August 2017

Personal savings has become an increasingly important part of preparing for financial security in retirement. That Americans recognize this is seen in the findings of a study from the Investment Company Institute that found, despite the challenges wrought by today’s tough economy, individual retirement account (IRA) ownership has remained steady. Apparently, Americans are resisting the temptation to cash in on their retirement savings to cover their short-term financial needs, or in reaction to the volatilities and uncertainties in the financial markets.

According to the ICI report, The Role of IRAs in U.S. Households’ Saving for Retirement, 2009, 39% of households own IRAs. This includes 31% of households reporting owning traditional IRAs, 15% owning Roth IRAs, and 8% owning employer-sponsored IRAs (SIMPLE IRAs, SEP IRAs and SAR-SEP IRAs). IRA holdings represent about one-quarter of U.S. total retirement assets (up from 15% two decades ago), and 9% of all household financial assets (up from 4%).

IRA growth has been fueled by rollovers from employer-sponsored retirement plans, the survey reports. In 2009, 54% of households owning traditional IRAs had rollover assets in these IRAs. Among these IRA-owners, 89% reported that they had rolled over their most recent retirement plan distribution, in its entirety, into their IRA.

In contrast, few IRA-eligible individuals actually make contributions of new money to IRAs. In 2008, only 15% of U.S. households contributed to either a traditional IRA or a Roth IRA. This marks one of the few “bad news” findings from the report, and underscores how important rollovers of employer-sponsored retirement plan distributions have been to IRA growth.

Despite uncertainties in the financial markets and economic pressures that have left many households cash-strapped, IRA withdrawals continue to be infrequent and mostly retirement-related. Only 19% of households owning traditional IRAs took a withdrawal in tax year 2008, and for 84% of these households the withdrawals were made in retirement.

Even among IRA-holding households in which at least one family member was in retirement age, nearly 60% did not take an IRA withdrawal in 2008.

Only 5% of traditional IRA holders making withdrawals were younger than age 59 1/2. Furthermore, 64% of IRA-owning households not making withdrawals in tax year 2008 said it was unlikely that they would withdraw from their IRAs before age 70 1/2.

Among IRA holders who did make withdrawals, the size of these withdrawals was typically modest, with a median of 8% of the IRA account balance withdrawn. Expressed in dollar amounts, one-third of the withdrawals were less than $2,500. For households withdrawing IRA funds in retirement, 44% reported using withdrawal proceeds for living expenses while almost a third said they reinvested the withdrawal or deposited it in another account. Health care expenses (cited by 19%), home purchase, repair or remodeling (15%) and emergencies (14%) were other reported uses of IRA withdrawals.

The ICI report validates the continued importance of IRAs to U.S. household wealth and to individuals’ income in retirement. However, efforts to increase new contributions to IRAs are necessary in order to increase the overall financial security of Americans in retirement.

A recent investment trend survey reports that financial advisors are changing the financial products they recommend to investors. This change primarily affects annuities and is caused by taxes and the fiduciary rule. If you own an annuity or are considering it as part of your retirement portfolio, understand how regulatory changes could affect you.

What is an Annuity?

An annuity is an investment tool that guarantees income for life. You may choose from five types of annuities.

• Fixed – pays a set interest rate and is usually issued by an insurance company
• Variable – account value changes based on the returns of the mutual funds the investor chooses
• Indexed – variable interest rate is added to your contract value
• Immediate – pays distributions right away
• Deferred – earn fixed or variable interest and delays distributions by at least a year

Why the Change in Annuity Recommendations

According to the survey conducted by Financial Planning Association, the Journal of Financial Planning and Longboard Asset Management, financial planners are less likely to recommend fixed, variable and indexed annuities this year. The causes are taxes and the fiduciary rule.

Taxes

Annuities are tax-deferred, which means you don’t pay taxes on contributions but will pay taxes on distributions. While this tax savings is attractive, it is not free. Capital gain distributions from annuities are taxed at a higher rate than ordinary income. You could pay more taxes in the long run when you invest in certain types of annuities.

Fiduciary Rule

According to the Department of Labor’s fiduciary rule, all financial professionals who work with or recommend retirement products are considered fiduciary and legally bound to meet ethics standards. Previously, only financial advisors who charged hourly or percentage fees were considered fiduciary.

This rule prompts financial planners to reveal accurate fees, taxes and other charges. While they don’t have to recommend only the products with the lowest fees, they can no longer recommend products that may yield high returns for them and lower returns for the investor, such as various types of annuities.

How Do These Annuity Changes Affect You?

Because of the taxes and fiduciary rule, financial planners are beginning to recommend investment options other than annuities. Those options include mutual funds, exchange-traded funds and cash equivalents.

While these options do not feature tax-deferral benefits like annuities, their capital gains are taxed at a lower rate than annuity distributions. Investors could receive more money per distribution when they select one of these options.

How to Navigate Annuity Changes

As an investor, you will want to talk to your financial planner about the regulatory changes that affect annuities. You may wish to pursue alternative investment options as you reduce your tax burden and maximize your savings.

The Commonwealth Fund’s 2008 International Health Policy Survey reported that in the U.S.:

38% of study participants left the doctor’s office without getting important questions answered.

Only 53% said their doctor involved them in treatment option decisions. 41% said their doctor had not reviewed their list of medications in more than two years.

Each of the above problems can bring about serious health consequences. How do your plan members compare with these statistics? Is there a potential drug interaction crisis looming, with the potential to create an outlier cost for your company to bear? Below are a few tips you can share with your plan members to encourage open and detailed communication with their doctors.

Write down the names and the dosage of all the medications you take. Although you might feel that you have your medications memorized, it is not uncommon to confuse bits of data when you’re trying to pass the information along to your doctor. It is better to hand the doctor a written list so that he can quickly extract the data he needs.

Before you visit the doctor, think about topics you would like to discuss during this visit. For example, if you were diagnosed previously with high blood pressure, your doctor might have asked you to reduce salt intake, exercise more, quit smoking, and take an anti-hypertensive medication. Since he will be curious about your progress, make notes of what you plan to tell him.

Make a list of questions you would like to ask the doctor. You will be more able to think clearly about questions in the comfort of your home, than when you are sitting on an exam table and wearing a paper gown.

Arrive on time for your appointment. If you are anxious because you’re late, and the doctor is aggravated that he is running behind schedule, the lines of communication might not be open.

Be aware that your doctor is neither a miracle worker with a perfect solution to every problem; nor is he an adversary purposely ignoring your needs. He is a highly trained professional using his best judgment to guide you in both treatment options and preventive care. If you feel he is veering off course, speak up and be involved in guiding the conversation.

Don’t be discouraged if the doctor refers you to a nurse or physician’s assistant. These professionals are also highly trained and will often spend significant time explaining medical information to you.

Jot down new instructions as well as answers to your questions. It can be difficult to remember all that is said during an office visit, especially if you received unexpected news or information.

If you get home and realize you are confused about the doctor’s instructions, don’t hesitate to call the office. It is far better to get the information straight in your mind, than to make errors in your care or medication routine.

Pay your doctor bills. A medical office is a business, and if you fail to pay your bills, your relationship with your doctor can suffer. Overall, remind your members to be active partners with their doctors as they pursue both medical treatments and preventive healthcare.

Opioid addiction is a national crisis that affects people in every state. In fact, 100 people across the United States suffer from drug overdoses every day. The health care reform bill addresses the opioid crisis in several ways.

The Opioid Crisis in America

Before learning how the health care reform bill addresses the opioid crisis, you must understand more about opioids. Opiods can include prescription pain-relieving medication such as OxyContin and illegal street drugs like heroin.

A total of 52,000 people across the U.S. died from drug overdoses in 2015. More than six in 10 of those deaths were caused by opioids. These overdoses and any drug abuse harm the victim, affect families and strain community resources.

Treatment options for an opioid addiction often start with a medically supervised detox followed by inpatient or outpatient care at a drug addiction recovery center. Recovery usually focuses on the physical, mental and emotional aspects of addiction and provides counseling, therapy and other assistance to addicts and their families.

Drug abusers typically use their insurance to pay for drug treatment. Without treatment, however, sufferers may end up in jail, in the hospital or homeless.

Health Care Reform Funds Drug Treatment Options

The U.S. Senate’s current health care reform bill designates $2 billion to the opioid fight. These funds include grants that equip states to offer treatment and recovery services to people who suffer from substance or mental abuse disorders.

Health Care Reform Supplements the 21st Century Cures Act

Passed in December 2016, the 21st Century Cures Act boosted funds for mental illness issues.

• Approved $1 billion for opioid prevention and treatment programs with the majority of those funds supporting medication-assisted treatment therapies that curb a person’s urge to abuse drugs.
• Included $4.8 billion in financial resources for the National Institutes of Health to perform additional drug addiction research.

Health Care Reform Revamps Medicaid

Under the new health care reform bill, Medicaid will move to a block-grant system. A block-grant system gives every state the same percentage of funds regardless of the state’s need. The fund amount is reevaluated every three years.

Currently, states receive Medicaid based on the number of poor people who live in their state. These people may be unable to afford traditional insurance and rely on the extra financial assistance Medicaid provides. Some states that opted to receive Medicaid funding under the Affordable Care Act spend as much as 61 percent of their Medicaid funding on substance abuse treatment.

The healthcare reform bill is poised to address the nation’s opioid crisis. However, the bill is still undergoing changes. Monitor the details as you track the available options and assistance provided to opioid abusers across the country and in your community.