finances of interest to Boomers.

Saturday, April 30, 2011

Medicare has more holes than Swiss Cheese

For those of you nearing 65 and can qualify for Medicare you need to do some research. We are hearing a lot of talk about Medicare and how it is sacrosanct to the older retired population.  Well, to begin with it is not a free ride.  It will cost you about $100 For Medicare Parts A & B ( hospitalization and doctor's visit).

To begin with there is a $1,132 copay for hospitalization and $162 copay for physician visits.  So even for a short hospital stay and a couple of visits to the physician you will pay another $1200 (or $100 a month). 

After 60 days in the hospital Medicare  - for days 61-90 you pay $283 a day (that is $8,490).  For days 91-150 you pay $566 a day ($33,960).  So for a 150 day hospitalization you could pay  $43,582.  After 150 days medicare pays nothing!!!

Also, during hospitalization Medicare pays only 80% of physician expenses.  For a $60,000 physician bill that would leave you owing $12,000 or more for an extended hospitalization.   So an extended hospitalization could cost you over $50,000.

If you are not sick enough to be hospitalized then it is not much better.  Medicare pays 100% of approved costs for the first 20 days in a skilled nursing facility , all but $141.50 a day for days 21-100  and nothing after 100 days.  If you become disabled (say a stroke leaves you incapable of caring for yourself?) you are screwed.  You will end up broke and on Medicaid (have seen it happen in my own family).  Insurance cost for extended care is very expensive and may not be affordable.

My point is - Medicare is not the solution many think it is.  So you will want supplemental insurance to help cover the hospital and physician costs not covered by Medicare.  A good hospital/physician supplemental plan will probably cost $200-250 a month.

So even if you remain healthy you can expect topay  $350 or so a month (over $4,000 a year) for health insurance ($100 for Medicare and $250 for supplemental insurance).  This is before drug coverage.  Drug coverage cost will vary based on the plan you select and your need for drugs.

So it is amazing how politicians play on fears of the elderly and misrepresent the actual benefits of Medicare.  Like I said to start off this post - if you are nearing 65 you need to do some research so you can select the appropriate supplemental insurance plans.  Medicare is not the "be all" many of you think it is.  A voucher system to purchase your own insurance (ie Medicare Advantage that Obama's health care plan wipes out) may be superior to the current mess know as Medicare. One would have to see the details and costs of insurance.  Don't wait until the last minute to do start your research - this is much too important and the wrong decisions can be financially catastrophic.

Sunday, April 3, 2011

Boomers and divorce

You see the news.  Al Gore, Tony Danza,  and many many more high profile boomers going through divorces.  Is it just high profile people?   No it isn't.  While the overall divorce rate has decreased recently it has doubled for boomers in their 50s.  This means 300,000 divorces this year for those in their 50s.

Divorce at any age can be rough to handle emotionally.  But for younger people with few assets and no children it is simpler.  Those in their 50s often have accumulated assets and this makes it not only emotionally  tough, but handled poorly it can be financially disastrous.  If you are in your 50s you have little time to recover for a severe financial setback, so it is critical you compartmentalize the emotions, the anger and focus on the financial implications and make the best deal you can.  I am not talking about being unfair - but about making sure you consider all parts of any financial settlement. 

Say there is a $300k house paid for and there is $350k in 401k/IRA asset plus some cash savings ($100k in a CD).  I am keeping it simple for the sake of illustration (your situation is probably more complicated).  She wants the house and  half the cash savings  and $25k IRA that is in her name (total $375k).   You get your  retirement savings ($325k)  and half the other cash savings ($50k) or $375K of assets. 

Sounds fair - doesn't it?  Wait a minute - hold your horses.  Most of the assets you get don't yet have taxes paid on them.  So that $325k of retirement assets may be worth only $250k (or less) net of  taxes.   So as you can see it can get complicated and you may need professional help in achieving an equitable settlement. 

If there are under age children involved this adds considerably to the complications (in most states there are guidelines and forms similar to tax forms to figure out what each partner should contribute to support),  This at least provides a good negotiating starting point. 

If alimony is involved then Social Security benefits should not be ignored,  if you were married at least 10 years the spouse is able to collect on the other spouse's earning record if it results in a higher level of benefits.

I am sure I have only scratched the surface.  Having gone through this process in my late 40s I can assure you reaching an agreement may take time.  My advice to you is not let the emotional aspect override your common sense.  Don't do as many I have seen do (go on a spending spree with the credit card or start hanging out and keeping late hours at the local bar and letting your career suffer).  It will be a tough slog but you will handle it better if you compartmentalize, focus on your career and get through each day and each week without making any bad decisions.

What if EXXON had earned $81.7 billion last year?

Do you remember the last time oil prices spiked and Exxon earned about $30 billion.  It was the talk of the media as they demonized Exxon.  They were accused of price gouging.  There was talk that there should be an excess profits tax.  What if Exxon had earned more than twice as much ($81.7 billion)?  As an Exxon stockholder you would probably like that.  As a gasoline consumer you probably wouldn't.

Now if I told you there was an organization that earned that much last year - could you name that organization.  Probably not - there has been little mention of it by the media.  Furthermore , this organization doesn't fill your gas tank, doesn't stock your food pantry, doesn't manufacture the latest electronic gizmo.  It supplies nothing you consume.  Yet, you paid and paid dearly to create these earnings.

I bet you thought the FED was a non-profit organization.  Well, it isn't.  As an operating entity it provides many services to banks.  A large percent of the transfers of money go through the Federal Reserve system (3 very large computer systems located in New Jersey,  Richmond  (Va), and Dallas (Tx)).  The Federal  Reserve charges banks for each of these transactions involving hundreds of billions of dollars every day.  So even as an operating entity the Federal Reserve makes money. 

By controlling the interest rates the Federal Reserve has turned a sow's ears into silk.  Many of the assets that the Federal reserve took on during the financial crisis for pennies on the dollar are now being sold at double or triple what the Federal Reserve paid for them - all because low interest rates and increased liquidity has restored some value to these assets.   And who paid the price for all this?  If you have savings (401k, IRA, pension, CDs) you did because insanely low interest rates robbed you (hidden tax - see prior posts on this)  of the return you should be receiving on those savings.

So now we see the extent of this hidden tax.  We don't get a quarterly report from the FED, but by law they must turn over to the US Treasury (remember - these are taxes) most of whatever they earned each year.  So we know that in 2009 the FED turned over $47.4 billion to the treasury.  This is about 1.5 times what Exxon earned in their best year.  Yet, the media is silent.  In 2010 the FED returned over $79.3 billion (they earned  $81.7 billion) or about 2.5 of what Exxon earned in their best year.  Still nothing from the media.  In short The FED averaged about double what Exxon earned in their best year the past 2 years.  Now you know.

So what do you get for all your largess to the Federal Reserve,  You get sub par returns on your savings.  You get higher prices.  You get a devalued dollar.  Sounds like a bargain at any price.  As a bonus you probably get stagflation later (because the velocity of money - how quickly a dollar changes hands - is anemic).

Don't you ever believe the FED is independent of the government.  It isn't.  It is a tax collector for the government.  Furthermore, its very existence is probably unconstitutional.  The Constitution empowers the government to coin money not some agency like the FED.  But since when has the banksters and power brokers cared about a minor thing like being constitutional?



Also see the Federal Reserve statistical release year 2010 'Flow of Funds Accounts of the United States' page 118 ( http://www.federalreserve.gov/releases/z1/current/z1.pdf )