World’s Easiest Retirement Plan

easy retirement plan

So, you want to do some retirement planning, but it all looks very complicated. There are numerous ways to save for retirement, and there are a lot of different investment accounts, and so on. You may be wondering if you need a financial advisor or financial planner just to make heads or tails of everything.

Don’t worry. Most of that stuff isn’t necessary.

There are a few facts that will help you develop a rock solid retirement plan for free, in no time at all.

easy retirement plan

Easy Retirement Planning

Keep in mind that most of the complications that come from talking about things like financial planning or retirement planning come from the fact that there are actually a lot of different people and a lot of different financial situations. But, when it comes to building a retirement plan yourself, or with a professional, the reality is that 90 to 95 percent of people just need a basic retirement plan with no bells, whistles, or complex calculations.

Fact #1: It is almost impossible to save too much money for retirement.

The reality is that most people are very much under-saving for retirement. Fully funding a retirement at a lifestyle nearly equal to the one you have will take a lot of saving and investing, especially if you aren’t in your early 20s. The reality is that it takes compound interest a long time to work, and in the meantime, you just have to save your pants off to build up a big nest egg.

Fact #2: A 401k plan is the best place to save money for retirement.

Again, there are exceptions that apply to a very small portion of the population, but if you didn’t inherit a lot of money, win the lotto, or have some sort of mining rights, the 401k plan is fine for you. You’ll hear a lot made of the fact that a 401k account is tax-deferred, and so you will have to pay taxes on the money when you take it out. It would take a whole article to explain it (maybe I’ll write that next) but the reality is that unless you end up banking big bucks, it really isn’t going to matter. In fact, in order for you to actually have the kind of taxable income in retirement that makes planning for retirement taxes necessary, you’ll have to more than max out your 401k. What matters is getting the money saved. Worry about that first. You can worry about the taxes later.

Easy Do It Yourself Retirement Plan

Ready? Here we go.

Max out your 401k.

That’s it.


Let’s go back for a few reality checks.

Are you currently maxing out your 401(k) contributions?

The maximum standard 401k contribution in 2015 is $18,000. That’s 10 percent of a $180,000 salary, and a full 20 percent of a $90,000 a year salary.

In other words, you have to save quite a bit to max out your 401k. And, since a 401k is the best place to save for retirement, you literally have to do nothing else for retirement planning until you are saving so much money that the IRS won’t let you put any more in your 401(k).

How Much To Save for Retirement?

What’s that?

You want to know how much to save for retirement? You want to know “your number” or whatever that commercial is talking about? You want to do a complex calculation to determine how much money you need to save to have 80 percent of your current income adjusted for inflation, while taking into account your potential Social Security payments?

O.K. If you like, but there is no need.

Remember how I told you that you can’t save too much money for retirement? That isn’t entirely true, but to do so, you need to be one of those people you read about in the paper that reused tin foil and read by candlelight for 30 years and then died leaving a million dollars to the local college. If you are living your life at all, there is really no way to save too much.


In other words, the amount you need to save is: more than you are saving now.

Along the way, you’ll want to live your life though. So, retirement planning isn’t about finding your number, it’s about working to save more and more money for retirement until you are maxing out your 401k contributions. That’s it.

So, if you are saving 5% now, work toward saving 6%, then 7%, and so on. When your life isn’t fun anymore, stop.

That’s it.

If you don’t believe me, there is some basic retirement calculations here that shows you saving $1,000 per month isn’t enough (that’s 10% of a 120,000 income) and $2,000 probably isn’t enough either. Something like $3,000 per month replaces a six-figure income. Sure, if you make less than that, you’ll need less, but as a percentage, it’s still a LOT of your income to save to retire at your current lifestyle.

In other words, don’t worry about your number or your retirement planning document. Start jamming money in your 401k now. When you max it out, then come talk. We’ll do a real retirement plan. Until then, you are just doing math for show.

Posted in Retirement Tagged with: , , ,

Stocks Freak Out, You Shouldn’t

The stock market is down big again. What is going on?

Two weeks ago it was the Federal Reserve and interest rates, last week was something. Now it’s… well…

A big drop in Biotech stocks comes after the least sympathetic man in all creation bought the rights to a decades old drug and then raised the price more than 5000%, then went on television to defend the increase. You remember that old Simpsons episode where they show Richard Nixon in a debate with Kennedy looking like Satan. Yeah. I was just like that.

Having attracted enough attention that politicians smell air time, Congressional Democrats now want to subpoena Valeant Pharmaceuticals (VRX), which although unrelated, has recently pushed the same business model of acquiring the rights to old drugs and then driving up the prices. Biotech stocks are down across the board.

biotech down

Oh, plus the uncertainty around the Fed and interest rates is still a thing.

Oh, and China too.

Market News and Reality

Here is where you can start to see the cracks in the idea that the stock market always rationally follows current new events.

First, Democrats do not control Congress. Republicans do, and they do not cooperate with Democrats, especially on something that can be perceived as “anti-business.” In other words, there is actually no possibility that anything comes of this other than bad publicity. So, the plunging stock price comes from what, exactly?

Second, most biotech companies do not have this same business setup. In fact, most big biotech companies have the protection of patents, and the reasonably well accepted PR that drugs are expensive to develop and that costs must be recouped. In other words, none of this has anything to do with say, Amgen, or companies that make X-ray machines, and yet, they are all down as well.

It is important for investors to remember that market moving news is almost always an excuse for the market to do what it needed to do anyway. Recently, the markets have moved up and up with little pause on a very week economy. So, now, they are looking for any excuse to take a break, or maybe drop back a little bit.

Continue to expect volatility like this all the way through the holiday shopping season. The, if (and only if) it seems like holiday sales are way up, will you see this fear subside for the near term. If, on the other hand, holiday sales are seen as lagging, it may be time for an even bigger pause, and extended volatility.

Remember that none of this has anything to do with your 401(k)s or IRAs, or anything. Do not panic based on short-term news.

Do consider re-evaluating your portfolio as the year ends. Year end is a great time to take a look at rebalancing, especially in your taxable accounts where you may have the opportunity to offset some gains, or even generate a nice little capital loss deduction for the year.


Posted in News Tagged with: , ,

Use Accounts to Save and Budget

I talk a lot about the psychology of money. The reality is that no matter how much something makes sense mathematically, it just may not work for most people because money isn’t just something we move around on a spreadsheet.

One of the most common questions I see are in the form of “What should I do with $5,000,” or “How should I invest $3,000?”

The answer is to put it in your savings unless you currently have enough money saved for your emergency fund and short-term goals, otherwise, put it in one of your investment accounts.

People don’t like this answer. Why? Money psychology.

special goal bank account

Use More Accounts to Save

One of the problems with money on a personal financial level is that it comes and goes so easily, often without really noticing or appreciating it.

Consider a man (or woman) age 35. He earns $120,000 per year, has a mortgage, a car payment, some nice hobbies and he puts money away for his kid’s college and his own retirement. Honestly, that’s pretty great and he should be (and is) pretty happy.

Financially speaking, this means that each month he earns $10,000. His company takes out $5,000 for taxes, insurance premiums, and his 401k contribution. The remaining $5,000 get direct deposited to his checking account. From there, $2,000 goes to the mortgage, $300 goes to a car payment, $250 goes to his kid’s 529 college account, another $200 goes to utilities, then there are groceries, fees, classes, meals out, movies, golfing, fun, and… the month is over and he drops a few hundred dollars into savings. The details change a bit here and there, but for the most part, this happens every month.

Now, one day, something different happens.

Maybe, he gets a bonus. Maybe, he sells an old motorcycle. Maybe, he just looks up his bank balance and realizes that he doesn’t really need $30,000 in the money market account. Whatever it is, he has new money, different money. As a result, he wants to do something different with it.

This is where the psychology kicks in. No matter where our guy or gal puts that money, it can do something different. But, the reality is that our lives seem to absorb those differences pretty quickly, and the physiological fear is that the money will not bring any “extra” to his life; it will just be gobbled up with a few extra meals out, a big bar tab, or new toy, when it could be… well something else.

This is where additional bank accounts can do wonders.

For many people, saving money is like throwing money into a hole. It’s a smart thing to do, and it will be there for you when you need it some day, but it really doesn’t do anything, and really doesn’t give you anything. That can be unsatisfying.

Now, imagine that there isn’t just A savings account, but a regular savings account (you know, the responsible adult one), and a vacation savings account.

The reality is that there is no need for a vacation savings account. Money is money, and the money spent on a vacation can come from a regular account or a “special” account without any actual difference. But, mentally, the presence of a vacation account changes the accounting.

Now, that trip to Hawaii isn’t an irresponsible use of the adult savings account, but rather, a perfectly acceptable, frankly expected, use of the vacation account. This makes all the difference in the world.

What happens in this scenario is that now, when our hero gets that bonus, or sells that motorcycle, or whatever else, then the $3,000 windfall has a home. The vacation account means that the money won’t disappear. It will be used for something tangible that can be seen and anticipated. People in this scenario are actually very likely to only put some of the money into the second account. Just knowing that there will be a special reward reduces the need for it to be specially used.

Budgeting and Rewards

You can use this bit of personal financial psychology to help with your own savings and investing. Most banks, or credit unions, will let you open another savings account for no charge. Some of them will even allow you to change the name of it using online banking. Use this second account to work toward your short-term goals. A vacation account is one option, but also an account for a new car, or for a new living room set work too. Change what the account is for whenever you reach your goal.

Need to saving for multiple things at once?

Get another account. I prefer having all of my accounts at one credit union because it allows me to transfer money between them easily. However, for some people that is an issue because they find it too easy to raid the accounts. In that case, get another bank to make it harder. (Sometimes that makes it harder to put money in though, so consider that as well.)

The best part is that by putting money into your goal account you are budgeting, without ever touching a spreadsheet or personal finance computer program.

Try adding a special account for yourself. If it answers the question: What should I do with this extra $2,500, then you know you have it right.


Posted in Cash Management Tagged with: , , , , , , , , , ,

Fed Does Not Raise Rates Market Confused

So, this is interesting.

The Federal Reserve did not raise interest rates at its September meeting. This is not surprising, per se. There were numerous international banks and organizations, plus tons of U.S. economists who worried that an increase would be too soon for a fragile economy.

Here is where it gets weird.

federal reserveThe stock market LOVES to plunge in reaction to a rate increase. Sure, it only lasts a day or two, but there’s nothing quite as fulfilling to a stock market index as dropping 200 or 300 points whenever the Fed raises interest rates.

The catch is that Wall Street actually secretly loves interest rate hikes. A Federal Reserve increasing interest rates is the equivalent of a stern father taking away our credit card for our own good. The market throws a temper tantrum, of course, but it’s better for everyone in the long term. If the Fed raises interest rates, then there won’t be an inflation boogeyman.

Based on all the pundits and analysts out there, it sure seems like the stock market was expecting a rate increase and all ready to throw its fit and wring its hand, probably just until the weekend, but still.

However, the Fed did not raise interest rates, and it wasn’t even close. The Fed voted 9-1 not to raise rates. In today’s Fed, that’s basically unanimous. The one guy who voted to raise interest rates always wants to raise them.

The result on Wall Street?

Um… well, we were all prepared to do this big selloff and have a panicky end to the week, and we didn’t really have a backup plan.

The reality is that nothing really changed today, so nothing has really changed on market either. The end result is the market basically trading around unchanged until it decides to look at something else.

For now, the long-term deal is this. The Fed will have to raise interest rates sooner or later. The exact timing really isn’t that big of deal because

  • a) the increase will be super small, just 0.25%
  • b) interest rates out in the economy already reflect this
  • c) there will need to be several rate increases in order to get interest rates back up without bumping the economy
  • d) savings interest rates are at minimums, but they won’t go up until the Fed rate is at least 1.0% which is a year away unless the economy takes off
  • e) corporations that wanted to take advantage of low rates by issuing bonds or recapitalizing already have

The end result is that for speculators, getting that one day of volatility will just have to wait. The Fed is scheduled to meet in October and December this year. While that is technically two meetings, the rate goes up in October or not in 2015 at all. No one wants rates to increase during the holiday shopping period.

That means the odds of an October increase of just 0.25% are pretty likely unless something happens between now and then. So, if you want to get your short-term play on, set up your volatility move for the October meeting.

For long-term investors, this is a loud, but quickly passing storm. Pay it no mind.

Posted in Economy Tagged with: , , , , , , , ,

How To Start Retirement Savings

One of the things that comes up in financial planning is that getting all of the information and facts can be difficult. This, all too often, leads to financial paralysis where you don’t end up doing anything at all, because you don’t understand all the details.

Start Saving For Retirement Now

retirement planning how muchRetirement savings, investing, and planning is one area where complicated topics can needlessly paralyze people from taking action. Occasionally, financial companies themselves accidentally cause this confusion.

Not long ago, I was talking with someone about retirement savings. The issue, for this particular person was the commercial talking about “Your Number.” If you remember this commercial, the point was that you should know how much money you will need when you retire. The goal, was to get you to schedule an appointment with one of their financial advisors or brokers to find your number. Since the person I was talking to didn’t know his number, he was stuck on what to do for retirement.

The ironic part is that you don’t need to know your number in order to start saving for retirement. Far from it. Actually knowing your so-called number is both unnecessary, and unrealistic. For starters, most people are years from retirement and any number would be calculated based on assumptions that will be literally decades out of date by the time you retire. In addition, calculating your number really servers to warn you that you aren’t saving enough, so waiting is exactly the wrong thing to do.

I once started the most basic financial plan. I need to revisit that. In the meantime, let me give you some core knowledge about retirement planning that can help you get unstuck and start moving forward.

First, the good news is that it is almost impossible to save too much money for retirement.

…it is almost impossible to save too much money for retirement.

Let’s back up a second and calculate a super rough retirement number. Most experts consider the “safe” withdrawal rate from a retirement nest egg in order for it to last you for life to be somewhere around 4 percent, or 5 percent. For easy math, let’s go with 5 percent.

If you have $500,000 nest egg, that means you would get $25,000 in income during retirement at a 5% withdrawal rate. How does that make you feel?

Is that how you imagined your retirement? Sitting in your house carefully budgeting out that trip to the supermarket? Forget that! Let’s get some more retirement income.

To get $50,000 per year in income takes a $1,000,000 nest egg. You thought that would go a lot further didn’t you?

Don’t forget, thanks to inflation $50K won’t be much money in 20 or 30 years. So, you’ll want at least $75K to replace what $50 grand is today. That takes $1.5 million.

If you want to travel in a way that doesn’t include an RV, and you might like to go to some Broncos games, or take the family on a cruise when you retire, you’ll need well north of $2 million when you retire.


If you save $1,000 per month for 20 years and earn 9% return, that gets you a nest egg of around $675,000. Didn’t we say you need more than that?

Saving $2,000 per month will get your $1.3 million. That’s good, but it’s hardly “over-saved”.

$3,000 per month?

Now, you’re talking. That’s just north of $2 million or a $100,000 a year income in retirement (probably worth about $70K to $80K in today’s dollars.)

So, let’s break it down. You need to max out your 401k, max out your IRA contributions, AND save a bunch more money on the side in order to even come close to getting what you want in retirement, let alone saving too much money for retirement. If you are already doing that, look for my upcoming series on transitioning to being wealthy.

If that’s not you, then what are you waiting for?

Start putting money in your 401k plan now!

How much?

How much you got?


You need $3,000 per month to get a six-figure retirement income. Put as much as you possibly can in your 401k plan starting right now.

Where should you invest your money in your 401k plan?

That answer will matter soon, once you have some money actually in there, but if you are starting at $0 up to around $25,000, it really doesn’t matter all that much yet. Look for a S&P 500 Index fund or something similar and just start putting it in there.

We’ll talk diversification and asset allocation soon…

Until then, get going. Time is wasting and that math from above only gets harder the less years you have until retirement.

Posted in Retirement Tagged with: , , , , , ,

Investor Types

Often, when I write about stock market news, or other economic events, I conclude by reminding long-term investors that there is no need to overreact (or really react at all) to the current short-term events.

It was brought to my attention that not everyone is a long-term investor. That’s not true, but what is true is that not everyone is solely a long-term investor. And, that being the case, perhaps it is worth me addressing other investing types and issues, here on Finance Gourmet. That sounds fair, but in order to do so, I think I need to start with the different types of investors.

stock market down

Different Types of Investors

Long-Term Investors

The most common type of investor is the long-term investor. Everyone with a 401k or an IRA falls into this category. The goal of this investor should be to construct a well diversified portfolio and then review and rebalance it regularly. The strength of this type of investor is that over time, this is a sound approach that has never failed. The weakness of this type of investor is forgetting the strength and reacting inappropriately to short-term events.

This category could be broken into two sub-types, those who are only investing for retirement and college funding, and those who have enough resources to invest for other things, also with a longer-term horizon.


All other types of investors can be considered speculative investors. These are investors who take on greater risk, in the pursuit of greater reward. In doing so, these kinds of investors give up the “sure thing” of the long-term investor. Whereas the long-term investor will only lose money if he or she makes mistakes, the speculator can do everything right, and still lose money if things don’t work out. This is the key difference between the two types of investors.

There are several types of speculators

  • Day Traders – The most mythical of all investors, day traders seek to exploit small, fleeting, price inefficiencies. Day traders are the urban legends of investing everyone has a cousin, or friend of fried, who became a millionaire while day trading. Contrary to popular belief, day traders don’t need to know anything about the companies and their underlying business. Rather, day traders try to predict where pricing will go in the next minute, or hour(s) based almost exclusively on pricing charts, and market mechanics like volume. Effective day trading cannot be achieved using mass market, online, trading platforms. You need a subscription to a real-time trading system like TradeStation to be a real day trader. The strength of this type of trading is that it not dependent upon news or other information. The weakness is that you never really know what the price movement will be. In some ways, it’s like playing poker, there is a skill and over time, that can/should work out in your favor, but you are going to lose plenty of times along the way as well.
  • Technicians / Chartists – Another kind of speculator uses company stock charts to predict the movement of stocks. There are so many patterns that supposedly predict a stock’s future, that it takes thousand-page books to explain them all. The key to this type of trading is not news, or company data, but rather what the chart looks like. The strength of this type of trading is that it does not require in-depth company knowledge and profits (and losses) can be made quickly. The weakness of this trading is that it makes no accounting for outside events or data. A company trading “near support” will crater right through that support in reaction to news about that company, that company’s sector, or the market in general.
  • Options Traders – Trading options is a high-risk business because leverage can make your profits and losses come fast and large. On the other hand, there are many ways to be able to mitigate or limit those losses (usually by reducing your potential upside). Option trading works much like regular trading. The strength of this type of trading is its potential for big gains and multiple strategies (there are way to profit whether the stock moves up, down, or not at all). The downside is that the learning curve is steep and it can take a large investing account to make all the strategies work properly.
  • Fundamentals Traders – This is the trading everyone thinks is what Wall Street and big money traders do. This is also the kind of analysis that is most common from the various Wall Street analysts or newsletters. The idea is to analyze the data and see something before everyone else sees it. For example, noticing that IBM is generating more sales and buying the stock before others notice it. This is where price targets, and buy, sell, hold recommendations come from. The weakness in this kind of investing is that being right doesn’t matter. You only make money when the market agrees with you, and the market can (rightly or wrongly) disagree with you for a very long time. When the Internet Bubble was wildly expanding, numerous analysts noted (correctly) that stocks were grossly overpriced based upon their fundamentals and potential. But being right lost money all the way until the bubble finally popped. By then, anyone who had shorted stocks, or recommended selling had already been burned.
  • Amateur Trading – The most frustrating kind of trading for financial advisors and financial planners. This kind of trading is based upon a gut feeling, or “knowing” something that everyone else already knows. This is the kind of trading where someone buys Apple stock because iPhones are huge right now. Everyone else knows that too, and it’s already priced into the stock. This kind of trading happens most frequently to household names, like Apple, Microsoft, Tesla, and so on. This kind of trader somehow thinks he “knows” something, usually with no research of any kind. Just kind of seeing it around is enough. This type of investing is pure luck, but it does move these stocks. Curiously, professional investors take this into account when buying and selling these same stocks trying to gauge when Main Street will make its move and trying to beat them there.

There are many other kinds of investing, but most are nuances or combinations of those above. Going forward, I’ll do what I can with some of the other types of investing, but remember they are speculative for a reason. They are the win some / lose some type of investing. You’ll need a big investing account to be able to ride out the losses.

However, if your investments are in your 401k, your IRA, or your kid’s 529 plans, you have no business doing the above investing. Those accounts should only be invested using the principals of long-term investing, asset allocation, dollar cost averaging, and rebalancing. Do not chase news or results in those accounts.




Posted in Investing Tagged with: , , , , ,

Stock Market Down On Jobs

The Dow Jones Industrial Average is down about 300 points right now because of a good jobs report.

As the main character in one of my daughter’s shows says, “What the huh?”

Jobs Good, Rates Rise?

No one thing seems to move the stock market more regularly than the jobs report. As always, this new report is actually about last month. After all, it takes some time to collect and calculate the data. What makes this particular jobs report so important is its timing.

jobs reportThe Federal Reserve Board is scheduled to meet in September. The Fed has expressed a willingness, if not a desire, to raise interest rates this year if the economy is doing well enough. Everything looked pretty good for a rate increase in September, but then the whole China market blowup thing happened and with it, the U.S. stock market took a hit, and the idea of a rate hike got a little more iffy.

But, with a good jobs report, the rate hike is back on the table… maybe.

You see, the jobs report was good, but not good enough to make this a no brainer. Jobs were created, but well below the 200,000 that would be considered more robust.  The Fed could just wait and see if the data comes in stronger. That might be advisable. In fact, the IMF (International Monetary Fund) asked the Fed to hold off on raising rates.

But, here is where it gets sticky.

The U.S. economy depends a great deal on the holiday shopping season. Raising interest rates in December is considered something of a non-starter for this reason. That means it is now or October for a 2015 rate hike.

Economy Good Stocks Down?

The really weird part about this is the stock market’s reaction. Theoretically, a good economy helps U.S. stocks. That part makes sense.

Furthermore, lower unemployment means a better economy, so more jobs equals better economy.

So why are stocks down?

The idea is that higher interest rates will do, frankly, exactly what they are supposed to do, lower spending and borrowing. Unfortunately, less spending means less revenue, and more expensive borrowing means companies won’t, or can’t, expand and build as quickly or cheaply, which in turns reduces spending and borrowing, and so on.

So, the immediate reaction of the stock market is to trade down. This does NOT mean that it will stay down.

In fact, if the U.S. economy really is recovering well enough to not need zero percent interest rates, that is a good thing. EVENTUALLY, that means that company’s would do better, and stocks should rise. But, if your focus is on the next quarter, or even on a company’s next annual report, an interest rate rise might be just enough to bump your favorite stock off of its straight up trajectory.

And, so stocks are down today. Then, they’ll go back to trading on some other news for the next few weeks. No matter what happens between now and then, the reaction to the actual Fed meeting and decision will be dramatic.

Stay tuned.

Posted in Economy Tagged with: , , , , , , ,

Medicare While Still Employed

Everyone knows that Medicare provides heath care coverage for retired Americans over 65 years old. But, with more American’s working beyond age 65, there is plenty of confusion about how Medicare works if you are still employed and working at a job, especially if it provides health insurance.

Medicare is a health care program for American workers age 65 and older. Although it is often paired with Social Security, the programs are different. In fact, with modifications to the Social Security retirement age moving back full retirement benefits, there is now an age disconnect between the two programs. This can cause a financial issue if you aren’t thinking about Medicare when you turn 65 because you are still working a job and don’t need Medicare insurance because you have coverage at work.

Medicare Late Enrollment Penalty

Does it make sense to enroll in Medicare if you are still working when you turn 65?

When you turn 65, you must enroll in Medicare during your initial enrollment period to avoid paying a penalty when you enroll later. The penalty for late enrollment in Part A is an increase in your monthly premium of up to 10% for twice as many years as you did not enroll after your initial window. Your window is generally 3 months before and after you turn 65. If you do not sign up during your window, you can sign up between January 1 and March 31 each year.

Medicare while still employed imageFor example, if you do not enroll when you turn 65, and then wait to enroll until you are 67, then you will pay a penalty for four years. That is two times the number of years you were late for enrollment.

The penalty for Medicare Part B late enrollment is forever, but the initial enrollment period may be different if you are still employed.

Medicare Part A While Working

Medicare Part A enrollment can be particularly confusing. As noted above, if you do not enroll during your initial enrollment window for Part A, you may be subject to a penalty of up to 10 percent on your monthly premiums for Part A coverage. However, most people do not have to pay a monthly premium for Medicare Part A. This is sometimes referred to as premium-free Part A Medicare. Obviously, a 10 percent penalty on a $0 premium payment is $0. (The exceptions to this are generally people who did not earn income that paid Medicare taxes, that is people who lived off of investment income.)

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What makes this tricky is that most people are eligible for premium-free Part A. If you qualify to draw Social Security and are over age 65, then chances are you get free coverage. No reason to not have additional free coverage.

Here is the catch, though. If you are not currently collecting Social Security, you are NOT automatically enrolled in Medicare Part A. You must enroll manually. Also, because premiums cannot be deducted from your Social Security check, you will need to make an auto-pay arrangement, or send in a check every month.

Since it is free, there is no reason not to enroll. Even if you have health care coverage through your employer, Part A may cover some things your other plan doesn’t.

You can apply for Medicare coverage online.

Medicare Part B While Still Working

Part A Medicare basically covers hospital care and nursing home care. For everything else that you are used to insurance covering, you need Medicare Part B.

Medicare Part B covers regular medical services such as doctor visits, preventative care, x-rays, blood tests, and so on.

The Medicare Part B penalties are worse than Part A penalties because they continue for the entire time you are enrolled in Medicare. In other words, they never expire or go away; you pay more forever. You don’t want to get stuck with this Medicare penalty.

Unlike Part A, Part B does have a monthly premium that almost everyone pays. So, if you are already covered by health insurance from your job, Medicare B may be an unnecessary expense. Fortunately, for people over 65 who are still working, and covered by group health insurance, there is a Special Enrollment Period to sign up for Part B (and Part A).

Your Medicare Part B Special Enrollment Period lasts for 8 months after your employment ends or your coverage ends, whichever comes first.

There is no Special Enrollment Period based on COBRA coverage.

In short:

  • If your job ends, you have 8 months to enroll.
  • If your employer stops offering group coverage, but you are still working, you have 8 months to enroll from the date the coverage stops.
  • If you stop working and enroll in COBRA, you still only have 8 months from the day your employment stops to enroll, no matter how long your COBRA coverage lasts.
  • If you have your own personal coverage (not GROUP coverage through your employer), there is no Special Enrollment Period.
  • If your group plan covers less than 20 people, it may not qualify, be sure to check with your HR department and local Social Security office to be sure.

Typically, your best move will be to enroll right away once you retire and your employment ends. The only typical exception would be if you were laid off and your employer gave you free health coverage for a period of time as part of your severance. However, remember that your enrollment period starts on the day you stop employment, not when your coverage ends.

Quick Medicare Enrollment Period Advice

Here is the short, short version. Be sure you understand all the ifs and buts from above first. But, if you worked your 40 quarters, and you are still employed by a company big enough to have at least 20 employees covered, and you get that coverage from your employer then:

  1. Enroll in Part A coverage during your initial window (the 7 months around your birthday, 3 months before, the month of, and 3 months after)
  2. Enroll in Part B as soon as your coverage ends or your leave your job

That’s basically it. You can always contact Medicare directly, and typically most Social Security workers have a pretty good understanding as well.

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And, It’s All Good

Yesterday here on Finance Gourmet, someone who looks an awful lot like me (O.K. it was me) posted about yesterday’s rally, and emphasized the fact that, in the end, the U.S. stock market will always eventually follow the fundamentals of the U.S. economy and the individual stocks in question.

Today (it doesn’t usually happen that fast) the GDP report for the second quarter was revised up from a 2.3 percent annualized growth rate to a 3.7 percent annualized growth rate. Oh, and new jobless claims fell too.

The result?

The U.S. markets are up once again today, which if you are keeping score, completely erases the losses from earlier in this week when we were looking at China instead of America when deciding where the stock market should go.

dow recovers 2015

Aren’t you glad you didn’t panic?

As always, for all non-speculative investors, a solid, well diversified portfolio and regular rebalancing is the best way to accumulate and grow wealth. Being yanked around, emotionally, or financially by every news story that pops up (no matter how big it seems) is just a recipe for too much trading and lower overall investment growth.

The new economic numbers today confirm that, here in America at least, the economy continues to grow. While certainly not on fire in any way, the growth is real and it is leading to job growth, both important pieces of a real economic recovery.

Now, everyone can go back to worrying whether or not the Federal Reserve will raise interest rates in September.

My best guess? — The Fed realizes that the recovery and markets are fragile right now. Rather than actually raising rates at the September meeting, the Fed will instead adopt new language that makes it pretty clear that a rate hike is coming in the beginning of 2016. Keep in mind, the September meeting is really sort of the last time that the Fed will seriously consider a rate hike, because no one likes doing them during the all-important 4th quarter holiday shopping season.


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Stock Market See-Saw

Yesterday, I wrote about how the stock market plunge in China and the subsequent drop in the U.S. markets was not something anyone other than short-term investors should be worried about. Typically, I wouldn’t write another article about the stock market again right away, because I believe that most people would be better off watching the markets less, rather than more.

But, I couldn’t resist today. Yesterday, there was an article that included the word “Bearmageddon” suggesting that a bear market of armageddon-like proportions was in the offing after the U.S. markets closed down six-days in a row. Other articles couldn’t stop pointing out thing like the biggest drop ever, or the longest-streak of down days since whenever, and so on.

Today, the markets closed up. The stories today are about the “biggest gain in almost 4 years.”

Talk about whiplash.

The reality is that the U.S. stock market trades, in the long-term, based upon the fundamentals of the United States’ economy. While it is true that the issues in other countries, like China, can inform potential issues in the U.S. economy, it is important to remember that those issues must be American issues, not Chinese issues.

The truth is that the Chinese economy could crater into a mass recession without necessarily taking the U.S. with it. In fact, thanks to China’s restrictive business policies, American company’s exposure to China is often comically limited, often by a force partner from China itself. While reduced demand from China wouldn’t be anyone’s first choice, the reality is that few company’s count on China for a large portion of their revenues. Even the short-lived concern about iPhone sales in China is probably a small factor to Apple if sales held steady or increased elsewhere.

The point is, that like always, the media love to shout attention grabbing headlines. But, in a year, will this be the beginning of a market correction, bear market, or just a few days of crazy volatility?

The Dow’s 619 point rise today wipes out yesterday’s 200-ish point decline and then some. Who was right, yesterday or today?

It really doesn’t matter compared to who was right last year, or the last five-years?



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