October 2018
  
MONTH-2-MONTH 
 
  
In This Issue
Welcome to MONTH-2-MONTH, an e-Newsletter from Alexander Financial Planning, Inc. MONTH-2-MONTH is intended to provide you with updates on AFP and timely financial planning and investment information on a variety of topics. You are welcome to forward this e-mail on to others.
AFP UPDATE


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Fall for Foliage but Keep Warm

Fall seems to be a bit late in arriving this year. The long cold spring has led to later than normal photosynthesis. The trees are just now starting to change colors in central Ohio. If you haven't been out to see the fall foliage this year, the trees have been waiting for you!

The trees may be behind schedule but the cold arrived abruptly overnight. Were you scrambling to get warm outerwear out of storage? This is an annual afternoon project that usually demands completion as opposed to planning.

If you prefer to be in the kitchen instead? This the perfect time for chili and soup, hot chocolate and spiced cider. With an abundance of apples, you can make homemade applesauce or pie. Be sure to make extra for the little ghosts and goblins. They will be out soon collecting treats.

Happening at AFP:

Join us in welcoming intern, Jacquelyn O'Brien. Jacquelyn is from Pittsburgh, Pennsylvania and in her third-year at Ohio State studying finance, with minors in economics and leadership studies. She serves on the finance branch of BuckeyeThon, the largest student-run philanthropy in the state of Ohio, and also serves as a peer financial coach through Scarlet and Gray Financial. Outside of school, she loves to bake, play tennis, and hang out with her nephews and niece! Go Bucks (... and Steelers)!

We held our second client advisory board meeting last week. We are finding the input and feedback from our board to be invaluable in assisting us as we determine course and future goals for AFPI. If you have a topic you would like us to address with our board or would like to serve a term on the board, please let us know. We greatly appreciate the commitment of time our client board members have graciously provided. Many thanks to each of you.

We continue to work towards the launch of a brand new website with great excitement. It is coming together very nicely and we can't wait to share with you. 

FYI:

Pumpkin Run - 2018 marks the 40th Annual Grandview Pumpkin Run 5K of which AFPI is a sponsor. The event will take place on Saturday, October 27th and begins at 9 am with registration from 7:30-9 am. Click the link below for the registration form and more details.


Medicare Open Enrollment - Began last week and runs through December 7th. See Article Below!


On a Personal Note:
 

Teri's World - It has been a busy last few weeks. Having spent most of the time this year in the office or at a conference, it was nice to have a few weeks away. Teri took a vacation to Kauai with some girlfriends. They conversed with nature while biking, snorkeling, kayaking, hiking, and swimming, saw a luau, saw several waterfalls and a botanical garden, and took a helicopter ride of the island. Very much worth the 10 hour flight to get there! 

She and Bob attended a conference in Orlando related to the Wealth Management Program. She gained a greater degree of knowledge on the program and other programs that integrate with it. Due to the hurricane, they had to leave a ½ day earlier than anticipated, but made it back without any issues. 

Then she went on a long weekend trip to Louisville to experience the Bourbon Trail with her kids, grandkids, Gene and his family. This was an early birthday present her kids had planned for her (we won't say which one just yet)! They rented a large enough house for everyone to stay at and enjoyed spending time together, along with some bourbon tours and visiting a park for a hike. Very enjoyable time!

If that wasn't enough, Teri, Gene and one of his daughters took a jaunt through Columbus this past Sunday completing another Columbus ½ Marathon. A little sore, but a good kinda sore!

Speaking of spending time with nature, here is something you may want to take in. Occasionally, Teri listens to the Hidden Brain. Here is an episode that may be of interest about the impact that "nature" has on us. Check out this Hidden Brain episode.


Wh at a bou t Bob? - It's been pretty quiet around the Franz ranch for October. Their daughter Brittany and baby are doing very well!!!
Bob went to Orlando for the eMoney conference but had to leave early due to hurricane Michael. He had a great time at the conference and learned some new and exciting things about the program. He is headed to Denver to attend the Financial Planning Association's Leadership conference later this month.


Tracey's Time  The Newlyweds, Carlin and Erin, are currently 
honeymooning in New England. Mom, Dad, and Cayleigh are dog-sitting. We recently  spent a weekend camping at Hocking Hills State Park. It was at the beginning of the cold snap and a bit wet. We did enjoy hiking the Old Man's Cave Trail. While at Cedar Falls, we encountered a couple "tying the knot" at the base of the falls. We couldn't help but bear witness (along with many other bystanders) and applaud them.


POINTS OF REFERENCE
(Current Economic and Investment Information)

  • STOCK DECLINES IN PERSPECTIVE - When the S&P 500 fell 58 points on "Black Monday" (10/19/87), the tumble represented a fall of 20.5%.  A 20.5% decline on last Friday's (10/19/18) closing index value of 2768 would equate to a fall of 567 points.  The largest drop for the index this year has been 113 points (source: BTN Research).
     
  • JOB OPENINGS - From the 2.1 million job openings in the United States reported in July 2009 while the country was mired in a recession, that number has jumped to record 7.136 million as of August 2018.  The 5 million increase in job openings since mid-2009 is equivalent to 100,000 new available jobs in each of our 50 states (source: Department of Labor).
     
  • U.S. HOUSING MARKET - The average loan-to-value ratio in the US housing market as of 6/30/08 was 55%, i.e., the average home mortgage had 45% of equity behind it.  The average loan-to-value ratio in the US housing market as of 6/30/18 was 40%, i.e., the average home mortgage had 60% of equity behind it (source: Federal Reserve).
     
  • NATIONAL EXPENDITURES - 62% of the $4.108 trillion of total outlays for the US government during the recently completed fiscal year 2018 was in just 4 categories - Social Security ($988 billion), National Defense ($665 billion), Medicare ($589 billion) and Net Interest Expense ($325 billion) (source: Treasury Department).
     
  • CORPORATE TAXES - Corporate income taxes collected during fiscal year 2018 were $204.7 billion, down 31.1%from the previous fiscal year (2017) total of $297.0 billion. Corporate income taxes collected in fiscal year 2015 were $343.8 billion (source: Treasury Department).
     
  • U.S. DOLLAR - 63% of all foreign exchange reserves are held in US dollars.  Foreign exchange reserves are funds held by central banks around the world to back a country's national currency in the event of an unexpected devaluation (source: International Monetary Fund).
     
  • DEMOGRAPHICS - 15% of the US population was at least age 65 in 2017.  By the year 2030, 20% of the US population will be at least age 65.  Over that 13-year period, the number of Americans at least age 65 is projected to increase by +44% while the overall US population is forecasted to increase just +11% (source: Social Security).
     
  • ASSISTED LIVING COST - The national median cost in 2017 for an assisted living facility (private 1-bedroom accommodation) was $3,750 per month or $45,000 per year (source: Genworth).
     
  • SOCIAL SECURITY TAX 2019 - The maximum taxable wage base subject to the social security payroll tax is $132,900 for 2019.  An estimated 82.5% of earnings of all US workers will be subject to the social security payroll tax next year, a levy that is 6.2% for employees and 6.2% for employers (source: 2018 Trustees Report).
     
  • DEFINED BENEFIT PLANS - As of 11/01/18, actuaries providing annual valuations to plan sponsors of defined benefit pension plans are required to use their "professional judgement" to ascertain if additional calculations are necessary in assessing "pension plan obligations and contributions."  This additional work would result in added fees that would be borne by the pension plan.  Just 13% of non-union private sector workers are covered by a defined benefit pension plan (source: ASOP 51).
     
  • BOND MARKET - The bond market has had just 3 down years in the last 40 years, i.e., 1978-2017.  However, the bond market is down 2.1% YTD (total return) through last Friday 10/12/18.  The Bloomberg Barclays US Aggregate Bond Index (created in 1986), calculated using publicly traded investment grade government bonds, corporate bonds and mortgage-related bonds with at least 1 year until final maturity, was used as the bond measurement (source: Bloomberg Barclays).

  • HEALTH CARE - As of March 2018, employers in the private sector pay on average 67% of the healthcare premiums for their employees with families.  As of March 2018, state and local government employers pay on average 71% of the healthcare premiums for their employees with families (source: Department of Labor).

  • ECONOMICS - JAPAN VS. CHINA - In 2008, China's economy ($4.5 trillion) was smaller than Japan's ($4.9 trillion).  In 2018, China's economy ($12 trillion) is more than twice the size of Japan's ($5 trillion) (source: BTN Research).
     
  • MORTGAGE DEBT - 44% of homeowners between the ages of 60-70 who have outstanding mortgage debt anticipate still having some mortgage debt when they retire (source: American Financing).
     
  • POPULATIONS - There are 102 cities in China with a population of at least 1 million, the largest Chinese city being Shanghai (22 million).  There are 10 cities in the USA with a population of at least 1 million, the largest American city being New York City (9 million) (source: Census Bureau, The Guardian).
     

TIMELY TOPICS


Housing Chart

Housing starts are considered one of the leading economic indicators for economists. This indicator provides a timely glimpse into the health of the overall economy. Even at their peak during this current economic expansion, housing starts have remained well below their pre-crisis level. Additionally, they were uncharacteristically slow to recover during this expansion phase as well. This may have been due to the tighter lending standards that had been established following the financial crisis. But it is worth noting that the housing starts data suggests a softening has begun. This is likely due to several things: higher raw materials costs (Canadian softwood lumber) due to tariffs, slower output due to a shortage in construction workers combined with increased wages in the homebuilder's sector, rising mortgage interest rates, and a reduction in mortgage applications.

How Tax Law Changes Affect Value of Home Ownership
It may be time for your clients to re-evaluate the benefits.
BY Martin M. Shenkman & Alan Gassman 


The 2017 Tax Act made a host of changes that apply to homeowners, with the primary impact being the loss of formerly available deductions for most clients. This changes the basic equation for many clients as to whether to buy a home, how much home they should own, how much to borrow and even whether they're better off renting their home to someone else. With respect to home tax benefits, much is different.

There are several general changes to the law that indirectly impact home ownership, such as the doubling of the standard deduction (and elimination of many itemized deductions), which is causing most taxpayers to not have any benefit from specific deductions for taxes, interest and other items on their personal income tax returns. The recent tax law changes may also exacerbate any significant downturn in housing prices, making things worse for homeowners.

Mortgage Interest

New, post-Act home mortgages will only be deductible for interest on up to $750,000 worth of debt. Prior law permitted deduction of interest on up to $1 million of home mortgages. Mortgages that existed prior to the Act are grandfathered, but if your client takes out a new mortgage, the lower limit may impact him.

Property Tax

The property tax deduction is greatly restricted. The acronym that's used is "SALT, which stands for state and local tax. SALT tax deductions have been capped at only $10,000 per person or married couple, and this amount won't be inflation indexed. This impacts clients who have more than $10,000 in combined personal state income tax, real estate and sales taxes and reduces the amount of itemized deductions that the taxpayer would have had towards exceeding the new high standard deduction, thus further restricting the number of taxpayers who can itemize deductions. Some wealthy property owners may set up special trusts and place income producing items into the trusts with real estate to allow for deducting $10,000 per trust per year for property taxes.

Itemized Deductions

Taxpayers can only deduct certain itemizable deductions if the sum thereof exceeds the "standard deduction," which is $12,000 for a single person and $24,000 for a married couple filing their income tax return jointly. The itemized deductions include charitable donations, interest expense real estate subject to the above caps, state and local income taxes also as limited above and medical expenses exceeding a specified percentage of the taxpayer's adjusted gross income. Some taxpayers will "bunch" deductions by making charitable donations and paying discretionary medical expenses and, to the extent feasible, real estate taxes every few years to exceed the standard deduction amount every other year. For example, your client might push 2018 deductions off to 2019 and in 2019, accelerate 2020 deductions by prepaying them if permissible.

Even if your client had, say, $10,000 in property tax, $10,000 in mortgage interest deductions and $2,000 in charitable deductions in a married filing joint situation, assuming no other deductions, your client is still going to have the standard deduction, which is $24,000 in 2018 for most married homeowners. Your client gets no incremental income tax benefit from all these expenses (including those for his home) as would have been the case under prior law, but your client might delay his charitable and real estate tax payments until 2019 and then pay $20,000 in real estate
taxes, $10,000 in interest and $4,000 in charity to endeavor to qualify for a $34,000 deduction instead of $24,000 in that year.

Casualty Loss

Casualty loss deductions have been greatly restricted or almost eliminated, unless the property is in a disaster zone declared by the federal government. Your client may want to consider reducing any deductibles on his homeowner casualty policy and increasing the maximum coverage to take into account that there may not be any tax benefits to help him in the event of a fire, flood or other situation.

Moving Expenses

Moving expenses are no longer deductible with a limited exception for military personnel when certain requirements are met.

Economics May Offset Tax Benefit Losses

Overall, these are all significant negatives tax ramifications for home ownership. But with the low present October 2018 unemployment rates and a growing economy, increasing home values and a hot stock market, many Americans may nonetheless be bullish on home ownership. This may change fast when the next recession happens, and at that time, more people will rent instead of owning because of the tax situation. This may more often be a lifestyle decision than a tax decision, but the average taxpayer will be able to afford less home than before because of the tax savings elimination.

Vacation Homes

Vacation homes are also negatively affected by all the Tax Act changes. So, there's certainly a greater out-of-pocket cost to having a vacation home.

Home Office Deductions

More homeowners will consider making sure that they qualify for the office deduction, which requires that the requirements of Internal Revenue Code Section 280A are met. There's certainly a greater incentive for your client to have his home-based business to allow a pro-rata portion of what might be otherwise non-deductible tax, interest and other expenses become deductible. So, if 20 percent of your client's home is used for your business, then 20 percent of his property taxes and other things may also be deductible.

Time to Re-evaluate

It may be time to re-evaluate your client's situation to determine his after-tax cost of home ownership and what he might do to improve his situation. This may mean renting instead of buying because your client's landlord can afford to give him a low rent thanks to the tax deductions she's receiving, converting his personal home to a rental, moving his business or part thereof into the home and possibly downsizing. Make sure that your client understands the economics of it before making a decision. Please remember that while the value of the median home in your client's area may have grown by 3.5 percent a year on average, these statistics don't take into account that your client's home gets older every year and therefore may lose part of its value and that your client's home will need a new roof, new air conditioning and other items that aren't counted in statistical average appreciation figures. While many Americans think that their homes have been their best investments, buy and hold diversified stock and mutual fund investments have more than doubled the rate of return over the past 60 years, and stocks and mutual funds don't need new roofs, or incur real estate taxes.



Medicare Plan Choices Require Study
By Kevin Stankiewicz
The Columbus Dispatch

The Medicare open enrollment period, which began last week, is an important time for all eligible adults to ensure that they find the right health-care plan.

But it's even more critical for those who have multiple chronic conditions, said Ken Thorpe, a professor of health policy at Emory University in Georgia and chairman of the Partnership to Fight Chronic Disease.

That's because their health-care needs mean they likely go to the doctor more frequently than others, Thorpe said, and require a significant number of drug prescriptions. If they end up in an inadequate Medicare plan, it could lead to a surprising amount of out-of-pocket spending, he said.

People with multiple chronic conditions also continue to make up a larger share of Medicare-eligible adults, placing them on the front lines in the battle to curb rising health-care costs in the United States. In 2015, more than half of Medicare patients had five or more chronic conditions - such as diabetes, high blood pressure, high cholesterol, pulmonary disease and back problems - and they accounted for three-fourths of Medicare spending, according to data provided by Thorpe.

In 1996, only a quarter of Medicare patients were in that category, and they represented a little more than half of Medicare spending, he said.
Consumers are offered a range of Medicare options, but that can make finding the right plan tricky, some say.

"It can feel very overwhelming," said Christina Reeg, director of the Ohio Senior Health Insurance Information Program (OSHIIP), an arm of the state Department of Insurance that offers education and guidance to Medicare beneficiaries.

When choosing a Medicare plan, people have to decide if they're going to enroll in original Medicare or a Medicare Advantage plan, offered by private insurers.

While they cover all the services original Medicare does, and sometimes more, Medicare Advantage plans have provider networks. That is especially critical for people with chronic conditions, Reeg said, because "typically they might have providers they don't want to give up."

So they should make sure their doctors would be "in network," she said. That isn't really a worry for those on original Medicare.

Another option to consider is a Special Needs Plan. A type of Medicare Advantage plan, these privately offered plans are tailored around the care someone with a specific condition such as HIV, dementia or cancer would need.

Most Medicare Advantage plans also include prescription drug coverage, but those choosing the original Medicare route will need to choose the best prescription drug plan - known as Part D - for their needs. It's an area where significant out-of-pocket costs could pile up, Thorpe said.

He recommends that Medicare beneficiaries list all the medications they're on and do an online comparison of the plans to find which would have the lowest out-of-pocket cost. There are 26 Part D plans offered in Ohio for 2019.

In addition to the services provided by OSHIIP, the Central Ohio Area Agency on Aging will be holding two educational workshops before enrollment closes Dec. 7. Medicare's website allows for plan comparison, as well. Coverage goes into effect Jan. 1.

Current Medicare enrollees should keep an eye out for updated cards being mailed during the enrollment window, Reeg said. Social Security numbers were removed from the cards in an attempt to reduce medical identity theft.

Taking time to research all available options reduces the chance of getting a hefty medical bill by surprise, Thorpe said.

"Consumers are generally just looking to see what they'd pay for a monthly premium, but that's probably not the biggest part of what they're going to end up paying," he said.

Central Ohio Area Agency on Aging's Medicare workshops begin at 2 p.m. on Wednesday and on Nov. 14 at the agency's office, 3776 S. High Street. Call 1-800-589-7277 to register.

QUOTE

"The scariest moment is always just before you start ."

-Stephen King

3 of Us 
Alexander Financial Planning, Inc. | | tguthrie@afp-advisors.com